American Wood Dryers, Inc. v. Bombardier Capital
| Decision Date | 26 November 2002 |
| Docket Number | No. 02-C-129-C.,02-C-129-C. |
| Citation | 305 F.Supp.2d 966 |
| Parties | AMERICAN WOOD DRYERS, INC., Plaintiff, v. BOMBARDIER CAPITAL, INC., Defendant. |
| Court | U.S. District Court — Western District of Wisconsin |
Valerie L. Bailey-Rihn, Madison, WI, for Plaintiff.
Katherine Stadler, La Follette, Godfrey & Kahn, S.C., Madison, WI, for Defendant.
This is a civil action for declaratory and injunctive relief. Plaintiff American Wood Dryers, Inc. seeks a declaration regarding its rights and as against those of defendant Bombardier Capital, Inc. to the proceeds of a dry kiln located in Ashland County, Wisconsin. The current owner of the land on which the kiln is located, Woodland Forest Products, Inc., had been making payments to plaintiff for the kiln until plaintiff filed this lawsuit. After that, Woodland deposited $56,000 in an escrow account with this court, pending resolution of the dispute. Jurisdiction is present under 28 U.S.C. § 1332, diversity of citizenship.
Both parties have filed motions for summary judgment. In addition, plaintiff has moved for an order releasing the escrow funds and paying them to plaintiff. Because I conclude that plaintiff's security interest has priority over defendant's security interest, I will grant plaintiff's motion for summary judgment and deny defendant's motion for summary judgment. However, I will deny plaintiff's motion for release of the escrow funds. Although plaintiff's interest has priority over defendant's interest, plaintiff has not shown that there are no other parties that are entitled to the proceeds of the kiln or that it has followed the procedures under Wisconsin Statutes chapter 409 for enforcing its interest. The escrow funds will be returned to Woodland Forest Products.
From the parties' proposed findings of fact and the record, I find that the following facts are material and undisputed.
Plaintiff American Wood Dryers, Inc. is an Oregon corporation with its principal place of business in Clackamas, Oregon. It manufactures and sells industrial lumber kilns. Defendant Bombardier Capitol, Inc. is a Massachusetts corporation with its principal place of business in Jacksonville, Florida.
In August 1998, plaintiff entered into a contract with Scribner Wood Products to manufacture and install three dry kilns on Scribner's property in Ashland County, Wisconsin. Todd Scribner, d/b/a Scribner Wood Products, arranged financing through American Eagle Financial Group for one of the kilns, a 40,000 BF High Performance kiln. (The other two kilns were financed separately and are not at issue.) In December 1998, Scribner entered into an agreement with American Eagle under which American Eagle purported to lease the kiln to Scribner. The agreement called for 60 equal payments and a down payment representing the first and last payment. After making the final payment, Scribner would be entitled to retain possession of the kiln. Plaintiff was not a party to the "lease agreement."
Plaintiff invoiced the kiln to American Eagle but shipped the kiln to Scribner. Neither American Eagle nor Scribner sent payment to plaintiff for the kiln. In March 1999, American Eagle filed a UCC-1 financing statement with the Wisconsin Department of Financial Institutions describing the kiln. Also in March, American Eagle assigned the lease to defendant in return for $95,000.
After trying to obtain payment for the kiln from both Scribner and American Eagle in May 1999, plaintiff notified Scribner of its intent to file a lien because it had not received payment; in July 1999, plaintiff filed a claim for a construction lien on Scribner's property in the Circuit Court for Ashland County. The construction lien stated a balance due on the kiln of $83,621.27.
In March 2000, other holders of liens against Scribner's property commenced a foreclosure action. Plaintiff was named as a party but defendant and American Eagle were not. In its answer, plaintiff claimed that its lien was prior to all other claimants' interest in the kiln. However, the parties agreed to exclude the kilns from the judgment. After the sale, plaintiff entered into a lease contract with Woodland Forest Products, Inc., who became the new owner of the Scribner property. Under the agreement, Woodland would lease and potentially purchase the kiln. Pursuant to the agreement, Woodland began making payments to plaintiff, totalling $34,000. The balance remaining is $56,000, which Woodland has paid into the court, fearing liability to multiple parties.
Both American Eagle and Scribner filed Chapter 7 bankruptcy petitions: American Eagle in 1999 and Scribner in 2001. Neither Scribner nor American Eagle listed the kiln as property of its bankruptcy estate. Scribner identified the kiln as having been repossessed by plaintiff.
OPINIONBecause plaintiff is seeking declaratory relief, I must first determine whether this action presents an "actual controversy" within the meaning of 28 U.S.C. § 2201(a). If plaintiff is merely seeking an advisory opinion, then no actual controversy exists and this court is without subject matter jurisdiction under Article III to hear the case. Hyatt International Corp. v. Coco, 302 F.3d 707, 711-12 (7th Cir.2002). Whether the case presents a justiciable controversy depends on whether "there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941). "[I]f the declaratory judgment will clarify and settle the disputed legal relationships and afford relief from the uncertainty and controversy that created the issues, it is usually resolved rather than dismissed." NUCOR Corp. v. Aceros Y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 578 (7th Cir.1994).
Although the parties have not briefed this issue, it is clear that plaintiff and defendant have adverse legal interests of sufficient immediacy. Both parties assert that they are entitled to the proceeds of the kiln. Woodland has already begun making payments to plaintiff for the kiln but has put the balance into an escrow account to avoid being subject to competing claims. Without a declaration of the parties' rights, the kiln's proceeds will remain frozen and the dispute unresolved. Therefore, I conclude that the requirement of 28 U.S.C. § 2201(a) is satisfied.
The parties did not brief the issue of the substantive law that should apply in this case. However, both parties have cited only Wisconsin law, suggesting they agree that Wisconsin law should apply. Under Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), when diversity of citizenship is the basis for subject matter jurisdiction, the district court looks to the law of the forum state to determine which state's substantive law should be applied. Wisconsin courts presume that Wisconsin law applies unless it is clear that non-forum contacts have greater significance. State Farm Mutual Auto. Insurance Co. v. Gillette, 2002 WI 31, ¶ 51, 251 Wis.2d 561, 641 N.W.2d 662. Although neither party is a citizen of Wisconsin, all of the events giving rise to the suit occurred in this state. Therefore, I agree with the parties' implicit contention that Wisconsin law applies.
The issue to be decided is whether plaintiff or defendant has a superior interest in the proceeds of the kiln. Looking at the dispute as an equitable matter, it would appear that both parties are entitled to some compensation. Plaintiff manufactured and installed a product for which it was never paid and defendant paid $95,000 for the rights under an agreement for which it has never received a benefit. The parties responsible for these events appear to be insolvent, leaving plaintiff and defendant to fight between themselves over who will ultimately bear the loss (while Woodland is caught in the cross-fire). It is unfortunate that a mutual agreement could not be reached without litigation. The law regarding liens and security interests is replete with technical requirements and does not insure that all lenders will compensated.
As a preliminary matter, I note that although the parties acknowledge that both Scribner and American Eagle filed for bankruptcy, they do not discuss what effect, if any, those proceedings had on their interests in the kiln. However, even property subject to a security interest becomes part of the "property of the estate" under the Bankruptcy Code and thus may be affected by the bankruptcy proceedings. See 11 U.S.C. § 541(a). Both parties appear to assume in their briefs that the bankruptcy trustee abandoned any interest in the kiln and therefore left plaintiff's and defendant's interests untouched. See 11 U.S.C. § 554. Although it is undisputed that neither Scribner nor American Eagle listed the kiln as part of its bankruptcy estate, the parties have proposed no facts establishing that the proceeds to the kiln were not administered by the bankruptcy court. Because I cannot conclude from the record whether the bankruptcy proceedings affected plaintiff's or defendant's interest in the kiln, this opinion is limited to deciding the parties' rights to the kiln proceeds relative to each other. In other words, I will decide only whether plaintiff's or defendant's interest has priority over the other. I express no opinion whether the bankruptcy proceedings may have...
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...plans, or specifications" for improvement of the real estate. Wis. Stat. § 779.06(1); see also Am. Wood Dryers, Inc. v. Bombardier Capital, Inc., 305 F. Supp. 2d 966, 972 (W.D. Wis. 2002) ("Under Wisconsin's construction lien law, Wis. Stat. §§ 779.01-17, anyone who provides labor and mater......