Analytical Systems v. ITT Commercial Finance

• Decision Date: 22 December 1986
• Docket Number: Civ. A. No. C86-0044A.
• Citation: 696 F. Supp. 1469
• Parties: ANALYTICAL SYSTEMS, INC., Plaintiff, v. ITT COMMERCIAL FINANCE CORP., f/k/a ITT Diversified Credit Corp., Defendant.
• Court: U.S. District Court — Northern District of Georgia

696 F. Supp. 1469

ANALYTICAL SYSTEMS, INC., Plaintiff, v. ITT COMMERCIAL FINANCE CORP., f/k/a ITT Diversified Credit Corp., Defendant.

Civ. A. No. C86-0044A.

United States District Court, N.D. Georgia, Atlanta Division.

December 22, 1986.

Kirby Loftin Turnage, Jr., Mark B. Wessman, Paul, Hastings, Janofsky & Walker, Atlanta, Ga., for plaintiff.

Olive Elizabeth Bell, Lord, Bissell & Brook, Franklin Ross Nix, Alston & Bird, Atlanta, Ga., for defendant.

ORDER

FORRESTER, District Judge.

This action is before the court on a motion for partial summary judgment and a motion for reconsideration filed by plaintiff Analytical Systems, Inc. (ASI), as well as a motion for summary judgment filed by defendant ITT Commercial Finance Corporation (ITT). Defendant ITT has also moved for leave to submit supplemental briefs in opposition to plaintiff ASI's motion for partial summary judgment and motion for reconsideration. These motions for leave to submit supplemental briefs are GRANTED. All briefs filed by both parties have been considered in passing upon the various substantive motions.

Before ruling upon the merits of the various motions, the court wishes to make clear that ad hominem arguments by counsel for both parties will not be countenanced. The attacks upon counsel for defendant ITT contained in plaintiff ASI's Brief Opposing ITT's Summary Judgment Motion were unnecessary and unbecoming. See Brief of October 7, 1986, at 3-4 & 12. More to the point, the repeated invocation of Rule 11 of the Federal Rules of Civil Procedure for the purpose of casting doubt upon the integrity of opposing counsel is improper. See id. at 4, 7, 8, 19 & 24. If counsel for ASI concludes that there are good grounds to support a Rule 11 motion, then let such motion be filed. Otherwise, citation to Rule 11 may well constitute interposition of an argument for an "improper purpose, such as to harass one's opponent." Fed.R.Civ.P. 11. Any future pleading containing ad hominem attacks will be struck unless accompanied by a motion under Rule 11 and, if ethical considerations are raised, a certificate that the conduct has been reported to the state bar. Further, counsel should understand that such an attack obscures rather than promotes the merits of their client's case.

I. CROSS MOTIONS FOR SUMMARY JUDGMENT.

Plaintiff ASI has moved for summary judgment on its trespass, conversion and wrongful levy counts, while ITT has moved for summary judgment on these counts as well as all other counts not previously dismissed voluntarily by plaintiff ASI. The legal arguments urged in favor of summary judgment on these various counts will be addressed following a review of the facts.

A. Statement of Facts.¹

Plaintiff ASI retails computer equipment and software. ASI entered into a security agreement with defendant ITT as a condition of receiving inventory financing from ITT. This agreement, termed "Agreement for Wholesale Financing" (Financing Agreement), was dated June 29, 1984. It conveyed a security interest in "all inventory" of ASI. During the same time period as the ASI/ITT agreement, ASI obtained a $4.5 million line of credit from Trust Company Bank of Atlanta, Georgia ("Trust Company"). ASI granted Trust Company a security interest in substantially all of its assets other than the inventory financed by ITT.

In order to define the respective security interests retained by ITT and Trust Company, ASI, ITT and Trust Company entered into an "Agreement Among Creditors" on September 10, 1984. This agreement modified the Financing Agreement as follows:

Notwithstanding any provision to the contrary in the Financing Agreement, the only security interest conveyed by Analytical to ITT shall be a purchase money security interest covering only the inventory of Analytical that is financed by ITT pursuant to the Financing Agreement and not any proceeds thereof in any accounts generated by the sale or lease thereof....

Trust Company retained a security interest in all other assets of ASI.²

It appears that the differences between the parties began in November of 1985 when defendant ITT declined to increase ASI's line of credit. Because a $750,000 line of credit had been exhausted, ITT ceased financing ASI inventory in December of 1985. At about the same time, ASI began to miss its scheduled payments on indebtedness represented by invoices for computer equipment and software held by ITT. These circumstances prompted ITT to appraise the inventory of ASI financed by ITT for which ASI had not fully paid. That inventory taken in December of 1985 revealed approximately $750,000 in ITT-financed inventory on open invoices.

ASI was unable to keep current with scheduled payments during the month of December 1985 and on into January of 1986. As of January 6, 1986, ASI was indebted to ITT in the amount of approximately $757,425.70. In a last minute effort to salvage its relationship with ITT, ASI officers proposed that ITT buy out the security interest held by Trust Company Bank. ASI officers represented that such an arrangement would result in the priority position for ITT in approximately three million dollars worth of ASI inventory.

ITT representatives met and tentatively decided to reject this proposal and to seek repossession of the ASI inventory in which they had a security interest. Nevertheless, prior to actually taking legal action, ITT continued to discuss the feasibility of this proposal. In fact, on the morning of January 7, 1986, ITT representatives conducted an informal and highly imprecise check of the ASI inventory, ostensibly for the purpose of evaluating the buy-out proposal. That inventory check resulted in an approximation that ASI inventory was actually worth something in the neighborhood of two million rather than three million dollars.

At the same time as the discussions regarding the buy-out proposal were taking place, ITT representatives were meeting and making the final decision to repossess their collateral. They discussed the problem of identifying the collateral they had financed. It is undisputed that they did not have serial numbers for a majority of the serialized inventory, though they did have invoices with model numbers of the ITT-financed inventory. There is evidence that some ITT officers knew that retailers such as ASI received packing lists containing the serial numbers when inventory is shipped to them. In any event, it is undisputed that no officer or employer of ITT made any effort to inquire as to the ability of ASI to identify separately any ITT-financed inventory. Had anyone connected with ITT done so, they would have learned that ASI had the capability of retrieving from their office computers a list of serial numbers representing ITT-financed inventory under open invoices still within the ASI warehouse.

Despite the foregoing identification problems, ITT decided to go ahead with repossession efforts on January 7, 1986. They did so without any information specifically identifying ITT-financed inventory. Indeed, they proceeded without reference even to the model numbers of ITT-financed inventory. Relying upon the theory that the inventory financed by ITT was so commingled with inventory financed by others that it was impossible to identify, ITT determined that it would repossess computer equipment and software in the possession of ASI which was manufactured by those manufacturers whose products ITT had financed in the past. Indeed, there is some evidence that counsel for ITT advised his client of the potential liability which they might incur if they proceeded to repossess inventory which they had not financed. According to ITT counsel, he was told to proceed in any event in obtaining a writ covering all inventory in ASI's possession.

Whatever the truth of the communications between ITT and its counsel, ITT did file a complaint and Petition for Writ of Immediate Possession with the State Court of Gwinnett County on the afternoon of January 7, 1986. A complaint, verified by both ITT counsel and an ITT officer, alleged that ITT had an interest in "all inventory" of ASI despite their admittedly limited security interest in inventory financed by ITT. The State Court of Gwinnett County subsequently issued a Writ of Immediate Possession on that afternoon covering "all inventory of the defendant."

ITT officers, counsel and a deputy sheriff of Gwinnett County levied upon the writ on the evening of January 7, 1986. They were told by counsel for ASI that the attempted levy was upon property which they had not financed. Nevertheless, they proceeded to levy upon all inventory manufactured by those manufacturers whose products they had financed for ASI. There is testimony that during the course of this levy the president of ASI, Mr. James E. Dunning, cooperated fully with the levy, even to the extent of pointing out models to be repossessed and commenting that it would all be worked out later. While Mr. Dunning does not recall making such statements, he does admit that he cooperated with the levy because he had no other choice.

When the results of the levy were finally sorted out, ITT had seized $2,003,900.00 worth of inventory. Only $251,601.00 of this inventory had been financed by ITT under open invoices, $193,363.00 worth of which was serialized. If all ITT inventory, including inventory representing invoices paid by ASI, is considered, then the maximum dollar amount of inventory seized by ITT to which ITT had a colorable claim was $358,338.01.

B. Conclusions of Law.

1. Trespass.

ASI has alleged that the seizure of its inventory in the aforementioned manner amounts to a trespass for which ITT should be held liable. See O.C.G.A. § 51-10-1 & -2. Although the unlawful deprivation of that inventory to which ITT had no colorable claim would give rise to a trespass action had the inventory been taken by self-help repossession, the fact that it was taken pursuant to judicial process renders trespass an inappropriate remedy for the...