Bank of the West v. Commercial Credit Financial Services, Inc.

• Decision Date: 26 July 1988
• Docket Number: 87-1984,Nos. 87-1940,s. 87-1940
• Citation: 852 F.2d 1162
• Parties: 6 UCC Rep.Serv.2d 602 BANK OF THE WEST, a California banking corporation, Plaintiff-Appellant/Cross-Appellee, v. COMMERCIAL CREDIT FINANCIAL SERVICES, INC., a California corporation, Defendant-Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1162

852 F.2d 1162

6 UCC Rep.Serv.2d 602

BANK OF THE WEST, a California banking corporation Plaintiff-Appellant/Cross-Appellee, v. COMMERCIAL CREDIT FINANCIAL SERVICES, INC., a California corporation, Defendant-Appellee/Cross-Appellant.

Nos. 87-1940, 87-1984.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 11, 1988.

Decided July 26, 1988.

Gary Nemer, Buchalter, Nemer, Fields & Younger, San Francisco, Cal., for plaintiff-appellant/cross-appellee.

Mark R. Reiff, Taylor & Stanley, San Francisco, Cal., for defendant-appellee/cross-appellant.

Appeals from the United States District Court for the Northern District of California.

Before FARRIS, BRUNETTI and THOMPSON, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

In these cross-appeals, Bank of the West, a California banking corporation ("Bank of the West" or "Bank"), and Commercial Credit Financial Services, Inc., a Delaware corporation ("CCFS"), ¹ appeal the district court's judgment for Bank of the West on its suit for conversion of collateral. Bank of the West argues that (1) the district court's findings of fact are erroneous, (2) the court improperly excluded certain evidence, (3) the damages awarded are inadequate as a matter of law, and (4) the court erred in not considering the Bank's fraudulent conveyance claim. On its cross-appeal, CCFS argues the court incorrectly resolved the priority dispute between it and Bank of the West. CCFS contends that had the court applied the correct rule to the priority dispute, the court would have concluded CCFS did not convert the collateral.

We have jurisdiction under 28 U.S.C. Sec. 1291. Although the district court's findings of fact are not clearly erroneous, we conclude that the court erred in resolving the conflicting claims to the collateral. Consequently, we hold that CCFS prevails on its cross-appeal, and we do not reach Bank of the West's damages and fraudulent conveyance arguments. We reverse the decision of the district court and remand the case for entry of judgment in favor of CCFS.

I STANDARD OF REVIEW

At the core of this case is a dispute between two creditors of different debtors. Each creditor claims a perfected security interest in the same collateral. To resolve this dispute, we must apply the provisions of the California Commercial Code. Bank of the West argues that our review of the district court's judgment is de novo, citing our decision in Buttonwillow Ginning Co. v. Federal Crop Ins. Corp., 767 F.2d 612 (9th Cir.1985). The Buttonwillow Ginning case does not stand for the broad proposition that we review de novo the entirety of a district court's decision involving a priority dispute between secured creditors. In the Buttonwillow Ginning case, we faced the question whether federal law requires a secured creditor to take some action other than to perfect its security interest under applicable state law before it may collect insurance proceeds payable to the debtor by the Federal Crop Insurance Corporation. In that case, neither party disputed the underlying facts. Consequently, the district court had only to apply applicable federal law, and we reviewed that legal question de novo. Id. at 613.

The district court's choice and application of the appropriate commercial code provision in the present case to resolve the priority dispute involves legal questions subject to our de novo review. But the district court does not apply the commercial code in a vacuum; it first must determine the facts surrounding the controversy. We review these findings of fact for clear error. See Fed.R.Civ.P. 52(a); United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). We will affirm the district court's findings of fact unless we are " 'left with a definite and firm conviction that a mistake has been committed.' " Id. at 1201 (quoting Pullman-Standard v. Swint, 456 U.S. 273, 285 n. 14, 102 S.Ct. 1781, 1788 n. 14, 72 L.Ed.2d 66 (1982)). Once we are satisfied that the historical facts have been established without clear error, the choice of the applicable rule of law to resolve the dispute and its application to the facts present issues of law subject to de novo review. See id. at 1201-03.

II FACTS

The district court's well-written opinion contains a thorough discussion of the complicated facts of this case. See Bank of the West v. Commercial Credit Fin. Servs., Inc., 655 F.Supp. 807, 810-12 (N.D.Cal.1987). In its opinion, the court thoughtfully analyzed the evidence presented by both sides and meticulously set forth the events preceding this appeal in a chronological table accompanied by crossreferences to those portions of the record favoring each party. We have independently examined the substantial record on appeal. After this review, we are not left with a "firm and definite conviction" that the district court's findings of fact are erroneous. Accordingly, we adopt the district court's findings of fact and set out below a summary of those events pertinent to the issues on appeal.

On April 5, 1982, Bank of the West entered into a loan and security agreement with Allied Canners & Packers, Inc. ("Allied"), a wholly-owned subsidiary of Boles World Trade Corporation ("BWTC"). Bank of the West lent Allied $4,000,000 in exchange for a security interest in Allied's present and future-acquired inventory, accounts, and proceeds. The Bank perfected its security interest by filing a financing statement with the California Secretary of State on April 7, 1982.

In 1983, Allied's financial condition deteriorated and the Bank demanded repayment of the outstanding loan balance of $1,800,000. Allied persuaded the Bank to renegotiate the loan. This resulted in a restructuring agreement signed on January 13, 1984. Contemporaneously with the restructuring agreement, Allied signed a new security agreement granting Bank of the West a security interest in Allied's "present and hereafter acquired" accounts, inventory, and proceeds. As part of the In January 1984, another wholly-owned BWTC subsidiary, Boles & Co., Inc. ("BCI"), entered into a factoring agreement with CCFS. The factoring agreement provided that BCI would assign its accounts to CCFS. CCFS would then collect amounts due from account debtors; three days after collection, CCFS would remit to BCI the amounts collected, less a 1% commission, and less any prior advances, plus interest. Advances were to be made on accounts which remained uncollected 33 days following assignment. In the factoring agreement, BCI granted CCFS a security interest in its present and after-acquired accounts. In a separate security agreement to secure advances made to BCI pending collection of accounts, BCI also granted CCFS a security interest in BCI's present and after-acquired inventory and proceeds. CCFS properly perfected its security interests by filing a financing statement with the California Secretary of State on January 5, 1984.

                loan renegotiations, there is evidence that BWTC suggested to Bank of the West that it would transfer a beverage wholesaling and importing business to Allied.   See Bank of the West, 655 F.Supp. at 811
                

To understand the issues on appeal, it is necessary to consider the complicated corporate structure of the affiliated companies owned by BWTC. BWTC, formerly called Boles & Co., Inc., owned several subsidiary corporations, which engaged in several different businesses. Before August 1983, the former Boles & Co. (now called BWTC) conducted a beverage importing and wholesaling business. On August 15, 1983, the board of directors of the original Boles & Co. voted to change its name to BWTC and to contribute the beverage business to one of its wholly-owned subsidiaries, Minerals Trading Corporation. On the same day, the directors of Minerals voted to change its name to Boles & Co., Inc. (referred to as BCI), and to accept the contribution of the beverage business assets from BWTC. Between August 1983 and June 30, 1984, BWTC again reorganized its subsidiaries and transferred the beverage business from BCI to Allied. Allied changed its name to Boles International Beverage Co. ("Allied/BIBCO") by vote of its board of directors on December 6, 1983, but did not file a certificate of amendment with the California Secretary of State to reflect this name change until June 11, 1984.

Much of the dispute in this case is over who owned the beverage business accounts factored by CCFS after January 13, 1984, the date on which Bank of the West signed the loan restructuring agreement with Allied/BIBCO. Bank of the West argues that at least by February 1, 1984, Allied/BIBCO was conducting the beverage business and that CCFS consequently was factoring accounts in which Bank of the West held a prior perfected security interest. The district court found that the beverage business was not finally transferred to Allied/BIBCO until July 1, 1984. See Bank of the West, 655 F.Supp. at 814-15. The court reviewed the extensive evidence presented by both sides and found that while BWTC may have intended to transfer the beverage business to Allied as early as October 1983, id. at 814, BWTC did not complete moving the beverage business to Allied/BIBCO until the end of June 1984. Id. at 815. Having examined the record, which is replete with conflicting testimony, vague assertions, and confused recollections, we cannot say that the district court's findings of fact are clearly erroneous. Accordingly, we accept the court's finding that between January 13 and June 30, 1984, BCI owned and operated the beverage business. ² In operating that

                business, BCI generated the accounts factored by CCFS. 3   On July 1, 1984, the beverage business was transferred to Allied/BIBCO.  Consequently, from and after that date, any accounts factored by CCFS were generated by sales of the beverage business inventory by Allied/BIBCO, or were accounts in existence at the time of the transfer
                

III ANALYSIS...