Chemical Bank v. Communications Data Services
| Decision Date | 15 April 1991 |
| Docket Number | Civ. No. 4-91-CV-70053. |
| Citation | 765 F. Supp. 1401 |
| Parties | CHEMICAL BANK, Plaintiff, v. COMMUNICATIONS DATA SERVICES, INC., Defendant. |
| Court | U.S. District Court — Southern District of Iowa |
Mark McCormick, Belin, Harris, Helmick & Tesdell, Des Moines, Iowa, Richard S. Toder, Zalkin, Robin & Goodman, New York City, for plaintiff.
Michael W. Thrall, Nyemaster Goode & McLaughlin, Des Moines, Iowa, for defendant.
RULING AND ORDER DENYING PLAINTIFF'S PRELIMINARY INJUNCTION
This is a diversity of citizenship action for declaratory judgment by one creditor of the Mother Earth News Partners ("MEN") against another creditor of MEN that presents an issue of lien priorities. The property in question is MEN's master file of subscribers ("subscription list"). Plaintiff Chemical Bank ("Chemical") seeks a preliminary injunction against defendant Communications Data Services, Inc. ("CDS"), to stop CDS from foreclosing its purported artisan's lien on the subscription list by sale of the list.
On February 15, 1991, I issued a temporary restraining order prohibiting the sale by CDS of the subscription list pending hearing and ruling on Chemical's motion for preliminary injunction. The hearing was held on March 27, 1991.
CDS is an Iowa corporation that entered into several subscription fulfillment agreements with MEN; the most recent agreement (as amended) is dated October 1, 1985. Pursuant to the agreements, CDS has had possession of MEN's subscription list in Iowa since 1979, and provided subscription fulfillment services to Mother Earth News Magazine from 1979 to December 31, 1990. The services CDS provided, according to the subscription fulfillment agreement, include caging (receiving orders), entering transactions (orders, payments, address changes, etc.), editing transactions, maintaining the master file, billing and accounts receivable, mailing regular renewal promotions and other promotions, printing mailing labels and sorting labels, keeping track of postal service forms and payments, providing lettershop services, answering correspondence, and completing several operating reports. The information CDS maintained for MEN includes the subscriber's name and address, any premium codes, and promotional and historical data. CDS also developed customized software programs for MEN (billing 570 program hours since 1987, according to John Meneough, CDS vice-president), which allowed MEN to extract the data it found useful. Under the terms of the subscription fulfillment agreement, CDS bills MEN the first week of each calendar month for services it performed in the preceding month. Payment is due on or before the 10th of the month following the month in which MEN receives the invoice. CDS performed all of its services for MEN in Iowa, and retains possession of the list in Iowa. The subscription fulfillment agreement states that the agreement "shall be construed under and governed by the laws of the State of New York."
On or about June 23, 1988, MEN and Chemical entered into a credit agreement and a security agreement pursuant to which Chemical made loans to MEN totaling $14,975,000. The security agreement states that MEN grants Chemical a first priority security interest in, among other things, all of MEN's "general intangibles,"1 specifically including the subscription list. At the time of Chemical's loan to MEN, MEN paid CDS for services performed through April 1988, but not for services performed in May or June 1988. On or before June 30, 1988, Chemical duly filed Uniform Commercial Code financing statements with the secretaries of state and local filing offices in New York, Illinois, and North Carolina. The financing statements described Chemical's collateral as including the subscription list. Chemical did not file a financing statement in Iowa.
MEN is currently in default of its obligations to Chemical under the Credit Agreement in the outstanding principal amount of $14,975,000. The value of the subscription list is less than $14.9 million. MEN currently owes CDS $394,588.44 for fulfillment services performed, invoiced and billed monthly from September 1989 through December 31, 1990.
The last published issue of Mother Earth News Magazine was the November-December 1990 issue. Newsstand copies were sent out, but subscriber copies were not mailed. The magazine staff was laid off in late November or early December 1990.
Owen Lipstein, general partner of MEN, has been trying to market MEN since 1989, with only one prior serious negotiation which did not result in a sale. Lipstein has been conducting sale negotiations with the Japanese Independent Communications Company (JICC) since May 1990. At the time of this writing, JICC and Lipstein have not consummated a sale, but Lipstein testified that JICC has orally agreed to purchase MEN if certain terms and conditions are met, namely: (1) Chemical's acceptance of $5,750,000 in satisfaction of MEN's loan obligations; (2) settlement with state and federal taxing authorities regarding $1.7 million in tax liability; and (3) delivery of a balance sheet from unsecured creditors reducing the unsecured debt from over $10 million to approximately $3 million. JICC would also pay $500,000 cash in transaction fees. As of March 20, 1991, according to Lipstein, the settlement negotiations with the taxing authorities were still ongoing; vendors representing 4 percent of the total unsecured debt had agreed formally to the JICC terms; and nearly all of the 25 major vendors (representing about 75 percent of the total unsecured debt) had agreed in non-binding letters of intent. Chemical offered no testimony about these negotiations from JICC personnel or any of the vendors.
The following considerations, which the Eighth Circuit set out in Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 113 (8th Cir.1981), guide my determination regarding whether a preliminary injunction should issue: (1) the probability that the movant will succeed on the merits; (2) the threat of irreparable harm to the movant; (3) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; and (4) the public interest.
It is improbable that Chemical will succeed on the merits in this case for the reasons that follow. The following conclusions are, of course, tentative and it is possible, although I think not probable, that some of the conclusions that I will reach on the final decision in this case will differ.
First, I must consider the question of which state's lien law applies. CDS argues that New York's lien law applies because the agreement between CDS and MEN provides that the laws of the state of New York shall govern the agreement. This case, however, does not involve a contract dispute between CDS and MEN, but rather a dispute between creditors as to lien priority. The law which parties to a bailment contract select to govern their agreement does not control the question of which law applies to the validity and priority of an artisan's lien. In re Stookey Holsteins, Inc., 112 B.R. 942, 948 n. 8 (Bankr. N.D.Ind.1990). An artisan's lien is governed by the law of the state in which the property is located and possessed. See A.L.U. Textile Combining Corp. v. First Hartford Corp., 25 B.R. 563, 564 (Bankr.S. D.N.Y.1982), aff'd, 33 B.R. 126 (S.D.N.Y. 1983); 8 Am.Jur.2d, Bailments § 243. Because CDS possessed the subscription list and performed services on it in Iowa, and the list remains in Iowa, Iowa's lien law applies.
The second inquiry is whether CDS has an artisan's lien under Iowa law.2 I conclude that it does. The Iowa artisan's lien statute provides:
Any person who renders any service or furnishes any material in the making, repairing, improving, or enhancing the value of any inanimate personal property, with the assent of the owner, express or implied, shall have a lien thereon for the agreed or reasonable compensation for the service and material while such property is lawfully in the person's possession, which possession the person may retain until such compensation is paid, but such lien shall be subject to all prior liens of record, unless notice is given to all lien holders of record and written consent is obtained from all lien holders of record to the making, repairing, improving, or enhancing the value of any inanimate personal property and in this event the lien created under this section shall be prior to liens of record.
Iowa Code § 577.1. Chemical argues that the services CDS provided were merely clerical. I disagree. The services CDS performed for MEN involve taking raw data supplied from various sources, and transforming the data into a form CDS could use for a multitude of purposes for the benefit of MEN. By updating and maintaining the list, and by manipulating the data with customized software, CDS provided a current and valuable product to MEN. These services improved or enhanced the value of the list within the meaning of section 577.1. See American Consumer, Inc. v. Anchor Computers, Inc., 93 Misc.2d 452, 453, 402...
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In re S.M. Acquisition Co.
...encompasses all of a debtor's property to secure payment of the total debt owed to an artisan. In Chemical Bank v. Communications Data Services, Inc., 765 F.Supp. 1401 (S.D.Iowa 1991), the court interpreted Iowa's artisan's lien statute and concluded that a bank's perfected security interes......
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In re Kachina Publications, Inc., Bankruptcy No. B-93-13151-PHX-GBN. Adv. No. 94-0001.
...lien under the statute. Regardless, there is clear authority CDS would have such a lien. See Chemical Bank v. Communications Data Services, Inc., 765 F.Supp. 1401, 1404-05 (S.D.Iowa 1991). In examining state law, courts look to the words of the statute to determine whether the lien meets th......