Color Leasing 3, L.P. v. F.D.I.C.

• Decision Date: 30 June 1997
• Docket Number: C.A. No. 94-0488ML.
• Citation: 975 F.Supp. 177
• Parties: COLOR LEASING 3, L.P., a Massachusetts Limited Partnership, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Old Stone Bank, a Federal Savings Bank, Defendant.
• Court: U.S. District Court — District of Rhode Island

Page 177

975 F.Supp. 177

COLOR LEASING 3, L.P., a Massachusetts Limited Partnership, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Old Stone Bank, a Federal Savings Bank, Defendant.

C.A. No. 94-0488ML.

United States District Court, D. Rhode Island.

June 30, 1997.

COPYRIGHT MATERIAL OMITTED

Stephen A. Rodio, Craig M. Scott, Rodio & Brown, for petitioner.

David A. Cooper, Cooper & Sanchez, for respondent.

ORDER

LISI, District Judge.

The Findings and Recommendation of United States Magistrate Judge Robert W. Lovegreen filed on April 23, 1997 in the above-captioned matter is accepted pursuant to Title 28 United States Code § 636(b)(1). Plaintiff's motion for partial summary judgment on its claim for conversion is granted. Defendant's motion for summary judgment on the claims for conversion and intentional interference with contractual relations is denied. Plaintiff's motion to strike is granted.

REPORT AND RECOMMENDATION

LOVEGREEN, United States Magistrate Judge.

This case of competing security interests comes before the Court on cross-motions for partial summary judgment on plaintiff's claim for conversion. Defendant also moves unilaterally for partial summary judgment on plaintiff's claim for intentional interference with contractual relations.

Plaintiff, Color Leasing 3, L.P. ("Color Leasing"), sold a printing press to Consolidated Graphics Corporation ("Con-Graph"). In return, Con-Graph executed a promissory note and a security agreement in favor of Color Leasing. Prior to this exchange, however, the Old Stone Bank (the "Bank"), a federal savings bank, had already perfected several blanket security interests in Con-Graph's then existing and after-acquired assets as collateral for several large operating loans upon which Con-Graph later defaulted. Following default, the Bank seized various collateral, including the printing press which the Bank later sold to a third party at a private sale. Sometime thereafter the Bank failed and was placed into the receivership of the defendant, the Federal Deposit Insurance Corporation (the "FDIC").¹

In its complaint Color Leasing alleges that the Bank's seizure and sale of the printing press amounted to conversion and an intentional interference with its contractual relationship. The claims are premised on Color Leasing's argument that it properly perfected a purchase money security interest in the printing press. The dispute boils down to a priority skirmish between two secured creditors.

This matter has been referred to me for preliminary review, findings, and recommended disposition. 28 U.S.C. § 636(b)(1)(B); Local Rule of Court 32(c). A hearing was held on March 6, 1997. After weighing the arguments of counsel and the memoranda submitted, in addition to conducting independent research, I recommend that Color Leasing's motion for partial summary judgment on its claim for conversion be granted, and that the FDIC's motion for summary judgment on the claims for conversion and intentional interference with contractual relations be denied.

BACKGROUND.

The following facts are not disputed. Sometime in 1980, Color Leasing leased to Con-Graph one Miller printing press. The lease expired on June 30, 1988. Color Leasing executed a bill of sale dated December 31, 1987 for the printing press with Con-Graph. The bill of sale stated, in pertinent part, that the general partners of Color Leasing, "in consideration of Three Hundred Sixty Thousand ($360,000) Dollars paid by [Con-Graph], ..., the receipt whereof is hereby acknowledged, do hereby grant, sell, transfer, and deliver unto [Con-Graph]" a Miller printing press (serial number 18857). Pl.'s Mem. in Supp. of Mot. for Summ. J., Ex. A. On December 31, 1988, Con-Graph executed a promissory note to Color Leasing for three-hundred sixty thousand dollars ($360,000.00), payable in thirty-six (36) equal, monthly installments, plus interest. Id. at Ex. B. That same day, Con-Graph executed a security agreement granting Color Leasing "a continuing security interest in all of [Con-Graph's] accounts receivables [sic], contract rights, chattel paper, security agreements, documents, machinery, equipment, fixtures, general intangibles, goods, instruments, inventory, trademarks, patents, license rights and good will [] whether now owned or hereafter acquired...." Id. at Ex. C. Neither the promissory note nor the security agreement make specific reference to the printing press. Five days later, on January 5, 1989, Color Leasing filed a financing statement with the Massachusetts Secretary of State reflecting its security interest in the printing press referenced in the bill of sale. Id. at Ex. D.

Prior to this set of transactions, the Bank had loaned several million dollars to Con-Graph. The Bank collateralized the loans through a series of security agreements covering Con-Graph's property, equipment, inventory, and accounts, then existing and after-acquired. The Bank perfected its security interests through blanket filings in 1984, 1986, and 1987.

Con-Graph defaulted on its loans from the Bank. On November 14, 1991, the Bank notified Color Leasing along with other interested parties of the Bank's plan to seize and sell certain Con-Graph collateral, including the printing press. By letter dated November 18, 1991, Color Leasing notified the bank of its purported status as a purchase money secured creditor and protested the proposed seizure and sale of the printing press. The bank sold the printing press at a private sale.

Sometime thereafter, the bank failed and was eventually placed into the receivership of the FDIC. In April 1993 Color Leasing filed a Proof of Claim with the receiver to recover its damages from the seizure and sale of the printing press. By letter dated July 18, 1994, the receiver disallowed the claim. On September 14, 1994, Color Leasing filed its two-count complaint alleging conversion and intentional interference with contractual relations. Both parties have moved for partial summary judgment on the claim for conversion; the FDIC has alone moved for partial summary judgment on the claim for intentional interference with contractual relations.

SUMMARY JUDGMENT.

Our rules of civil procedure state that a party shall be entitled to summary judgment "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Hence, "a party seeking summary judgment [must] make a preliminary showing that no genuine issue of material fact exists. Once the movant has made this showing, the nonmovant must contradict the showing by pointing to specific facts demonstrating that there is, indeed, a trialworthy issue." Nat'l Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir.), cert. denied, 515 U.S. 1103, 115 S.Ct. 2247, 132 L.Ed.2d 255 (1995). An issue is "genuine" when a "reasonable jury, drawing favorable inferences, could resolve the fact in the manner urged by the nonmoving party"; a "material" fact is a "contested fact that has the potential to alter the outcome of the suit under the governing law if the controversy over it is resolved satisfactorily to the nonmovant." Blackie v. State of Maine, 75 F.3d 716, 721 (1st Cir. 1996).

That opposing parties move simultaneously for summary judgment does not relax this inquiry. Id. Barring special circumstances not present here, such as where opposing sides agree to a case stated, this Court "must consider each motion separately, drawing inferences against each movant in turn." Id. (citation omitted). While genuine issues of material fact remain within the province of the trier-of-fact, the Court resolves all matters of law. See id.

PRIORITIES.

Massachusetts has its own version of Article 9 of the Uniform Commercial Code (the "Code") governing the law of secured transactions.² The Code provides rules regarding the attachment and perfection of a security interest, in addition to rules of priority among competing secured creditors.

A party receives an Article 9 security interest through the process of attachment, the consequence of which is to render the interest enforceable against the debtor or a third party. In this case, valid attachment requires that the prospective secured party (i) enter into a security agreement with the debtor, (ii) the necessary parts of which are in a writing signed by the debtor, (iii) who gives value, and (iv) receives rights in the collateral. Mass. Gen. Laws ch. 106, § 9-203(1). The secured party can then render its security interest effective against other creditors through perfection. Where not excepted, perfection requires that the secured party file a financing statement with the appropriate state or local agency. Id. at § 9-302(1). Priority among competing security interests in the same collateral typically rests with the first secured creditor to perfect. Id. at § 9-312(5)(a). It is undisputed that the Bank was the first secured party to perfect its security interest in the printing press.

However, the Code confers a special priority upon purchase money secured creditors of non-inventory collateral.³ A security interest is a "purchase money security interest" to the extent that it is "taken or retained by the seller of the collateral to secure all or part of its price." Id. at § 9-107(a). Under this special exception, a "purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within ten days thereafter."⁴ Id. at § 9-312(4). The primary purpose behind this special status is to encourage new capital investment in a business enterprise where existing creditors balk. J. White & R. Summers,...