Commerce Bank, N.A. v. Chrysler Realty Corp., Civ.A. 99-2017-KHV.

• Decision Date: 14 October 1999
• Docket Number: No. Civ.A. 99-2017-KHV.,Civ.A. 99-2017-KHV.
• Citation: 76 F.Supp.2d 1113
• Parties: COMMERCE BANK, N.A., Plaintiff, v. CHRYSLER REALTY CORPORATION and DaimlerChrysler Corporation, Defendants.
• Court: U.S. District Court — District of Kansas

76 F.Supp.2d 1113

COMMERCE BANK, N.A., Plaintiff, v. CHRYSLER REALTY CORPORATION and DaimlerChrysler Corporation, Defendants.

No. Civ.A. 99-2017-KHV.

United States District Court, D. Kansas.

October 14, 1999.

James P. O'Hara, Andrew M. DeMarea, Shughart, Thomson & Kilroy, Overland Park, KS, for plaintiff.

Stephen M. Ryan, Michael J. Gorman, Daniels & Kaplan, P.C., Kansas City, MO, Kirkland W. Garey, Michael G. Cruse, Howard & Howard, P.C., Bloomfield Hills, MI, for defendants.

MEMORANDUM AND ORDER

VRATIL, District Judge.

Commerce Bank, N.A. has filed suit against Chrysler Realty Corporation and DaimlerChrysler Corporation, alleging conversion of collateral in which Commerce had a perfected security interest. Commerce seeks actual and punitive damages from each defendant. Defendants contend that they merely exercised contractual setoff rights under Kansas law and deny that plaintiff is entitled to damages, compensatory or punitive. This matter comes before the Court on cross-motions for summary judgment. See Defendants' Motion For Summary Judgment (Doc. # 31) and Plaintiff's Motion For Summary Judgment (Doc. # 33), both filed August 6, 1999. For reasons set forth below, the Court finds that defendants' motion should be overruled and that plaintiff's motion should be sustained in part.

Summary Judgment Standards

Summary judgment is appropriate 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); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir.1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. A "genuine" factual dispute requires more than a mere scintilla of evidence. Id. at 252, 106 S.Ct. 2505.

The moving party bears the initial burden of showing that there is an absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir.1991). Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Securities, Inc., 912 F.2d 1238, 1241 (10th Cir.1990); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241.

"[W]e must view the record in the light most favorable to the parties opposing the motion for summary judgment." Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991). Summary judgment may be granted if the nonmoving party's evidence is merely colorable or is not significantly probative. Anderson, 477 U.S. at 250-51, 106 S.Ct. 2505. "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial." Conaway v. Smith, 853 F.2d 789, 794 (10th Cir.1988). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson at 251-52, 106 S.Ct. 2505.

Facts¹

Commerce Bank, N.A. (Commerce) is a national banking association. DaimlerChrysler Corporation (Chrysler) is an automobile manufacturer. Prior to its merger with Daimler-Benz, AG, Chrysler was known as Chrysler Corporation. Chrysler Realty Corporation (CRC) acquires, develops leases and sells various real estate assets which are related to the marketing functions of Chrysler. CRC is an affiliate of Chrysler.

On September 5, 1991, Chrysler and one of its retail dealers, Bierwirth Chrysler Plymouth, Inc. (Bierwirth) entered into a Sales and Service Agreement (the Dealer Agreement), with regard to the Bierwirth dealership at 6819 Johnson Drive in Mission, Kansas. The Dealer Agreement provided that Chrysler could apply to any amount which Bierwirth owed any Chrysler affiliate (such as CRC) any credit which Chrysler owed Bierwirth. The agreement also provided that if Bierwirth were to assign to a third party any credits owing from Chrysler, Bierwirth would first notify the third party of Chrysler's "first priority rights" to such credits. See Stipulation, Exhibit 1 at ¶ 24.

On October 10, 1995, CRC (as landlord) and Bierwirth (as tenant) executed a Dealer Lease Agreement regarding the premises of the Bierwirth dealership. The lease provided that to ensure the payment of monies due CRC for rent, taxes, insurance, repairs or monies expended by CRC on behalf of Bierwirth, Bierwirth thereby assigned to CRC all credits due or to become due from Chrysler. The lease also gave CRC the right to receive and collect any monies due Bierwirth from Chrysler. The lease required CRC to apply such funds to rent and other sums and charges due under the lease from time to time and to pay CRC's costs and expenses in exercising and continuing the assignments, including attorney fees in connection therewith. Any remaining sums were to be paid over to Bierwirth.

Bierwirth agreed that CRC's right of assignment under the lease would constitute a security interest under the Uniform Commercial Code as applicable in Kansas. Bierwirth also agreed that it would not transfer any interest in such accounts that would create an interest paramount to that of CRC, and that the breach of such obligation would constitute a default under the lease. See Stipulation, Exhibit 2 at ¶ 9 on pp. 8-9. CRC did not file a financing statement concerning the security interest referred to in the lease.

Two months after Bierwirth executed the lease and assignment to CRC, Bierwirth executed and delivered to Commerce a Security Agreement (the 1995 Security Agreement) pursuant to which Commerce provided inventory floor plan financing to Bierwirth. In the agreement, which is dated December 8, 1995, Bierwirth granted Commerce a security interest in all inventory, accounts receivable, contract rights and general intangibles then existing or thereafter owing to Bierwirth. On December 22, 1995, Commerce perfected its security interest in the collateral by filing UCC-1 financing statements with the Kansas Secretary of State. See, e.g., Stipulation, Exhibit 4.

Some three years later, on February 4, 1998, Bierwirth executed and delivered to Commerce a second Security Agreement (the 1998 Security Agreement). See Stipulation, Exhibit 5. Pursuant to this agreement, Bierwirth granted Commerce a security interest in all contract rights, accounts receivable, and general intangibles of Bierwirth, whether then owned or thereafter acquired, and all proceeds of same. On February 5, 1998, Commerce perfected its security interest in this collateral by filing UCC-1 financing statements with the Kansas Secretary of State. See Stipulation, Exhibit 6.

On January 14, 1998, CRC sent Chrysler written notice that Bierwirth had assigned to CRC the factory receivables which were due Bierwirth from Chrysler. See Stipulation, Exhibit 7. Bierwirth's factory receivables included a variety of credits from Chrysler for (among other things) sales promotion incentives, warranty work and returned parts. The CRC notice stated that the assignment had been lodged because Bierwirth was $34,165.84 in arrears for rent due for December of 1997 and January of 1998. CRC requested that the factory monies be paid directly to CRC until further notice. In response, Chrysler sent CRC four checks for factory receivables, in the total amount of $218,000.00. Commerce claims a perfected security interest in those funds.²

On December 16, 1997, Bierwirth agreed to sell its assets to Thomas P. Doherty on February 3, 1998. On January 26, 1998, CRC sent Bierwirth a letter which demanded that Bierwirth make certain repairs to the dealership premises. See Stipulation, Exhibit 10. CRC ultimately paid $196,000.00 to make the repairs on behalf of Bierwirth. On February 3, 1998, CRC and Bierwirth terminated the lease on account of Bierwirth' default. See Stipulation, Exhibit 12.

On May 6, 1998, Commerce faxed a letter to Chrysler, asserting that it had a perfected security interest in the factory receivables which Chrysler owed to Bierwirth. Commerce also faxed copies of the 1995 and 1998 Security Agreements and related financing statements. Commerce requested that Chrysler remit $100,308.24.³ See Stipulation, Exhibit 14. When it received this letter, Chrysler had already paid $209,000.00 to CRC by monthly checks dated February 24, March 24, and April 24, 1998. On May 11, 1998, Chrysler responded to Commerce's letter of May 6, 1998, stating that CRC had filed an assignment on January 15, 1998, "thereby preceding [Commerce's] action." See Stipulation, Exhibit 15. Chrysler stated that it would make payments to Commerce only upon release of CRC's assignment.

On May 14, 1998, Commerce faxed a letter to Chrysler, with a carbon copy to CRC, complaining that its interests in the factory receivables had been converted. Commerce requested pertinent documentation and an accounting by Chrysler and CFC. See Stipulation, Exhibit 16. Shortly thereafter, Chrysler sent CRC a final check for $13,000.00. See Stipulation, Exhibit 8. A few days later, on May 20, 1998, CRC sent Chrysler a letter which removed Bierwirth from "factory assignment." See Stipulation, Exhibit 17....