DZ Bank AG Deutsche Zentral-Genossenschaftsbank v. Connect Ins. Agency, Inc.

• Decision Date: 14 February 2016
• Docket Number: CASE NO. C14-5880JLR
• Court: U.S. District Court — Western District of Washington
• Parties: DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, Plaintiff, v. CONNECT INSURANCE AGENCY, INC., Defendant.

DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, Plaintiff, v. CONNECT INSURANCE AGENCY, INC., Defendant.

CASE NO. C14-5880JLR

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

February 14, 2016

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

I. INTRODUCTION

Before the court are: (1) Plaintiff DZ Bank AG Deutsche Zentral-Genossenschaftsbank's ("DZ Bank") motion for summary judgment (DZ Mot. (Dkt. ## 64 (redacted), 66 (sealed)), and (2) Defendant Connect Insurance Agency, Inc.'s ("Connect's") motion for summary judgment (Con, Mot. (Dkt. ## 73 (redacted), 74 (sealed)). The court has considered the motions, all submissions filed in support thereof and opposition thereto, the balance of the record, and the applicable law. In addition, the court heard the argument of counsel on February 10, 2016. Being fully advised, the court GRANTS in part and DENIES in part DZ Bank's motion and DENIES Connect's motion as more fully described below.

II. BACKGROUND

DZ Bank is a bank registered under the laws of the Federal Republic of Germany, and it maintains a place of business in New York, New York. (Probst Aff. (Dkt. # 65) ¶ 4.) Connect is a Texas corporation with its principal place of business in Texas and also a Florida corporation with its principal place of business in Florida. (Am. Ans. (Dkt. # 10) ¶ 65.) Connect is registered to do business in Washington. (DZ Mot Ex. A (Dkt. # 64-1).)¹ On November 11, 2014, DZ Bank sued Connect for conversion and unjust enrichment for allegedly taking collateral belonging to DZ Bank without DZ Bank's consent and without compensating DZ Bank. (See Compl. (Dkt. # 1).) The court details the complex financial background that lead to the current dispute below.

A. DZ Bank's Security Interest in Loans by BCC

On August 27, 2004, Brooke Credit Company ("BCC"), as seller, entered into a Sale and Servicing Agreement with Brooke Credit Funding, LLC ("BCF"), as buyer and issuer, and Textron Business Services, Inc., as initial servicer. (See Probst Aff. ¶ 10.) The Sale and Servicing Agreement provided for the transfer of various loans then payable to BCC by third parties ("the Sales Agreement"). (See id.) The Sale and Servicing Agreement also provided for the transfer of then-future loans from BCC to BCF upon the agreement of the two parties. (Id.) On the same day, BCF, as borrower, entered into a Credit and Security Agreement with BCC, as seller, and Brooke Corporation, as servicer and guarantor, Autobahn Funding Company, LLC ("Autobahn"), as lender, and DZ Bank, as agent for Autobahn. (Id.) The Credit and Security Agreement obligated Autobahn to finance BCF's acquisition of the various loans under the Sales Agreement. (Id.)

On August 29, 2006, BCF, as borrower, BCC, as seller, Brooke Corporation, as subservicer and guarantor, Autobahn, as lender, and DZ Bank, as agent, for Autobahn, entered into an Amended and Restated Credit and Security Agreement ("the Amended Security Agreement"). (Id. ¶ 11, Ex. 1 (attaching the Amended Security Agreement); see also Con. Mot. at 2 (acknowledging this agreement in paragraph designated 2.4).) Under the Amended Security Agreement, Autobahn agreed to loan certain funds to BCF for BCF's purchase of various loans from BCC under the Sale Agreement. (Probst Aff. ¶ 12, Ex. 1¶ 2.04.)

To secure BCF's obligations to Autobahn under the Amended Security Agreement, BCF granted DZ Bank, as Autobahn's agent, a security interest in: (1) all of its rights, title, and interest in and to various loans that BCF had already purchased from BCC under the Sale Agreement; (2) all of its rights, title, and interest in and to various loans that BCF would purchase from BCC in the then-future under the Sale Agreement; and (3) various other collateral. (Id. ¶ 13, Ex. 1 ¶¶ 2.12-.13; see also Am. Ans. ¶ 78 ("Unbeknownst to the Franchisees, Brooke had pledged the notes as security for loans from DZ Bank, which funded the purchases of the franchises.").) DZ Bank perfected its security interest in the Amended Security Agreement by filing Uniform Commercial Code ("UCC") Financing Statements against BCC and BCF. (Id. ¶ 14, Ex. 2.)

B. BCC Finances Advantage Pacific's Purchase of an Insurance Agency

On February 26, 2008, Advantage Pacific Insurance, Inc. ("Advantage Pacific"), as purchaser, entered into an Agreement for Purchase of Agency Assets ("Advantage Purchase Agreement") with Insurance Express Services, Inc. and Robert Spruill, as sellers (collectively, "Seller"). (Id. ¶ 15, Ex. 3.) The Advantage Purchase Agreement obligated Seller to transfer substantially all of the Seller's assets for two Brooke Insurance franchises, including Seller's book of business, customer accounts, and all other intangible assets (the "Advantage Agency Assets"), in exchange for $235,346.00. (Id. ¶ 15, Ex. 3; see also Con. Mot. at 3 (acknowledging this agreement in the paragraph designated 2.9).)

On February 29, 2008, BCC, as lender, and Advantage Pacific, as borrower, entered into a Promissory Note known as Loan No. 6852 and an Agreement for Advancement of Loan (collectively, "Advantage Note"), in which BCC agreed to loan Advantage Pacific $230,287.00 toward Advantage Pacific's purchase of the Advantage Agency Assets under the Advantage Purchase Agreement. (Id. ¶ 16, Ex, 4; see also Am. Ans. ¶ 75 ("In February 2008, Advantage Pacific paid $5,000 cash, pledged his existing book of business, which Brooke valued at approximately $160,000 and agreed to sign a note in the amount of $230,287.00.").) David Coley guaranteed Advantage Pacific's obligation under the Advantage Note pursuant to a guaranty ("Advantage Guaranty").² (Probst Aff. ¶ 17, Ex. 5.)

To secure Advantage Pacific's obligations under the Advantage Pacific Note, Advantage Pacific granted BCC a blanket security interest in all of Advantage Pacific's personal property, including the Advantage Agency Assets, client accounts and rights to payment, and all proceeds therefrom (collectively, "Advantage Collateral"), pursuant to a commercial security agreement ("Advantage Security Agreement"). (Id. ¶ 18, Ex. 6.) The Advantage Collateral includes general intangibles, which includes client lists. (Id. Ex. 6 at 1.)

Pursuant to the loan documents executed by Advantage Pacific, BCC paid $230,287.00 to Seller toward Advantage Pacific's purchase of the Advantage Agency Assets. (Id. ¶ 19.) In accord with the Bill of Sale under the Advantage Purchase Agreement, and in exchange for the purchase price of $235,346.00, Seller transferred all of its right, title, and interest in and to the Advantage Agency Assets to Advantage Pacific. (Id.; see also id. ¶ 16, Ex. 4.) BCC perfected its security interest in the Advantage Collateral by filing a Uniform Commercial Code ("UCC") Financing Statement ("Advantage Financing Statement") with the Washington Secretary of State. (Id. ¶ 20, Ex. 7.)

On February 29, 2008, contemporaneously with BCC and Advantage Pacific's execution of the Advantage Note, BCF sent a Borrowing Base Certificate to DZ Bank. (Id. ¶ 21, Ex. 8.) In this Certificate, BCF requested that Autobahn advance funds to BCF under the Amended Security Agreement for BCF's purchase of the Advantage Note and various other loans. (Id.) Under the Amended Security Agreement, on or about February 29, 2008, Autobahn loaned BCF $230,287.00 to purchase the Advantage Note from BCC. (Id. ¶ 22.) In conjunction with this, BCC assigned the Advantage Note to BCF, and the Advantage Note, Advantage Guaranty, and Advantage Security Agreement became immediately subject to DZ Bank's lien under the Amended Security Agreement. (Id. ¶ 22, Ex. 1 ¶¶ 2.12-2.13.)

C. BCC Finances API's Purchase of an Insurance Agency

On October 31, 2007, BCC, as lender, and CrullADD, Inc., as borrower, entered into a Promissory Note known as Loan No. 6486 and an Agreement for Advancement of Loan (collectively, "Note 6486"), in which BCC agreed to loan CrullADD $962,208.42 toward CrullADD's refinance of existing BCC debt. (Id. ¶ 23, Ex. 9.)

On October 31, 2007, contemporaneously with BCC and CrullADD entering into Note 6486, BCF sent a Borrowing Base Certificate to DZ Bank. (Id. ¶ 24, Ex. 10.) In this Certificate, BCC requested that Autobahn advance funds to BCF under the Amended Security Agreement for BCF's purchase of Note 6486 and various other loans. (Id. ¶ 24, Ex. 10.) Under the Amended Security Agreement, on or about November 1, 2007, Autobahn loaned BCF $962,208.42 to purchase Note 6486 from BCC. (Id. ¶ 25.) BCC assigned Note 6486 to BCF, and Note 6486 became immediately subject to DZ Bank's lien under the Amended Security Agreement. (Id. ¶ 25, Ex. 1 ¶¶ 2.12-2.13.)

On June 27, 2008, API Vancouver Insurance, Inc. ("API"), as assignee, and BCC, as secured creditor and assignor, entered into a Bill of Sale and Instrument of Conveyance in Foreclosure ("API Bill of Sale")³ for the transfer to API of all collateral secured by BCC pursuant to Note 6486 in exchange for the purchase price of $350,000.00.⁴ (Id. ¶ 26, Ex. 11.) This collateral included substantially all of the assets of CrullADD doing business as Brooke Insurance Franchise No. 948, including the agency's book of business ("API Agency Assets"). (Id.) On the same day, BCC, as lender, and API, as borrower, entered into an Amendment to Promissory Note whereby API assumed all of CrullADD's obligations pursuant to Note 6486 by Assumption Agreement dated June 27, 2008, and wherein the principal loan balance was amended to $350,000.00 (collectively, "Amended Note 6486").⁵ (Id. ¶ 27, Ex. 12.) Mr. Coley guaranteed API's obligations under Amended Note 6486 pursuant to a guaranty ("API Guaranty"),⁶ (Id. ¶ 28, Ex. 13.)

To secure API's obligations under Amended Note 6486, API granted BCC a blanket security interest in all of API's personal property, including the API Agency Assets, client accounts and rights to payment, and all proceeds therefrom (collectively, "API Collateral"), pursuant to a commercial security agreement ("API Security Agreement"). (Id. ¶ 29,...