Georgia-Pacific Corp. v. FIRST WIS. FINANCIAL CORP.

• Decision Date: 27 September 1985
• Docket Number: 82 C 4531.,No. 82 C 6768,82 C 6768
• Parties: GEORGIA-PACIFIC CORP., Plaintiff, v. FIRST WISCONSIN FINANCIAL CORP., Defendant.
• Court: U.S. District Court — Northern District of Illinois

625 F. Supp. 108

GEORGIA-PACIFIC CORP., Plaintiff, v. FIRST WISCONSIN FINANCIAL CORP., Defendant.

Nos. 82 C 6768, 82 C 4531.

United States District Court, N.D. Illinois, E.D.

September 27, 1985.

COPYRIGHT MATERIAL OMITTED

William I. Goldberg, Timothy F. Kocian, Melanie Rovner Cohn, Antonow & Fink, Chicago, Ill., Fred R. McMorris, Wheaton, Ill., for DuPage Lumber, West DuPage, and James Green, Ronald Wilder, Ann Rae Heitland, Sara L. Johnson.

Schiff, Hardin, & Waite, Chicago, Ill., for Georgia-Pacific Corp.

Terry F. Moritz, Alan P. Solow, Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., Chicago, Ill., for First Wis.

MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

These cases, consolidated for pre-trial purposes, are before the court on several motions. In 82 C 6768, plaintiff Georgia-Pacific Corporation ("Georgia-Pacific") has moved under Fed.R.Civ.P. 12(c) for judgment on the pleadings in its favor on the Amended Counterclaim of defendant First Wisconsin Financial Corporation ("First Wisconsin"). First Wisconsin has moved for the release of certain funds held by the Clerk of Court, and Georgia-Pacific has moved to require that all funds collected by First Wisconsin be deposited with the court. In 82 C 4531, Georgia-Pacific has moved for judgment on the pleadings in its favor on the Amended Complaint of DuPage Lumber and Home Improvement Co. ("DuPage"). Federal subject matter jurisdiction is based on 28 U.S.C. § 1332, the parties being of diverse citizenship and the amount in controversy exceeding $10,000.

FACTS

For purposes of Georgia-Pacific's motions for judgment on the pleadings, all well-pleaded factual allegations of DuPage's Amended Complaint and First Wisconsin's Amended Counterclaim must be taken as true, and all of Georgia-Pacific's allegations which have been denied must be taken as false. Chi-Mil Corp. v. W.T. Grant Co., 70 F.R.D. 352, 358 (E.D.Wis. 1976). In addition, nonmovants DuPage and First Wisconsin must be entitled to all reasonable inferences in their favor based on the facts as alleged. Bryson v. Brand Insulations, Inc., 621 F.2d 556, 559 (3d Cir.1980). Because of the related nature of the two claims, a single factual summary will suffice.

Beginning in 1972 Georgia-Pacific and DuPage entered into a consecutive series of agreements whereby DuPage purchased lumber and other building materials from Georgia-Pacific. It was the custom and understanding of the parties that Georgia-Pacific would ship the items ordered to DuPage's business location and that DuPage would commingle the items into its general inventory. Throughout this period and continuing through June 1982, DuPage generally sold materials from its inventory in the order in which they were received.

During this period, all of DuPage's purchases were made on open account, with the amount to be paid each month to be determined by DuPage based upon its cash flow. DuPage maintained an unpaid balance at all times for orders which it had already received, and Georgia-Pacific never charged DuPage interest on the unpaid balance of its account.

On or about August 1, 1977, DuPage and Georgia-Pacific entered into a security agreement wherein DuPage granted Georgia-Pacific a security interest in DuPage's inventory and accounts receivable. An identical security agreement was signed by the parties on or about March 16, 1979. The security agreements provided that DuPage would give or file appropriate lien notices, claims of lien and notices on bonds whenever such a lien or bond was obtainable, and would execute written assignments from time to time as would be necessary to protect Georgia-Pacific's interest in such liens or claims. Nothing in the written agreement either authorizes or prohibits Georgia-Pacific's filing lien notices in its own name.

On or about October 27, 1978, DuPage entered into a Receivables and Inventory Loan and Security Agreement with First Wisconsin. As security for the loans, DuPage granted to First Wisconsin a security interest in all of DuPage's existing and future accounts receivable and all proceeds thereof. Under the loan agreement, DuPage was required to remit all proceeds to First Wisconsin promptly upon their receipt by DuPage.

In order to induce First Wisconsin to make and renew loans and to extend further credit to DuPage, Georgia-Pacific entered into a subordination agreement with First Wisconsin. Under the agreement, Georgia-Pacific agreed to subordinate any security interest it then held or thereafter acquired in DuPage's inventory, accounts receivable, and proceeds thereof, and to subrogate First Wisconsin to any and all of Georgia-Pacific's "rights, title and interest" in that property. Georgia-Pacific further authorized First Wisconsin to collect, receive, enforce and accept any and all sums that became due with respect to such property, provided, however, that nothing in the agreement be construed to prevent Georgia-Pacific from demanding payment of DuPage's debts in the ordinary course of business.

Both prior to and after the signing of the security agreements, DuPage served lien notices and filed lien claims from time to time within its sole discretion. Georgia-Pacific never objected to DuPage's practices regarding the serving of lien notices or the filing of lien claims, Georgia-Pacific never objected to DuPage's failure to enforce a lien against a particular customer or project, and Georgia-Pacific never served any lien notices on a customer or project to which DuPage had supplied materials.

In or about January 1982, Georgia-Pacific informed DuPage that it wanted DuPage to pay off the balance on its account, at that time approximately $400,000. During the next several months, DuPage made reasonable attempts in good faith to reduce the balance of its account, but was unable to satisfy Georgia-Pacific. Throughout these months, Georgia-Pacific continued to sell to DuPage.

At a meeting on or about June 29, 1982, Georgia-Pacific demanded payment of the balance of DuPage's account and advised DuPage that it would no longer sell to DuPage. At this meeting, Georgia-Pacific, through its attorneys, Schiff, Hardin & Waite ("Schiff"), also requested information on DuPage's customers and accounts receivable. DuPage provided Georgia-Pacific with its latest itemized statement of accounts receivable, including the names of DuPage's customers, the names or addresses of those customers' construction projects, and the dollar amounts of the accounts.

On or about July 5, 1982, Georgia-Pacific requested DuPage to make two July payments. DuPage advised Georgia-Pacific that it could not make the first payment because of the interest due on the loan from First Wisconsin, but that it would make the second payment of $160,000 in late July, 1982. Thereafter, commencing on or about July 13, Georgia-Pacific, through its attorney Ronald Wilder at Schiff, prepared and distributed purported subcontractor's lien notices to DuPage's largest dollar volume customers. This was done without the advice or consent of either DuPage or First Wisconsin. Each of these lien notices falsely stated that DuPage had hired Georgia-Pacific to supply lumber and other building materials to the construction projects of these customers, whereas in reality DuPage had hired Georgia-Pacific to furnish these materials on open account. Each lien notice also stated falsely that $392,335.09 was due Georgia-Pacific on its contract with DuPage for furnishing materials to that particular owner's site. In fact, $392,335.09 represented DuPage's total indebtedness to Georgia-Pacific so that the lien notices in the aggregate claimed a debt vastly in excess of the actual amount owed. Georgia-Pacific made no effort to determine what, if any, materials sold by DuPage to the notice recipients had come from Georgia-Pacific.

Following the distribution of these lien notices, DuPage was deluged with calls from the recipients that they would not pay their bills, which aggregated more than $1 million, and would not make further purchases from DuPage. As a further result of Georgia-Pacific's actions, First Wisconsin declared DuPage in default on the loan agreement, demanded payment of the approximately $1.2 million loan and surrender of DuPage's accounts receivable and inventory, began dishonoring checks presented for payment on DuPage's account, and refused to advance funds under the loan which were essential to DuPage's continued business operations.

On July 21, 1982, DuPage filed its original complaint in 82 C 4531, seeking damages and a temporary restraining order against further distribution of said lien notices. On July 22, outside the courtroom in which a preliminary injunction hearing was held, attorney Ronald Wilder informed Jim Green, president of DuPage, that he was going to put DuPage out of business and take all of its inventory. On July 23, 1982, Judge Grady granted DuPage a preliminary injunction against further distribution of notices and First Wisconsin rescinded its notice of default. On July 28, Georgia-Pacific exercised its election to terminate the subordination agreement. As a result of these actions, First Wisconsin again declared a default and demanded payment of the loan to DuPage. On July 30, 1982, DuPage filed for reorganization under Chapter 11 of the Bankruptcy Code.¹

According to the pleadings of both First Wisconsin and DuPage, the above actions of Georgia-Pacific were undertaken in bad faith with the intention of injuring DuPage's relations with its customers and thereby driving it into liquidation. DuPage and First Wisconsin also allege that Georgia-Pacific's actions were intended to interfere with the loan agreement between the two of them. On October 25, 1983, in a partly published decision,² this court held that DuPage had stated a claim for breach of contract, but dismissed DuPage's claims for tortious interference with business relations and abuse of process and dismissed First Wisconsin's claims...