In re General Plastics Corp.

• Decision Date: 15 March 1994
• Docket Number: Bankruptcy No. 91-12375-BKC-AJC. Adv. No. 91-0579-BKC-AJC-A.
• Citation: 170 BR 725
• Parties: In re GENERAL PLASTICS CORPORATION, Debtor. CAPITAL FACTORS, INC., Plaintiff, v. GENERAL PLASTICS CORPORATION, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

170 B.R. 725 (1994)

In re GENERAL PLASTICS CORPORATION, Debtor CAPITAL FACTORS, INC., Plaintiff, v. GENERAL PLASTICS CORPORATION, Defendant.

Bankruptcy No. 91-12375-BKC-AJC. Adv. No. 91-0579-BKC-AJC-A.

United States Bankruptcy Court, S.D. Florida.

March 15, 1994.

COPYRIGHT MATERIAL OMITTED

Michael W. Ullman, Ullman & Ullman, North Miami Beach, FL, for plaintiff.

D. Jean Ryan, Paul D. Friedman, Friedman Rodruguez & Ferraro, Miami, FL, for defendant.

MEMORANDUM OPINION ON AMENDED MOTION OF CAPITAL FACTORS FOR FEES AND EXPENSES ON COUNTERCLAIM COUNTS II, III, V, AND VI

JACK B. SCHMETTERER, Bankruptcy Judge, Sitting by Assignment and Designation.

INTRODUCTION

Following bifurcated trial on liability before the Court, Findings of Fact and Conclusions of Law ("Findings and Conclusions") were made and entered. 158 B.R. 258 (1993). At the same time, orders were entered determining that the Plaintiff-Counterdefendant Capital Factors, Inc. ("Capital Factors") was not liable to Defendant-Counterplaintiff General Plastics Corporation ("General Plastics") on Counts II, III, V, and VI of the General Plastics' Counterclaim. It was further ordered that final judgment will be entered in favor of Capital Factors on these counts, dismissing them when the case is completed.

The remaining damage issues were set for trial, but the parties entered into a settlement stipulation ("Stipulation") approved November 1, 1993. Pursuant thereto, it became unnecessary to try the damage issues. However, there remained for ruling the instant motion (since amended) filed by Capital Factors seeking sanctions in the form of attorneys' fees and expenses on Counts II, III, V, and VI, pursuant to Fed.R.Bankr.P. 9011 and § 772.11 of the Florida Statutes.¹ Following consideration of filings by the parties, for reasons stated below, the motion for sanctions is allowed as to Counts V and VI and denied as to Counts II and III.

A. Count II

Count II was based upon General Plastics' theory that a "course of conduct", consisting of advances by Capital Factors made at the rate of 85% over a period of time, modified the Factoring Agreement and required Capital Factors to continue making such advances at the same rate. This position was proved untenable because the Factoring Agreement gave Capital Factors absolute discretion to reduce the advance rate at any time, and the evidence did not demonstrate a course of conduct amounting to an agreement to modify the contract.

Capital Factors cited authorities demonstrating that a prior practice of making advances did not, under agreements with similar clauses, restrict the lender's right to reduce or terminate such advances. See Capital Factors' Proposed Findings of Fact, pp. 41-49. The Court followed such cases in its Memorandum Opinion. In re General Plastics, 158 B.R. 258, 284 (Bankr.S.D.Fla.1993) at ¶ 3 of the Conclusions of Law ("Conclusions"). However, it was also recognized (¶ 4) that the "terms of a contract may be modified by the subsequent dealings of a party." (Citing Pan American Engineering Co. v. Poncho's Constr. Co., 387 So.2d 1052 (Fla. 5th Dist.Ct.App.1980)). See also Barile Excavating & Pipeline Co. v. Vacuum Under-Drain, Inc., 362 So.2d 117, 119 (Fla. 1st Dist.Ct.App.1978); Curtis v. Radio Representatives, Inc., 696 F.Supp. 729, 733 (D.D.C. 1988); Ford Motor Credit Co. v. Waters, 273 So.2d 96, 100 (Fla. 3 Dist.Ct.App.1973).

During the period that Capital Factors retained confidence in General Plastics, it did indeed make advances to it at a rate of 85%. When that confidence fell, Capital Factors unilaterally reduced that rate to 75%. General Plastics did not meet its burden to show that the contract was amended by a course of conduct, but it cannot be said that it offered no evidence or legal authority related to that theory.

Count II was also based upon Capital Factors' asserted termination of the agreement without notice. The Factoring Agreement did clearly provide that Capital Factors could terminate upon breach of the agreement by General Plastics. General Plastics not only intentionally breached the Agreement, but committed a fraud upon Capital Factors by prebilling invoices. General Plastics, of course, knew of this intentional breach prior to filing the counterclaim since William Finn, a managing agent of General Plastics, directly participated in the scheme. In re General Plastics Corp., 158 B.R. at 278. General Plastics claimed that Capital Factors gave no formal written notice of termination even if such cause was asserted. The Court found that claim without merit. Capital Factors' March 22, 1991, letter gave written notice of the termination of advances. Id. at 279.

However, there was at least room for argument, albeit weak, that written notice was required and that the notice given was not technically sufficient under the agreement.

Capital Factors quotes the Court's opinion, stating that "there was no evidence in this case to prove that the parties' course of conduct modified the provision allowing Capital Factors to reduce the advance rate. . . ." Id. at 284. (Emphasis added.) Capital Factors argues that this equates to a finding that there was no proof offered whatsoever. Given the proofs offered at trial, the Court in effect found that General Plastics failed to meet its burden of proof, not that it submitted "no evidence" whatsoever. Pursuant to standards recited below, sanctions for Count II are not appropriate.

B. Count III

Capital Factors next argues that sanctions should be imposed against General Plastics because it "failed to establish two essential elements of its claim for tortious interference — that the interference be both direct and intentional." General Plastics points to two Findings of Fact ("Findings") to show that it had something significant to offer at trial on these issues:

28. Capital Factors did send a letter to General Plastics\' customers on March 26, 1991, reminding them to continue sending remittances to Capital Factors. General Plastics Ex. 3. However, this letter did not relate in any way to the buyer-seller relationship between General Plastics and its customers. It merely related to remittances, and Capital Factors had a right to continue receiving remittances at that time because there were outstanding advances still due.

29. General Plastics argues that Capital Factors had the necessary intent because it knew that terminating advances would cause General Plastics to shut down. It cites McCurdy v. Collis, 508 So.2d 380, 383, n. 2 (Fla.Dist.Ct.App.1987), which cites to Florida Standard Jury Instruction (Civil), MI 7.2, for a definition of intentional interference that includes "knowledge that the interference is substantially certain to occur as a result of defendant\'s action." General Plastics did not establish at trial that Capital Factors could know with certainty that a termination of advances was "substantially certain" to result in a shut down of General Plastics\' plant. While this was likely, it was by no means certain. In March of 1991, General Plastics could have looked to either its shareholder or its solvent affiliate in Dallas, Texas for fresh capital. The fact that they hadn\'t contributed anything up to that point did not mean that they could not or would not step into the breach after Capital Factors terminated advances. Moreover, it was certainly possible that a new lender would be found to loan against the historically strong receivables. Therefore, even under a more relaxed definition of intent, General Plastics\' claim still fails.

At trial, therefore, General Plastics demonstrated that Capital Factors communicated with General Plastics' customers after terminating the Agreement. For reasons given at length in the Findings and Conclusions, this communication did not serve to interfere with General Plastics' relationship with its customers, and proof of the tort of interference was not sufficient. However, General Plastics proved the communication and proved that it was direct and intentional, albeit not tortious or wrongful. Sanctions are therefore not warranted under standards recited below.

C. Counts V and VI (Rule 9011)

Counts V and VI were the theft and conversion counts.

Capital Factors contends that it is entitled to Rule 9011 sanctions because "General Plastics presented no evidence to prove that it had an immediate right to possession of the receivables . . . or that Capital Factors held a specifically identifiable sum of money . . .", proof that was required in these counts. The Court's Findings and Conclusions controvert Capital Factors' overstated contention that General Plastics failed to present any relevant evidence at all. The Court there concluded that "General Plastics had no immediate right to the receivables . . .", In re General Plastics Corp., 158 B.R. at 287, and that General Plastics had "not established that proceeds from assigned receivables were specifically identifiable property capable of being converted." Id. at 288. However, General Plastics presented evidence as to its claim, though insufficient to prevail.

General Plastics did present evidence addressed to some elements of its claim for conversion (including the lack of competing claims to the receivables/monies), including the following:

Capital Factors factored more than $275,000.00 of receivables assigned after March 19, 1991 (the date the Court\'s finding determined that Capital Factors terminated the agreement (p. 40, par. 89)). TT (MacMillan) May 18, p. 189; TT (Finn) May 19, pp. 237-38; GP 223;

General Plastics\' account balance with Capital Factors had been paid in full by no later than April 9, 1991. TT (Herzog) May 18, p. 374; GP 223, Stip. (GP 327 no. 57);

Capital Factors admitted that it held property belonging to General Plastics between April 9, 1991 and the commencement of the bankruptcy proceedings solely because of the demands of the IRS and First Union. (Stip. (GP 327, nos. 32, 79, 80, and 84));

By and no

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