INDUSTRIAL TECHNOLOGIES v. Jacobs Bank

• Decision Date: 25 April 2003
• Parties: INDUSTRIAL TECHNOLOGIES, INC., and Richard Hill v. JACOBS BANK. Jacobs Bank v. Industrial Technologies, Inc., and Richard Hill.
• Court: Alabama Supreme Court

872 So.2d 819

INDUSTRIAL TECHNOLOGIES, INC., and Richard Hill v. JACOBS BANK.

Jacobs Bank v. Industrial Technologies, Inc., and Richard Hill.

1064.

Supreme Court of Alabama.

April 25, 2003.

Rehearing Denied August 29, 2003.

Donald G. Madison, Montgomery; and William H. Webster of Webster & Henry, P.C., Montgomery, for appellants/cross-appellees Industrial Technologies, Inc., and Richard Hill.

John F. Porter III, Scottsboro, for appellee/cross-appellant Jacobs Bank.

WOODALL, Justice.

This case involves an appeal by Industrial Technologies, Inc., and Richard Hill, the owner and sole shareholder of that corporation (hereinafter referred to collectively as "Industrial"), and a cross-appeal by Jacobs Bank ("the Bank"), from a judgment entered on a jury verdict awarding Industrial $148,000 in compensatory damages, but vacating the jury's $250,000 punitive-damages award, in Industrial's counterclaims against the Bank for conversion of Industrial's manufacturing equipment. As to the appeal (case no. 1011966), we reverse and remand. As to the cross-appeal (case no. 1012064), we affirm.

This is the not the first time this Court has reviewed some aspect of this litigation. See Ex parte Indus. Techs., Inc., 707 So.2d 234 (Ala.1997).¹ The dispute arose out of a business relationship, formed in 1989, between Industrial and American Detention Products, Inc. ("ADPI"), a manufacturer of "jail bars and prison equipment." At that time, ADPI was indebted to the Bank. In particular, ADPI had taken out a $200,000 loan secured by a promissory note, giving the Bank a security interest in "[a]ll machinery and equipment of [ADPI's] business whether [then] existing or [thereafter] acquired." The security interest was described in identical terms on a UCC financing statement, filed with the secretary of state on March 28, 1988. Filed with the financing statement was "Exhibit B," purporting to be an "Asset List" of equipment owned by ADPI.

Shortly after ADPI secured the loan, Industrial began transacting business with ADPI. More specifically, Industrial began making loans to ADPI in exchange for a security interest in ADPI's accounts receivable. Similarly, Industrial leased to ADPI, according to Hill, several items of manufacturing equipment, which, Hill states, Industrial had purchased with its own funds, for use by ADPI on ADPI's premises. In May 1992, ADPI ceased its business operations and vacated the premises.

On July 9, 1992, the Bank commenced an action against ADPI.² The complaint alleged that ADPI was "substantially in default, ... having failed to make the agreed monthly payments" on the loan. The complaint alleged that the Bank had a security interest in the equipment on the asset list filed with the UCC financing statement, and that the equipment was located on ADPI's premises. It sought, among other things, an order "giv[ing] the [Bank] the possession and title to said property."

By a letter dated July 13, 1992, counsel for Industrial corresponded with the Bank's counsel, stating, in part:

"If you recall, I called you concerning the interest of [Industrial] in certain equipment located on the premises which have been leased by [ADPI] in Scottsboro, Alabama, particularly in light of the fact that [the] Bank claims through various loans made to [ADPI], a majority of the equipment which has been utilized in [ADPI's] operations.

"I have enclosed a copy of a list of the equipment which belongs to [Industrial], which has been on lease to [ADPI], which equipment should not be attempted to be removed from the premises leased by [ADPI], during any removal of equipment by [the] Bank in removing equipment which [the] Bank alleges is secured through the various loans made to [ADPI]."

(Emphasis added.)

Ten days later, the trial court entered an order, stating that the Bank was entitled to possession of the equipment described on the asset list. It further authorized the Bank to take possession of the equipment in 30 days, if the debt of ADPI was not paid. The debt was not paid, and, in September 1992, the Bank took possession of all the equipment on the premises formerly occupied by ADPI. More specifically, the Bank leased the building housing the equipment and began liquidating the equipment.

In a letter to the Bank's counsel dated December 10, 1992, counsel for Industrial noted that Industrial had received no notice of the liquidation. The letter also stated: "Arrangements ... need to be made to allow [Industrial] and/or Richard Hill to obtain possession of the equipment owned by [Industrial] and Richard Hill." In a letter to Industrial's counsel dated March 2, 1993, counsel for the Bank stated, in pertinent part:

"This will confirm that [the] Bank claims a security interest in all of the machinery and equipment and other miscellaneous items listed on the UCC-1 financing statements which I have previously provided, together with all additions, replacements, accessions and after acquired property. This includes virtually all of the property now located upon the former business premises of ADPI in Scottsboro, Alabama. As I explained to you last week, [the] Bank has negotiated a sale arrangement for this equipment where they are guaranteed the sum of $ 105,000.00, which includes all of the equipment now located on the premises formerly occupied by ADPI. However, with your client making a claim to a portion of this equipment, whether their claim is valid or not, [the] Bank cannot guarantee clear title to the ultimate purchasers. Without this guarantee or certification, I suspect the purchasers will withdraw their offer. If this offer is withdrawn and is not replaced by an offer of equal value, and it is ultimately determined that [the] Bank holds a priority security interest on all of the equipment which they are claiming, the Bank will look to [Industrial] and Richard Hill for all consequential damages because of their interference with the Bank's rightful foreclosure of their security interest."

(Emphasis added.)

On March 17 and 18, 1993, Industrial's counsel sent the Bank a letter and copies of numerous bills of sale and invoices from various companies, evidencing the purchase by Industrial of equipment, which Industrial specifically identified as its equipment being housed on the former premises of ADPI. The March 17 letter further stated:

"You stated in previous correspondence that once documentation had been provided to you evidencing title of the disputed equipment in my client, that you would immediately release said equipment to my client's care and allow him to pick the same up. Demand is hereby made that the equipment ... (reflected on the attached exhibits) be immediately released. Any further attempt by [the] Bank to attempt to claim the equipment ... is frivolous and without merit. [The] Bank is totally without argument to deny my client immediate possession of said equipment."

(Emphasis added.)

Additionally, Hill, accompanied by counsel, traveled to Scottsboro to meet personally with the Bank's counsel regarding the documentation provided by the correspondence of March 17 and 18. At that meeting, Hill requested permission to retrieve the equipment. In response, according to Hill's unrefuted testimony, counsel for the Bank told him "not to go out there [or] he was going to put him in jail for fraud."

Subsequently, on May 7, 1993, the Bank amended its complaint to include a claim against Industrial and Hill, individually. The amended complaint sought a judgment declaring the Bank's "security interest... to be superior to the claims of the defendants in and to the equipment located upon the premises formerly occupied by [ADPI], and authorizing it to proceed with the sale in a commercially reasonable manner." Industrial answered the amended complaint, and counterclaimed against the Bank, alleging conversion. The counterclaim sought $300,000 in compensatory damages, and $3,000,000 in punitive damages.

Throughout succeeding years, while this action was pending, Hill periodically visited the premises to keep apprised of the condition of the disputed equipment. In December 1993, Hill visited the premises, accompanied by James Hines, a loan officer of the Bank. At that time, Hill found the disputed equipment locked inside the deserted building. However, shortly thereafter, the Bank, for a reduction in the rent it was paying, allowed a third party to occupy the building and to use the disputed equipment in the third party's business. When Hill visited the site in the spring of 1994, he discovered that some of the disputed equipment was no longer being used and that it had been placed outside the building. On a later visit, Hill found that all of the equipment was being stored outside the building.

On June 26, 1996, Industrial filed a "motion for emergency relief," seeking an order "enjoining and prohibiting the sale and/or removal of [its] equipment by [the] Bank ... or [by] the ... landlord of the premises where the equipment owned by Richard Hill and/or [Industrial] [was] located." The injunction was necessary, because, Industrial alleged, the Bank was threatening, at the instance of the landlord, to sell the equipment on June 26, 1996, if it was not removed from the premises by that date. The motion further stated:

"That previously in this action, at [the] Bank's officer's deposition, [Industrial] discovered that some of the equipment owned by [Industrial] had been sold. After this discovery, it was subsequently learned at the mediation that additional equipment had been sold after notice had been made on the parties arranging for the sale of the equipment on behalf of the Bank, was well as by the Bank itself. The equipment has been reduced to salvageable condition, but the Defendants Richard Hill and/or [Industrial] are still desirous of obtaining said equipment back in its current condition."

(Emphasis added.)

That same day, the trial court entered an order authorizing Industrial to "go upon the...