Jcb, Inc. v. Union Planters Bank, Na

• Decision Date: 26 August 2008
• Docket Number: No. 07-2968.,07-2968.
• Parties: JCB, INC., Plaintiff-Appellee, v. UNION PLANTERS BANK, NA, Defendant-Appellant, Machinery, Inc., Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

539 F.3d 862

JCB, INC., Plaintiff-Appellee, v. UNION PLANTERS BANK, NA, Defendant-Appellant Machinery, Inc., Defendant.

No. 07-2968.

United States Court of Appeals, Eighth Circuit.

Submitted: April 14, 2008.

Filed: August 26, 2008.

Jeffrey Heuer, argued, St. Louis, MO, Michael A. Clithero and Geoffrey G. Geber, on the brief, for appellant.

Brian Christopher Walsh, argued, St. Louis, MO, Thomas C. Walsh, Kevin M. Abel, and Cullen K. Kuhn, on the brief, for appellee.

Before MURPHY, COLLOTON, and SHEPHERD, Circuit Judges.

MURPHY, Circuit Judge.

JCB, Inc. brought this action against Union Planters Bank, N.A. (Bank) seeking a declaratory judgment and damages for trespass and conversion for unilateral removal and sale of equipment which had been purchased by their debtor, Machinery, Inc. and was subject to their competing security interests. The district court referred some of the issues in dispute to the bankruptcy court which determined that JCB had the senior security interest in the equipment and granted it partial summary judgment. Issues of damages were tried to a jury in the district court, resulting in a verdict in favor of JCB. The jury awarded JCB $1,446,500 in compensatory damages and $1,150,000 in punitive damages for conversion, as well as $1 compensatory and $1,087,500 punitive damages for trespass. After denying the Bank's post trial motions, the district court entered judgment for JCB in the amount of the jury verdict. The Bank appeals. We affirm in part and reverse in part.

I.

Both JCB and the Bank were creditors of Machinery, Inc. (Machinery). JCB manufactures and distributes heavy equipment, such as backhoe loaders and excavators, as well as parts. Machinery was an authorized dealer of JCB products in St. Louis, Missouri. Under their 1996 dealership agreement and inventory security agreement, Machinery received JCB equipment, machines, and parts on credit as part of a floorplan financing arrangement. In return, Machinery granted JCB a purchase money security interest in the equipment, including any which Machinery might acquire after the agreements were signed.¹ As a result of a line of credit extended to Machinery in 2000 the Bank obtained a security interest in Machinery's inventory and accounts and certain other items. While the Bank made no new loans to Machinery after 2001 and the principal and interest on its loan had been fully paid off by July 2003, Machinery still had contingent obligations to it related to another lawsuit.

Machinery ran into financial trouble and filed a voluntary Chapter 11 bankruptcy petition in 2001. The bankruptcy court confirmed Machinery's plan for reorganization later that year.² While Machinery was in bankruptcy, JCB continued to sell it inventory under the original floorplan financing arrangement and previous security agreement; no separate security agreement was executed after the Chapter 11 proceedings were initiated. In 2003 Machinery encountered further financial difficulties and could not make scheduled payments to JCB for inventory it purchased on credit, but JCB continued to provide it current model equipment and parts so that Machinery could service its customers. In March 2003 representatives of Machinery and JCB decided to move the remaining JCB equipment to a lot which JCB leased adjacent to Machinery's premises. Other rental equipment subject to JCB's security agreement was placed on this lot as it was returned. JCB's lot was fenced with gates which were supposed to be locked at all times, but a Machinery representative had a key to one of the gates and limited authority to enter the lot to show machines to prospective customers and to return rented equipment.

Machinery eventually decided to close down its business, and on April 29, 2003 a meeting of its major secured creditors was held on its premises to announce that it would be ceasing operations. The Bank, JCB, and Machinery were all represented at the meeting. At the time of the meeting, the huge yellow equipment which had been moved onto JCB's adjacent lot was visible through the fencing, but neither the Bank nor Machinery raised any objection to its separation. The Bank later explained that only after the meeting had it learned that JCB had financed equipment purchase by Machinery subsequent to the confirmation of its reorganization plan.

The Bank decided to repossess equipment Machinery had obtained from JCB and it hired ATEC, Inc. for the job. ATEC had been serving as the liquidating agent for Machinery, and on May 9, 2003, ATEC entered JCB's lot without notice or advance authorization and removed 23 machines from it. All of this equipment had been purchased by Machinery from JCB on credit after confirmation of its Chapter 11 plan.

The Bank chose to sell the 23 pieces of equipment ATEC had seized along with other Machinery collateral at a public liquidation auction. It notified JCB and other creditors of its plan on June 12, 2003. JCB responded on July 2 with a written proposal to sell the equipment in which it claimed a security interest through its dealership system. Its proposal was not accepted by the Bank. On July 15 two days before the auction, JCB sent a letter demanding that the Bank remove its equipment from the auction and return it. This letter also stated that JCB asserted a first priority purchase money security interest in the machines and disputed the Bank's claim to them. ATEC nevertheless proceeded with the auction on behalf of the Bank as originally scheduled, and around $839,000 was obtained for the equipment. Although there were varying estimates, there was testimony at trial that the equipment had a fair market value of about $1.1 million. The Bank eventually placed the proceeds from the equipment in a noninterest bearing account mingled with proceeds from other collateral; it subsequently withdrew some of the money to cover Machinery's obligations to the Bank, including attorney fees for a separate action.

JCB filed this action against the Bank and Machinery in September 2003, seeking a declaratory judgment that it had a security interest in the equipment which was senior to the interests of the Bank and Machinery, and also asserting claims in trespass and conversion. The Bank counterclaimed on four counts, requesting a declaratory judgment that it held the senior security interest in the collateral. The district court referred the matter to the bankruptcy court for determination under Machinery's reorganization plan of the relative priorities of its creditors' secured interests. The Bank moved unsuccessfully for summary judgment, and JCB moved for partial summary judgment on its own claims and on the Bank's counterclaims. The bankruptcy court determined that both the Bank and JCB had perfected security interests in the collateral, but that JCB's lien was senior because Machinery's reorganization plan preserved JCB's prepetition purchase money security interest in the equipment Machinery acquired after confirmation of the plan.

The district court held a jury trial on the issue of damages. The jury was instructed on both trespass and conversion, and the verdict form had separate sections for each tort with separate lines for compensatory and punitive damages. For the Bank's conversion of JCB's equipment, the jury awarded JCB $1,446,500 in compensatory damages based on its fair market value (which included $346,500 in interest) and $1,150,000 in punitive damages. The district court directed the jury to award $1 in compensatory damages on JCB's trespass claim since the fair market value of the land had not been diminished by the trespass; the parties agreed that that amount was appropriate. The jury awarded JCB $1,087,500 in punitive damages for the Bank's trespass. The Bank filed post trial motions for judgment as a matter of law, a new trial, and remittitur of the damages. The district court denied the motions and ordered that judgment be entered for JCB in the amounts awarded by the jury; the judgment lists the amounts awarded for trespass and conversion separately.

The Bank appeals from the judgment, arguing that it had the senior security interest in the collateral as a matter of law and that it could therefore not have been liable for trespass and conversion. The Bank further contends that JCB was not entitled to punitive damages and that the amount awarded was excessive and unreasonable. It also challenges the interest award. JCB urges us to affirm in all respects.

II.

The Bank argues that the bankruptcy court erred as a matter of law in granting JCB's motion for partial summary judgment. It attacks the determination that JCB had the senior interest in the collateral and argues that it was not liable for conversion and trespass. JCB disagrees, arguing that the bankruptcy court correctly determined that it had the senior security interest in the equipment under the reorganization plan and that the Bank was liable for conversion and trespass.

While we normally review a bankruptcy court's legal conclusions de novo, Neal v. Kansas City Star (In re Neal), 461 F.3d 1048, 1052 (8th Cir.2006), its interpretation of the confirmed plan is entitled to deference as an interpretation of its own order and "should be reviewed under the abuse of discretion standard." Gen. Elec. Capital Corp. v. Dial Bus. Forms, Inc. (In re Dial Bus. Forms, Inc.), 341 F.3d 738, 744 (8th Cir.2003). Acting on a reference from the district court, the bankruptcy court concluded here that Machinery's reorganization plan gave JCB the senior security interest in post confirmation assets purchased under the JCB financing and security agreements, including the 23 pieces of equipment on the fenced lot. The court reasoned that § 3.4.14.b of the reorganization plan preserved JCB's prepetition lien on the collateral and that no other provision of the plan eliminated that interest.³ The district court agreed with the bankruptcy court and determined that JCB had the senior lien in the...