Novartis Animal Health Us v. Earle Palmer Brown, No. Civ.A.1:03CV272-MHS.

• Decision Date: 28 March 2006
• Docket Number: No. Civ.A.1:03CV272-MHS.
• Citation: 424 F.Supp.2d 1358
• Parties: NOVARTIS ANIMAL HEALTH US, INC., Plaintiff, v. EARLE PALMER BROWN, LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

424 F.Supp.2d 1358

NOVARTIS ANIMAL HEALTH US, INC., Plaintiff, v. EARLE PALMER BROWN, LLC, et al., Defendants.

No. Civ.A.1:03CV272-MHS.

United States District Court, N.D. Georgia, Atlanta Division.

March 28, 2006.

COPYRIGHT MATERIAL OMITTED

Jessie C. Fontenot, Jr., Jimmy E. White, Joel G. Pieper, R. Wayne Bond, Womble Carlyle Sandridge & Rice, Atlanta, GA, R. Howard Grubbs, Womble Carlyle Sandridge & Rice, Greenville, SC, for Plaintiff.

Catherine Modling Bennett, Richard H. Sinkfield, Terry L. Houser, Rogers & Hardin, Barry Goheen, Paul Joseph Murphy, Misty Speake, Cheri A. Grosvenor, Jessica Neyman, King & Spalding, Atlanta, GA, Cory Greenberg, Ina B. Scher, Miles A. Baum, Davis & Gilbert, New York, NY, for Defendants.

ORDER

SHOOB, Senior District Judge.

This action is before the Court on defendant UPS Capital Corporation's motion for summary judgment. For the following reasons, the Court grants the motion.¹

Background

This action arises out of the alleged misappropriation of funds provided by plaintiff Novartis Animal Health US, Inc. (Novartis), to defendant Earle Palmer Brown, LLC (EPB), to pay for a television advertising campaign. Unless otherwise noted, the following facts are not in dispute.

In 1997, Novartis, a provider of pharmaceutical products and services to the animal health industry, and EPB, an advertising agency, entered into an Advertising Agreement for the provision of general advertising services. Pursuant to the Advertising Agreement, in December 2001, Novartis and EPB agreed to a television advertising plan for 2002 (the "2002 Advertising Campaign"). A total of $9.4 million was budgeted to pay various media outlets throughout the country to air the planned advertisements (the "Media Placement Money").²

Novartis and EPB agreed to an advance billing schedule under which Novartis would provide EPB the Media Placement Money before the advertisements were aired. Pursuant to this agreed-upon schedule, EPB issued three invoices to Novartis totaling $9.4 million (the "Media Placement Invoices"). From late January through March 2002, Novartis issued several checks in payment of the Media Placement Invoices.

Meanwhile, on August 9, 2001, EPB's parent; defendant Panoramic Communications, LLC (Panoramic), had entered into a Factoring Agreement with defendant UPS Capital Corporation (UPSC), under which Panoramic assigned all of its accounts receivable to UPSC. Pursuant to the Factoring Agreement, Panoramic assigned the Media Placement Invoices to UPSC. In return, UPSC advanced a percentage of the invoice amounts (65%-85%) to Panoramic. When Novartis paid the invoices, the payments went to UPSC. Upon receipt of the payments, UPSC paid the balance of the invoice amounts to Panoramic, less its factoring fee and interest on the advances.³

In accordance with the 2002 Advertising Plan, EPB, through its affiliate, RJ Palmer, LLC, placed the Novartis advertisements with various media outlets, and all the advertisements were aired as scheduled. However, due to Panoramic's deteriorating financial condition, when the bills from the various media providers came due, they were not paid. Panoramic ultimately made partial payments to media providers accounting for approximately $3 million owed for the 2002 Advertising Campaign. Both Panoramic and EPB subsequently ceased doing business and made general assignments for the benefit of creditors.

Some media companies sued EPB and Novartis for failure to pay for the Novartis advertisements those companies ran during the 2002 Advertising Campaign. Among the suits filed against EPB and Novartis was the instant action, originally filed by Georgia Television Company d/b/a WSB-TV (WSB) seeking to recover $62,968, plus interest and attorney's fees, for advertisements aired on WSB's local television station. Novartis filed a cross-claim against EPB and a third-party complaint against Panoramic and UPSC in which it sought to recover all of its loss arising from the alleged misappropriation of the Media Placement Money. The Court later granted WSB's request to be dropped from the suit and realigned Novartis as the plaintiff and EPB, Panoramic, and UPSC as the defendants. Following completion of discovery, UPSC moved for summary judgment.

Summary Judgment Standard

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when "there is no genuine issue as to any material fact ... and the moving party is entitled to judgment as a matter of law." In Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), the Supreme Court held that this burden could be met if the moving party demonstrates that there is "an absence of evidence to support the non-moving party's case." Id. at 325, 106 S.Ct. 2548. At that point, the burden shifts to the non-moving party to go beyond the pleadings and present specific evidence giving rise to a triable issue. Id. at 324, 106 S.Ct. 2548.

In reviewing a motion for summary judgment, the Court must construe the evidence and all inferences drawn from the evidence in the light most favorable to the non-moving party. WSB-TV v. Lee, 842 F.2d 1266, 1270 (11th Cir.1988). Nevertheless, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)(emphasis in original).

Discussion

Novartis claims that Panoramic and UPSC conspired with EPB to misappropriate the Media Placement Money. (Second Am. Third-Party Compl. ¶ 38.) Novartis asserts claims against UPSC for fraud, violation of both state and federal Racketeer Influenced and Corrupt Organizations (RICO) Acts, conversion, tortious interference with contractual relations, unjust enrichment, breach of contract, breach of implied contractual duty of good faith and fair dealing, breach of fiduciary duty, and negligence. (Id. ¶¶ 39-141.) Novartis seeks an accounting and recovery of the $9.4 million in Media Placement Money, less amounts actually paid to the media providers, plus punitive damages, interest, and attorneys' fees. (Id. ¶¶ 42-150 & Prayer for Relief.)

UPSC contends that the provisions of Article 9 of the Uniform Commercial Code (UCC) governing factoring preclude Novartis's claims and entitle it to summary judgment. Specifically, UPSC argues that under current UCC § 9-404, which took effect July 1, 2001, as well as former UCC § 9-318, account debtors such as Novartis cannot recover payments made to contract assignees such as UPSC. UPSC relies on Michelin Tires (Canada) Ltd. v. First National Bank of Boston, 666 F.2d 673, 677-79 (1st Cir.1981), and later cases, which construed former UCC § 9-318 as providing account debtors a right to assert contractual defenses and claims against contract assignees as a set-off but not an affirmative right of recovery. UPSC also points to the explicit language of current UCC § 9-404, which states that "the claim of an account debtor against an assignor may be asserted against an assignee ... only to reduce the amount the account debtor owes." O.C.G.A. § 11-9-404(b)(emphasis supplied).

In response, Novartis contends that UPSC's argument is irrelevant because Novartis has not asserted any claims against UPSC under the UCC. In addition, Novartis argues that Michelin and its progeny apply only to innocent assignees who take assignments in good faith. According to Novartis, the evidence in this case shows that UPSC knew the Media Placement Money did not belong to EPB; consequently, UPSC took the assignment of the Media Placement Invoices in bad faith. Because UPSC is not an innocent assignee, Novartis argues, Novartis's claims for an affirmative recovery against UPSC are not dependent on any rights or causes of action provided under the UCC but are based instead on UPSC's knowing and unlawful participation in EPB's fiduciary fraud.

For the following reasons, the Court concludes that (1) Article 9 of the UCC applies to the factoring of the Media Placement Invoices; (2) Article 9 does not permit an account debtor like Novartis to make an affirmative recovery from an assignee like UPSC; and (3) the evidence does not support Novartis's claim that UPSC acted in bad faith. Accordingly, the Court concludes that UPSC is entitled to summary judgment.⁴

It is clear that the transactions at issue-Panoramic's assignment of the Media Placement Invoices to UPSC-are governed by Article 9 of the UCC. Subject to certain exceptions not applicable here, the UCC expressly provides that Article 9 "applies to ... [a] sale of accounts...." O.C.G.A. § 11-9-109(a)(3). An "account" is defined in pertinent part as "a right to payment of a monetary obligation, whether or not earned by performance, ... for services rendered or to be rendered ... [or] for a secondary obligation incurred or to be incurred...." O.C.G.A. § 11-9-102(a)(2). In this case, there is no dispute that the Media Placement Invoices represented Novartis's obligation to pay EPB, in accordance with an agreed-upon schedule, for placement of its advertisements with media vendors. Therefore, the Media Placement Invoices were "accounts," the assignment of which to UPSC is governed by Article 9.

Article 9 of the UCC provides that the rights of an assignee such as UPSC are subject only to an account debtor's claims "in recoupment." O.C.G.A. § 11-9-404(a)(1). Thus, under the UCC, an account debtor such as Novartis may assert a claim against an assignee such as UPSC "only to reduce the amount the account debtor owes." O.C.G.A. § 11-9-404(b). In Michelin and later cases, both state and federal courts have uniformly construed this provision and its predecessor, UCC § 9-318, not to create an affirmative right of action by an account debtor against an assignee. See Michelin, 666 F.2d at 677-80; see also Phil Greer & Assocs. v....