NPF IV, INC. v. Transitional Health Services

• Decision Date: 04 April 1996
• Docket Number: No. C2-95-981.,C2-95-981.
• Citation: 922 F. Supp. 77
• Parties: NPF IV, INC., et al., Plaintiff, v. TRANSITIONAL HEALTH SERVICES, et. al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

922 F. Supp. 77

NPF IV, INC., et al., Plaintiff, v. TRANSITIONAL HEALTH SERVICES, et. al., Defendants.

No. C2-95-981.

United States District Court, S.D. Ohio, Eastern Division.

April 4, 1996.

COPYRIGHT MATERIAL OMITTED

Randolph C. Wiseman, Bricker & Eckler (Drew H. Campbell and Laralyn Sasaki, of counsel), Columbus, Ohio, for Plaintiff.

Jerome C. Tinianow, Dinsmore & Shohl, Columbus, Ohio, (David Tachau and John David Dyche, Tachau, Maddox & Hovious, PLC, Louisville, Kentucky, of counsel), for Defendants David V. Hall, Randall J. Bufford, John G. Hundley and Cardinal Development Co., Inc.

Nicholas D. Satullo, Reminger & Reminger Co., L.P.A. Cleveland, Ohio, (Robert Sills and Jeffrey N. Leibell, Reboul, MacMurray, Hewitt, Maynard & Kristol, New York City, of counsel), for Defendant Transitional Health Services.

OPINION AND ORDER

GRAHAM, District Judge.

This is an diversity action filed by NPF IV, Inc. ("NPF") and National Century Financial Enterprises, Inc. asserting Ohio law claims against Transitional Health Services ("Transitional"), Cardinal Development Co. ("Cardinal"), David V. Hall, Randall J. Bufford and John G. Hundley. This matter is before the court on the individual defendants' motion to dismiss Counts V, VI and X of the complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim for which relief may be granted.

A motion to dismiss for failure to state a claim "should not be granted unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). All well-pleaded allegations must be taken as true and must be construed most favorably toward the nonmovant. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). A complaint will be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) if there is no law to support the claims made, or if the facts alleged are insufficient to state a claim, or if on the face of the complaint there is an insurmountable bar to relief. See Rauch v. Day & Night Mfg. Corp., 576 F.2d 697, 702 (6th Cir.1978).

Plaintiffs are Ohio corporations engaged in the business of purchasing qualified accounts receivable from health care providers. The purchases are financed by the sale of securities by investment banking firms. Plaintiffs conduct business by entering into a sale and subservicing agreement with the provider. Plaintiffs review the provider's accounts receivable, and where those accounts meet plaintiffs' criteria, plaintiffs purchase the receivables from the provider at a discounted value in advance of the actual payment of the accounts by the provider's debtors. Plaintiffs typically purchase accounts on a regular and continuous basis, thereby allowing the provider to receive cash immediately for operating expenses rather than waiting for direct payment in the ordinary course of business from the provider's debtors.

In accordance with the agreement, the health care provider agrees to regularly submit accounts receivable records to the plaintiffs so that plaintiffs may assess the collectibility of the accounts and determine the eligibility and face value of the accounts. When plaintiffs decide to purchase the receivables, plaintiff NPF wires a cash payment to the provider in an amount equal to the discounted value of the receivables minus certain adjustments. The provider agrees to establish a bank account known as a lockbox account into which the provider deposits any payments received from the provider's debtors on the accounts receivable, and these funds are then transferred into a corporate trust account established for the plaintiffs' benefit.

Plaintiffs assert that Cardinal is or was engaged in the business of providing health care services, and that Transitional is the successor in interest to Cardinal. Plaintiffs allege that defendants Hall and Bufford were, respectively, the majority and minority shareholders of Cardinal. Plaintiffs further allege that defendant Hundley was the Vice President of Legal Affairs for Cardinal.

Plaintiffs allege that on December 18, 1992, NPF entered into a sale and subservicing agreement with Cardinal. In October of 1993, Cardinal decided to terminate its agreement with the plaintiffs, and the parties entered into a termination agreement, dated November 1, 1993, which defined the obligations of the parties during the termination of business. Plaintiffs allege that during November and December of 1993, plaintiffs erroneously posted the same amount twice against the outstanding net value of purchased receivables as part of the weekly funding process, which, after adjustment for offsets, resulted in a double payment to Cardinal in the amount of $1,434,758.62. According to plaintiffs, this amount remains due and owing from Cardinal despite several demands for payment. On or about November 1, 1994, Transitional purchased or otherwise acceded to the business of Cardinal.

Plaintiffs now seek recovery of the $1,434,758.62. In Count V of the complaint, plaintiffs assert a claim for conversion against the individual defendants. Plaintiffs seek to hold the individual defendants liable as officers and shareholders of Cardinal and Transitional. The individual defendants are also named in Count VI, a civil conspiracy claim, and Count X, which alleges a breach of fiduciary duty on the part of the individual defendants.

Defendants argue that plaintiffs' conversion claim should be dismissed. Conversion has been defined as "a wrongful exercise of dominion over property in exclusion of the right of the owner, or withholding it from his possession under a claim inconsistent with his rights." Zacchini v. Scripps-Howard Broadcasting Co., 47 Ohio St.2d 224, 226, 351 N.E.2d 454 (1976), rev'd on other grounds, 433 U.S. 562, 97 S.Ct. 2849, 53 L.Ed.2d 965 (1977). The elements of a conversion claim are: 1) plaintiff's ownership or right to possession of the property at the time of the conversion; 2) defendant's conversion by a wrongful act or disposition of plaintiff's property rights; and 3) damages. Haul Transport of VA, Inc. v. Morgan, Slip Op. No. CA 14859, Montgomery Cty., 1995 WL 328995 (Ohio App.1995); Fayette Inv. Corp. v. Jack Johnson Chevrolet Co., 119 Ohio App. 111, 197 N.E.2d 373 (1963). Further, where the object of conversion has been acquired lawfully, the possessor of such property cannot be held to have converted it or to wrongfully possess it until, upon demand, the possessor fails to restore the object to one who has a right to possess it. Fidelity & Deposit Co. of Maryland v. Farmers & Citizens Bank of Lancaster, 72 Ohio App. 432, 52 N.E.2d 549 (1943).

Money can be the subject of an action for conversion. See, Carmean v. Yaple, 21 Ohio L.Abs. 387 (App.1936); Schutt v. Bates, 33 Ohio App. 303, 169 N.E. 314 (1929). However, the prevailing view is that an action for conversion of money will not lie unless identification is possible and there is an obligation to deliver the specific money in question. See, e.g., Lewis v. Fowler, 479 So.2d 725 (Ala.1985). See generally, Annotation, Nature of Property or Rights Other Than Tangible Chattels Which May Be Subject of Conversion, 44 A.L.R.2d 927, 936 (1955). Two Ohio courts have followed this rule in unreported decisions. See Haul Transport, 1995 WL 328995 at *3; Security Federal S. & L. Ass'n of Cleveland v. Keyes, Slip Op. No. 89-G-1524, Geauga Cty., 1990 WL 93135 (Ohio App.1990). Defendants argue that the funds allegedly converted in this case do not meet these criteria.

In regard to the first prong of the conversion test, identification, courts have held that a conversion of money occurs only where the money involved is "earmarked" or is specific money capable of identification, such as money in a bag, coins or notes that have been entrusted to the defendant's care, or funds that have otherwise been sequestered. Marc Development, Inc. v. Wolin, 904 F.Supp. 777, 795 (N.D.Ill.1995) (conversion will not lie under Illinois law were the evidence failed to show that the funds were segregated in a separate account); Stevens v. Butler, 639 N.E.2d 662 (Ind.App.1994) (money must be a determinate sum with which the defendant was entrusted to apply to a certain purpose; commingled funds are not a separate, specifically identifiable chattel); General Motors Corp. v. Douglass, 206 Ill.App.3d 881, 892, 151 Ill.Dec. 822, 565 N.E.2d 93 (1990) (where check containing an overpayment was deposited in defendant's general account, not segregated in a separate account, there was no identifiable fund subject to conversion); Lawson v. Commonwealth Land Title Ins. Co., 69 Md.App. 476, 483, 518 A.2d 174 (1987) (same); Lewis, 479 So.2d at 726-727 (noting the absence of evidence that the money was placed in a special account).

Conversion claims have been allowed where the funds in question were specific or sequestered, identifiable monies or funds entrusted to the defendant's care for a specific purpose. See, e.g., Saydell v. Geppetto's Pizza & Ribs Franchise Sys., Inc., 100 Ohio App.3d 111, 652 N.E.2d 218 (1994) (franchise fee which defendant was contractually obligated to return if condition precedent to performance of contract was not met was subject to conversion); Central Benefits Mut. Ins. Co. v. RIS Admrs. Agency, Inc., 93 Ohio App.3d 397, 638 N.E.2d 1049 (1994) (defendant required under agreement to hold collected funds in a fiduciary capacity for plaintiff and remit them to plaintiff).

Here, plaintiffs allege that the overpayment was wired to defendant Cardinal "as part of the weekly funding process." Complaint, Para. 19. Plaintiffs allege that payments were wired to health care providers such as Cardinal to enable them to meet their operating expenses. Complaint, Para. 13. The money transmitted by plaintiffs to Cardinal was for the purchase by plaintiffs of Cardinal's accounts receivable. There are no allegations that these...