TCI Bus. Capital, Inc. v. Five Star Am. Die Casting, LLC

Decision Date23 January 2017
Docket NumberA16-0741
Parties TCI BUSINESS CAPITAL, INC., Appellant, v. FIVE STAR AMERICAN DIE CASTING, LLC, et al., Defendants, Brian T. Flynn, Respondent.
CourtMinnesota Court of Appeals

Sonia Miller-Van Oort, Robin M. Wolpert, Sapientia Law Group, PLLC, Minneapolis, Minnesota (for appellant).

Carl E. Christensen, Christensen Law Office PLLC, Minneapolis, Minnesota (for respondent).

Considered and decided by Johnson, Presiding Judge; Reyes, Judge; and Tracy M. Smith, Judge.

OPINION

JOHNSON, Judge

An officer of a corporation falsified company records to show that a customer's debt to the corporation was approximately $250,000 less than what the customer actually owed. The corporation was unaware of the inaccuracy of its records when it entered into a settlement agreement with the customer that resolved the debt for less than what was owed and less than what the corporation believed was owed. The corporation later discovered the false records created by the officer, who since had left his employment. The corporation sued the former officer for conversion, civil theft, fraudulent misrepresentation, and breach of fiduciary duty. The district court denied the corporation's motion for summary judgment and granted summary judgment in favor of the former officer on all four claims. We affirm in part with respect to the claims of conversion and civil theft, reverse in part with respect to the claims of fraudulent misrepresentation and breach of fiduciary duty, and remand for trial on the issue of damages with respect to the latter two claims.

FACTS

TCI Business Capital, Inc., is a commercial factoring company. It provides financing to companies and assists in the collection of accounts receivable. From September 2010 to March 2013, Brian T. Flynn was employed by TCI as its chief risk officer. In that capacity, Flynn oversaw the credit, collections, legal, and external audit functions of TCI. Flynn reported to TCI's CEO.

During Flynn's employment, Five Star American Die Casting, LLC, was a customer of TCI. In June 2010, TCI and Five Star entered into a factoring agreement in which TCI agreed to advance funds to Five Star while seeking payments from Five Star's debtors, and Five Star agreed to pay a fee to TCI and to remain responsible for accounts that were uncollectible. Five Star's owner provided TCI with a personal guaranty of Five Star's obligations. TCI provided funding to Five Star for nearly two years. In March 2012, when Five Star owed TCI $342,998.49, TCI exercised its contractual rights by seizing Five Star's equipment, in which TCI had a security interest. Flynn assumed responsibility for overseeing the liquidation of Five Star's equipment.

By September 2012, Five Star's debt to TCI had increased to $446,879.27. TCI's CEO directed Flynn to arrange for Five Star's equipment to be sold at an auction. Flynn believed that TCI could obtain greater proceeds by selling Five Star's equipment in individual sales rather than at a single auction. Without discussing the matter with anyone at TCI, Flynn unilaterally decided to not organize an auction but, rather, to sell Five Star's equipment piece by piece. He concealed his plan from others and informed TCI management and other co-workers that he was working to arrange an auction and that an auction had been scheduled.

On December 17, 2012, Flynn credited Five Star's account by $250,378.40. He represented to TCI management and other co-workers that this amount was the proceeds of an auction of Five Star's equipment. In reality, no auction was held. Rather, Flynn created a somewhat elaborate series of false transactions involving another TCI customer, which we will call Company X. Flynn created false invoices, purchasing orders, packing lists, and bills of lading, which suggested that Company X had sent products worth $313,048 to a retailer. Flynn sent documents to Company X to indicate that TCI would purchase the receivable from Company X. Flynn directed TCI's finance department to wire $250,378.40 to an agent of Company X, which purportedly represented the amount for which TCI would purchase the receivable. A day later, Flynn contacted Company X's agent and said that TCI's treasury department had made a mistake and that the agent should wire the money back to TCI, with a notation referring to Flynn and Five Star, and the agent did so. Flynn told employees in TCI's treasury department that the funds received from Company X were the proceeds of the auction of Five Star's equipment. TCI treasury employees received a wire transfer of $250,378.40 and applied the funds to Five Star's account. The credit to Five Star's account appeared to reduce the amount of Five Star's debt to TCI in TCI's accounting system. At the same time, TCI's records showed that Company X owed the same amount to TCI, but Flynn falsified Company X's monthly reports so that Company X would be unaware that TCI was recognizing such a debt. Flynn testified candidly in deposition to the details of his scheme. He testified that he devised and implemented the scheme because his job was at risk due to the company's concerns about his performance and that he wanted to exceed expectations with respect to the Five Star account in order to improve the company's perception of his performance and thereby increase the probability that he would keep his job.

TCI terminated Flynn's employment on March 18, 2013, before he was able to complete his scheme by selling Five Star's equipment piece by piece and adjusting TCI's accounting records. TCI terminated him for reasons that are unrelated to Five Star or the underlying facts of this case. In fact, when it decided to terminate Flynn, TCI was unaware of Flynn's scheme involving Five Star, Company X, and the retailer. Furthermore, upon being terminated, Flynn did not advise TCI of the scheme. TCI provided Flynn with $35,000 in severance pay in connection with his termination.

TCI later engaged in settlement negotiations with Five Star concerning Five Star's debt. TCI's accounting records showed that Five Star owed TCI $213,238.01. Because of the false $250,378.40 credit, Five Star's debt to TCI actually was $468,616.41. In early May 2013, TCI and Five Star entered into a settlement agreement by which Five Star agreed to pay $84,262.50 to resolve all claims TCI had against Five Star and its owner.

TCI discovered Flynn's scheme in June 2013. Thereafter TCI adjusted Company X's account to reflect that Company X did not owe $250,378.40 to TCI. The record does not reflect the ultimate disposition of the equipment that TCI seized from Five Star pursuant to its security interest.

In September 2014, TCI commenced this action against Five Star, its owner, and Flynn. TCI later voluntarily dismissed its claims against Five Star and its owner. TCI's amended complaint alleged four claims against Flynn: (1) conversion, (2) civil theft, (3) fraudulent misrepresentation, and (4) breach of fiduciary duty. After discovery, TCI moved for summary judgment in its favor on all four claims. In August 2015, the district court issued an order in which it denied TCI's motion for summary judgment and granted summary judgment in favor of Flynn on all four of TCI's claims. TCI appeals.

ISSUES

I. Did the district court err in its ruling on TCI's claim of conversion?

II. Did the district court err in its ruling on TCI's statutory claim of civil theft?

III. Did the district court err in its ruling on TCI's claim of fraudulent misrepresentation?

IV. Did the district court err in its ruling on TCI's claim of breach of fiduciary duty?

ANALYSIS

TCI argues that the district court erred by denying its motion for summary judgment and by granting summary judgment in favor of Flynn.

A district court must grant a motion for summary judgment if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law." Minn. R. Civ. P. 56.03. A genuine issue of material fact exists if a rational trier of fact, considering the record as a whole, could find for the nonmoving party. Frieler v. Carlson Mktg. Grp. , 751 N.W.2d 558, 564 (Minn. 2008). This court applies a de novo standard of review to the district court's legal conclusions on summary judgment and views the evidence in the light most favorable to the party against whom summary judgment was granted. Commerce Bank v. West Bend Mut. Ins. Co. , 870 N.W.2d 770, 773 (Minn. 2015).

I. Conversion

TCI argues that the district court erred in its ruling on the claim of conversion. The supreme court has defined the tort of conversion as

"an act of willful interference with [the personal property of another], done without lawful justification, by which any person entitled thereto is deprived of use and possession," Larson v. Archer Daniels Midland Co. , 226 Minn. 315, 317, 32 N.W.2d 649, 650 (1948), and "the exercise of dominion and control over goods inconsistent with, and in repudiation of, the owner's rights in those goods." Rudnitski v. Seely , 452 N.W.2d 664, 668 (Minn. 1990) ; accord Hildegarde, Inc. v. Wright , 244 Minn. 410, 413, 70 N.W.2d 257, 259 (1955).

Christensen v. Milbank Ins. Co. , 658 N.W.2d 580, 585 (Minn. 2003) (alteration in original). The supreme court also has defined the tort to include "an exercise of dominion over the goods which is inconsistent with and in repudiation of the owner's right to the goods or some act done which destroys or changes their character or deprives the owner of possession permanently or for an indefinite length of time." Hildegarde, Inc. , 244 Minn. at 413, 70 N.W.2d at 259. A finding of conversion "is properly limited to those serious, major, and important interferences with the right to control the chattel." Bates v. Armstrong , 603 N.W.2d 679, 682 (Minn. App. 2000), review denied (Minn. Mar. 14, 2000).

The district court reasoned that TCI cannot prevail...

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