Opinion
CAUSE NO. 1:02-CV-11
June 23, 2003
MEMORANDUM OF DECISION AND ORDER
I. INTRODUCTION
In 1998, the hog-pork market virtually collapsed when the prices paid to farmers dropped nearly 90%, with the result that some hog farmers were unable to pay their creditors and were forced into bankruptcy. Such a fate befell David Winger ("Winger"), see In re David W. Winger, Case No. 99-62895 (Bankr. N.D. Ohio), who operated, among others, a hog farming business called LeeWee, Ltd. ("LeeWee"). After Agricultural Management Development, Inc. ("AMD"), one of Winger's creditors, obtained a judgment against LeeWee for more than $5 million, it brought this suit against another of Winger's creditors, National City Bank ("National City"), claiming it is actually entitled to the $2,496,360.96 Winger paid to National City between 1997-1999 from the sale of his hogs.
"LeeWee raised feeder pigs to be sold to various meat packers, like Routh Packing Company, Inc. ("Routh").
Although AMD's amended complaint alleges that National City received $3,311,358.65 from the sale of Winger's hogs, the parties have stipulated that it actually received $2,496,360.96. (See Am. Compl. ¶ 19; Stipulation ¶ 4.)
As will be seen more fully infra, the critical issue in this case is simply, what sort of entity was LeeWee? Having spent years paying little attention to this issue, AMD now, and more than $5 million later, seeks in this litigation to cast LeeWee as a partnership. In so doing, AMD claims that National City's receipt of these funds from Winger runs afoul of Ohio's Uniform Fraudulent Transfer Act ("UFTA"), OHIO REV. CODE § 1336.01, et seq., and amounts to conversion under Ohio law.
For the most part, the parties agree that Ohio law controls the substantive causes of action in this diversity case, however, in its so-called "Sur-Reply," AMD makes the fleeting suggestion that Indiana law may govern Count II of the Complaint (i.e., the conversion claim) by virtue of Fed.R.Civ.P. 64, which provides for prejudgment attachment of property. However, since AMD is not attempting to attach the property in dispute here (i.e., the proceeds from the sale of hogs) and by law cannot attach against a national bank, 12 U.S.C. § 91, this rule is clearly inapplicable. While we are to apply the substantive law of the state of Indiana, Jean v. Dugan, 20 F.3d 255, 260 (7th Cir. 1994) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)), including Indiana's choice of law rules, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941), those rules here lead to the conclusion that Ohio law should govern the conversion claim since the injury has a significant connection to that state. Land v. Yamaha Motor Corp., 272 F.3d 514, 516 (7th Cir. 2001); Judge v. Pilot Oil Corp., 205 F.3d 335 (7th Cir. 2000) (under Indiana's choice of law rules, when place of injury is not insignificant, the law of the state where the injury occurred governs); Hubbard Mfg. Co., Inc. v. Greeson, 515 N.E.2d 1071, 1073 (Ind. 1987).
Presently before the Court is National City's February 14, 2003, motion for summary judgment and AMD's March 27, 2003, cross-motion for partial summary judgment. Because AMD's response and cross-motion referred to statements allegedly made to AMD employees by third-parties, Larry Hake ("Hake") and Winger, National City filed a motion to strike such statements, inter alia, as impermissible hearsay. After allowing additional briefs, the motions for summary judgment and the motion to strike have been fully briefed and are ripe for ruling.
Jurisdiction of the undersigned Magistrate Judge is based on 28 U.S.C. § 636 (c), all parties consenting.
AMD filed its cross-motion for summary judgment more than six weeks after the dispositive motion deadline expired on February 14, 2003. AMD has offered no explanation for its untimely motion, but appears to argue that it is timely since National City timely filed its motion. However, AMD has cited no authority for this proposition and our research reveals none. To the contrary, this Court has previously denied cross-motions for summary judgment as untimely under similar circumstances. See, e.g., McDowell v. SPX Corporation, 1:00-CV-460 (N.D. Ind. July 1, 2002) (Cosbey, Magis. J.) (unpublished order) (denying cross-motion for summary judgment as untimely when filed five weeks after dispositive motion deadline). Indeed, AMD simply failed to timely file its cross-motion for summary judgment and never sought an enlargement of time under Fed.R.Civ.P. 6(b). Therefore, AMD's cross-motion for summary judgment will be DENIED as untimely.
The record consists of the affidavit of Sharon Johnston ("Johnston Aff ¶ ___"); the affidavit of Hugh Storer ("Storer") ("Storer Aff. ¶ ___"); Storer's deposition ("Storer Dep. at ___"); the deposition of Ben Osmon ("Osmon") ("B. Osmon Dep at ___"); Osmon's affidavit ("B. Osmon Aff ¶ ___"); Osmon's supplemental affidavit ("B. Osmon Supp. Aff. ¶ ___"); the affidavit of John Brown ("Brown Aff. ¶ ___"); the affidavit of Toni Osmon ("T. Osmon Aff. ¶ ___"); the affidavit of Daniel Arnold ("Arnold Aff. ¶ ___"); the Winger's deposition ("Winger Dep. at ___"); the affidavit of Hilda Bedoya ("Bedoya Aff ¶ ___"); and various documents.
This Court has jurisdiction based on diversity, 28 U.S.C. § 1332. For the following reasons, National City's motion to strike will be GRANTED, its motion for summary judgment will be GRANTED, and AMD's cross-motion for partial summary judgment will be DENIED as untimely.
II. MOTION TO STRIKE
National City, in its motion to strike, zeroes in on whether LeeWee is a partnership by arguing that several portions of Ben Osmon's affidavit should be stricken because they are irrelevant or because they contain inadmissible hearsay, lack personal knowledge, and are barred by the best evidence rule. (Def's M. to Strike at 1.) We will consider these contentions in turn.
Osmon is AMD's president.
A. All of Hake and Winger's Alleged Statements are Hearsay
National City wants to strike four specific passages in Osmon's affidavit which it contends contains inadmissible hearsay. In each passage, Osmon (and Arnold, as identified in footnote 7, supra) testifies that either Winger or Hake, or both, said that they were partners and that LeeWee was a partnership. (B. Osmon Aff ¶¶ 9, 10, 11, 54.)
Specifically, National City argues that we should strike the following passages from Osmon's affidavit: paragraph 9, the fourth sentence of paragraph 10 (National City evidently misidentified this as the second sentence of paragraph 10, but it clearly meant the second to last, or fourth sentence), paragraph 11, and paragraph 54. (M. to Strike ¶¶ 1(a)-(d).) In addition, National City asks the Court to strike "any other statements by AMD representatives repeating statements attributed to Hake or Winger to the effect that Hake and Winger were partners . . . [as] inadmissible hearsay." (M. to Strike ¶ 1.) After combing through the rather voluminous record, the Court has identified two such statements. In his affidavit, Osmon testifies that he "heard Hake specifically tell . . . [AMD's Chief Financial Officer, Daniel] Arnold . . . that he and Winger were partners," (Osmon Aff. ¶ 35), and Arnold, in his affidavit, likewise relates that Hake told him that he and Winger were partners in LeeWee. (Arnold Aff. ¶ 17.) Because these statements are practically identical to the other statements specifically identified by National City, we consider them subject to the motion to strike.
Because "'[h]earsay is inadmissible in summary judgment proceedings to the same extent that it is inadmissible in a trial,'" see Boyce v. Moore, 314 F.3d 884, 889 (7th Cir. 2002) (quoting Morrow v. Wal-Mart Stores, Inc., 152 F.3d 559, 563 (7th Cir. 1998)), we must determine whether Osmon and Arnold's testimony regarding Hake and Winger's statements is inadmissible under Fed.R.Evid. 802. Hearsay is "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Fed.R.Evid. 801(c); United States v. Allen, 269 F.3d 842, 847 (7th Cir. 2001). There is no dispute that Hake and Winger's alleged statements were made out of court, so the issue here is whether these statements are offered for the truth of the matter asserted and, to the extent they are, whether they fall within the residual hearsay exception. See Fed.R.Evid. 807.
1. Hake and Winger's statements are inadmissible even if not offered for their truth
First, AMD argues these statements are not hearsay because they are not offered to prove the truth of the matter asserted (i.e., that Winger and Hake were in fact partners and that LeeWee was a partnership), but rather go to show that Osmon and Arnold believed that Winger and Hake were partners and LeeWee, a partnership. For its part, National City admits that this is a nonhearsay use of the evidence, but argues that to the extent AMD offers the statements for this purpose, they should be excluded as irrelevant. See Fed.R.Evid. 401. Specifically, National City argues that this evidence might be relevant if it went to show that "it appeared to others that [LeeWee] was run as a partnership." Harvey v. Harvey, 632 N.E.2d 956, 961 (Ohio Ct.App. 1993) (appearance of partnership to others is factor to consider in determining partnership in fact) (emphasis added). However, National City reasons that because Osmon and Arnold are AMD representatives (i.e., parties to this case), they cannot be "other" persons or third parties as contemplated by Ohio partnership law, and therefore how LeeWee was portrayed to them is irrelevant under Federal evidentiary principles. See Fed.R.Evid. 401.
Of course, Harvey does not shed much light on whether this interpretation is accurate, and National City cites to no other authority to support this proposition. Nevertheless, our independent research reveals that National City's view is supported by other Ohio case law. Indeed, the Ohio Appellate Court, in Buettner v. Westmeyer, addressed this exact issue by considering, but limiting its consideration to, whether "third parties viewed the relationship [there] as a partnership[.]" 1988 WL 10998, *2 (Ohio Ct.App. Feb. 5, 1988) (finding entity to be a partnership). Accordingly, we agree with National City that the fact that Hake and Winger's alleged statements may have led Osmon or Arnold to believe that LeeWee was a partnership is irrelevant, and thus will be excluded.
Hake and Winger's alleged statements to AMD might be relevant if the question was whether they are estopped to deny that LeeWee is a partnership. However, as discused more fully infra, the doctrine of partnership by estoppel is inapplicable.
2. Hake and Winger's statements are not admissible under Rule 807
Next, AMD admits that because it also wants to introduce these statements for the truth of the matter asserted, (see AMD's Resp. to M. to Strike, at 2), they constitute hearsay but nevertheless argues that they are admissible under the residual hearsay exception. See Fed.R.Evid. 807. Rule 807 provides that when hearsay does not fit into another exception, it may still be admitted if it contains sufficient circumstantial guarantees of trustworthiness and the Court determines that "(A) the statement is offered as evidence of a material fact; (B) the statement is more probative on the point for which it is offered than any other evidence which the proponent can procure with reasonable means; and (C) the general purposes of the rules and the interest of justice will best be served by an admission of the statement into evidence." Id. Thus, to be admissible under Rule 807, the Seventh Circuit requires "(1) circumstantial guarantees of trustworthiness; (2) materiality; (3) probative value; (4) the interests of justice; and (5) notice," see United States v. Ochoa, 229 F.3d 631, 639 (7th Cir. 2000) (citing United States v. Hall, 165 F.3d 1095, 1110 (7th Cir. 1999)), and counsels the court to construe Rule 807 narrowly to prevent it from becoming the exception that swallows the hearsay rule. United States v. Sinclair, 74 F.3d 753, 759 (7th Cir. 1996).
In determining whether Hake's and Winger's alleged statements carry sufficient circumstantial guarantees of trustworthiness, we begin with the simple observation that "[o]ut-of-court statements are generally inadmissible because they are presumed to be unreliable." Hall, 165 F.3d at 1110 (quoting United States v. Hooks, 848 F.2d 785, 796 (7th Cir. 1988)). Thus, the party "wishing to introduce hearsay evidence [here, AMD] must rebut the presumption of unreliability by appropriate proof of 'trustworthiness.'" Id. The district court is granted considerable discretion in determining whether the statements contain sufficient guarantees of trustworthiness, and should consider the following non-exhaustive list of factors: (1) the probable motivation of the declarant in making the statement; (2) the circumstances under which it was made; (3) the knowledge and qualifications of the declarant; (4) the character of the declarant for truthfulness and honesty and the availability of evidence on the issue; (5) whether the testimony was given voluntarily, under oath, subject to cross-examination and under the penalty of perjury; (6) whether the witness ever recanted his testimony; and (7) whether the declarant's statement was insufficiently corroborated. Id. at 1110-1111 (citing Cook v. Hopping, 783 F.2d 684, 690-91 (7th Cir. 1986); United States v. Seavoy, 995 F.2d 1414, 1418 (7th Cir. 1993)).
In assessing those factors here, we conclude that AMD has failed to rebut the presumption that the alleged statements are unreliable. While we know nothing about either Hake or Winger's character for truthfulness, given the circumstances, both men were motivated to hold themselves out as partners, regardless of whether LeeWee was actually a partnership. Indeed, Osmon at least told Hake that AMD would not provide financing to Winger unless Hake was involved in the operation. (B. Osmon Dep. at 31.) Certainly, Winger needed AMD's financing to expand his farming operations, and Hake, in turn, stood to reap the benefit of increased feed sale commissions if Winger expanded. Thus, both individuals had a financial incentive to hold themselves out to AMD as partners, regardless of whether LeeWee actually was a partnership.
Moreover, other circumstances cut against the trustworthiness of these statements. First, the statements were supposedly made only in the presence of Osmon or Arnold, who clearly have an interest in demonstrating that LeeWee is a partnership. Additionally, the statements were not made under oath or subject to cross examination at the time they were made. In contrast, AMD had the opportunity to, and did, cross-examine Winger during his sworn deposition, but he adamantly denied that he and Hake were partners or that LeeWee was a partnership. At that time, AMD could have questioned Winger about whether he ever made these statements to Osmon, but it either never asked or has not included that testimony in the record. In either event, AMD should not be allowed to circumvent Winger's deposition testimony by presenting the rather self-serving testimony of its president and chief financial officer.
We have no such similar testimony from Hake in this case because AMD chose not to depose him. Instead, AMD has submitted Hake's deposition from a parallel bankruptcy proceeding pending in the Northern District of Ohio, but it sheds little light on this issue because Hake asserted the privilege against self incrimination under the Fifth Amendment in response to practically every question.
Finally, the alleged statements are insufficiently corroborated. As discussed supra, Winger testified that he and Hake were not partners and that LeeWee was not a partnership. Moreover, neither Winger nor Hake ever filed partnership tax returns, or listed partnership assets or debts on their financing statements, and AMD never asked for partnership financials from them. Indeed, the only corroborative evidence AMD has produced is the hearsay testimony of its own employees that Hake and Winger would refer to "our profits," "our losses," and "our property," and their testimony that they believed that the two men jointly made management decisions. However, as discussed more fully infra, this rather circumstantial evidence is insufficient to establish a partnership, and certainly fails to corroborate Hake and Winger's alleged statements, particularly in light of AMD's clear interest in proving the existence of a partnership.
Although National City has not sought to strike this hearsay testimony, we are somewhat skeptical about its admissibility, particularly since there is little or no corroborating evidence in the record.
Accordingly, National City's motion to strike Osmon and Arnold's testimony that Hake and Winger told them they were partners and that LeeWee was a partnership will be granted.
B. Paragraph 27 of Osmon's Affidavit
National City also argues that Paragraph 27 of Osmon's affidavit should be stricken as lacking personal knowledge and as barred by the Best Evidence Rule. Paragraph 27 states, in full:
I also know that on numerous occasions either Hake or Winger entered into transactions, e.g., obtaining feed or equipment based on his own signature and authority to make contracts for the others involved in the LeeWee and [American Livestock Enterprises] Partnerships.
(B. Osmon Aff. ¶ 27.) of course, there is no dispute that both Hake and Winger entered into transactions (indeed, all of the hog leases were apparently signed by both) or that Winger had the authority to do so, rather the crux of National City's argument is that there is no evidence that Hake ever entered into any contracts by himself on LeeWee's behalf
1. Lack of personal knowledge
First, National City contends that Paragraph 27 should be stricken because it is not based on Osmon's personal knowledge. Fed.R.Civ.P. 56(e) provides that "affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." Fed.R.Civ.P. 56(e); Palmer v. Marion County, 327 F.3d 588, 595 (7th Cir. 2003). Although "personal knowledge" can include inferences and opinions, they must be grounded in Osmon's observation or first-hand personal experience. Visser v. Packer Eng'g Assoc., Inc., 924 F.2d 655, 659 (7th Cir. 1991). "They must not be flights of fancy, speculations, hunches, intuitions, or rumors about matters remote from experience." Id. at 659 (citing Palucki v. Sears, Roebuck Co., 879 F.2d 1568, 1572 (7th Cir. 1989)).
Here, AMD has failed to affirmatively show that Osmon's testimony on this point is based on his personal knowledge. Osmon does not explain how he gained this knowledge, or identify any specific transactions or contracts by which Hake bound LeeWee on his own authority.
Nevertheless, AMD contends that Osmon's testimony is based on his personal knowledge because earlier in his affidavit he states "I have personal knowledge of the matters set forth herein." (B. Osmon Aff ¶ 2.) However, such a blanket assertion is clearly insufficient. Pace v. Capobianco, 283 F.3d 1275, 1279 (11th Cir. 2002) (court may look beyond blanket assertion of personal knowledge); Goenner v. Farmland Industries, Inc., 175 F. Supp.2d 1271, 1271 (D. Kan. 2001) (any "attempt to establish personal knowledge and competence to testify on a matter via a blanket statement clearly contravenes the letter and spirit of Rule 56."); Angueira v. Arias; 649 F. Supp. 299, 307 (D.P.R. 1986) (attempt to show personal knowledge by blanket statement to that effect is "completely inadequate").
Next, AMD argues that Paragraph 27 is based on Osmon's personal knowledge because elsewhere Osmon testifies that Hake, individually, would sign the leases in Osmon's presence, and would then take them to Winger for his signature. However, the Court fails to see how this supports Osmon's assertion that Hake bound LeeWee "based on his own signature and authority[.]" After all, apparently AMD still required Winger's signature on these leases, a point reinforced by the fact that AMD has not identified a single lease or contract in which Hake, acting individually, bound LeeWee. Accordingly, because AMD has failed to affirmatively show that Paragraph 27 of Osmon's deposition is based on his personal knowledge, it will be stricken.
2. The Best Evidence Rule
National City also argues that Paragraph 27 of Osmon's affidavit is barred by the best evidence rule, codified at Fed.R.Evid. 1001- 1008. Rule 1002 sets forth the general rule that "[t]o prove the content of a writing . . . the original writing . . . is required, except where otherwise provided in the rules or by Act of Congress." Fed.R.Evid. 1002. Here, National City argues that Paragraph 27 is an attempt to introduce the contents of several contracts (i.e., Hake's signature) without introducing the original documents or even copies. See Fed.R.Evid. 1004 (providing exceptions that allow introduction of copies). AMD apparently concedes the point because it failed to respond. Thus, to the extent that Paragraph 27 is an attempt to prove the contents of the contracts it mentions, it is barred by the best evidence rule and will be stricken. See Fed.R.Evid. 1002.
Accordingly, we will grant National City's motion to strike the following passages from Osmon's affidavit: paragraph 9, the fourth sentence of paragraph 10, paragraph 11, paragraph 27, paragraph 35, and paragraph 54; as well as paragraph 17 from Arnold's affidavit.
Having now excised some matters from the record, we move on to recite the factual background, casting it, however, in a light most favorable to AMD.
III. THE FACTUAL BACKGROUND
In order to finance his hog farming operations, Winger dealt with both National City and AMD. Indeed, from 1993-1998, National City made various loans and extended a line of credit specifically to Winger. (Johnston Aff. ¶¶ 3, 4.b.) In January 1994, Winger and his wife signed a security agreement which granted National City a security interest in "all hogs and all natural increase thereof now existing or hereafter arising and wherever stored or located; and all products of such hogs in their unmanufactured state, and all proceeds of the foregoing." (Johnson Aff. ¶ 6, Ex. 2.) On January 31, 1994, National City perfected its security interest by filing a financing statement, under Winger's name with the Ashland County, Ohio Recorder, and it filed a continuation statement in November 1998. (Johnston Aff. ¶ 8, Ex. 3.) In 1995, Winger and Storer, National City's representative for agricultural loans, signed a letter directing Routh to issue checks for the hogs Winger delivered payable to both Winger and National City, with the checks to be mailed to National City. (Winger Dep at 42-43, Ex. B.)
On the other hand, AMD provided financing, ostensibly to LeeWee, in the form of various hog "leasing" agreements, including, as is relevant here, 4 Sow/Gilt/Boar Leasing Agreements executed in November 1997, and 81 Feeder Pig Leasing Agreements executed between March 1, 1999 and July 31, 1999 (collectively, the "hog leases" or "leases"). (See Am. Compl. ¶ 16, Exs. 11, 17; Johnston Aff ¶ 6, Ex. 2; B. Osmon Supp. Aff. ¶ 7.)
"For convenience, we will refer to sows, guts, boars, and feeder pigs collectively as "hogs." Additionally, AMD and LeeWee executed a number of other financing agreements and livestock leases that did not involve hogs, including 3 Dairy Calf Leasing Agreements, 4 Farm Products Supplies-Services Agreements, and a promissory note. Although these agreements, for purposes of our analysis, do not need to be recited in greater detail, it is relevant to note that when combined with the hog leases, they account for the more than $5,000,000 which LeeWee still owes AMD. (B. Osmon Aff, Ex. 6; T. Osmon Aff. ¶ 32.)
It was Hake who brought Winger and AMD together. (B. Osmon Dep. at 17.) Hake, a feed salesman for Hubbard Milling Company, had significant contacts and influence with AMD. Prior to forming AMD, Osmon had been Hake's supervisor at Hubbard, and while there, both Osmon and Hake became involved in what they termed "captive business," in which the feed company provided financing to farmers who purchased their feed, apparently in order to pump up their own sales and commissions by expanding the farmers' operational base. (Id. at 17, 21, 26.) However, sometime after Osmon left Hubbard to set up AMD, Hake "devised a plan" (id. at 29), in which AMD would finance Winger's hog farming operation, thereby increasing Hake's commissions on feed sales to Winger. (Id. at 13, 20, 22-23; Winger Dep. at 136-137.) However, because AMD viewed Winger as financially unstable, Osmon told Hake that it would only agree to enter into these hog leases if Hake signed the contracts as well. (B. Osmon Dep. at 31-32.)
Evidently Hake had so refined the art of captive business that Osmon thought him a "master" at it. (B. Osmon Dep. at 21-22).
Although Winger, Hake, and, at times, their wives ultimately signed these leases, the documents described the contracting parties in varying terms. For example, the sample Feeder Pig Lease purports to be between "[AMD] and LeeWee . . . and . . . Hake . . ., hereinafter called Producer" and is signed by Hake, Hake's wife, and Winger for the "Producer." (Am. Compl., Ex. 11.) The sample Sow/Gilt/Boar Lease purports to be between "[AMD] and [Winger and his wife] and [Hake and his wife] dba LeeWee . . . hereinafter called 'Producer'" and is signed by Winger, Hake, and their wives for the "Producer." (Am. Comp., Ex. 17.)
By way of comparison, the sample Farm Products Supplies-Services Agreement is between "[AMD] and [Hake and his wife] and Dave Winger dba LeeWee" (Am. Compl., Ex. 15), the sample Dairy Calf Lease is between "[AMD] and LeeWee . . . hereinafter called Producer or Lessee" and is signed by Hake, his wife and Winger for the "Producer" (Am. Comp., Ex. 15), and the Promissory Note is between "[AMD] and [Winger] and [Hake] dba LeeWee[.]" (Am. Compl., Ex. 19.)
In these leases, AMD agreed to buy a quantity of hogs from LeeWee for an initial cash payment, with a leaseback to LeeWee for that same amount, plus a set "lease cost" per hog per day. (See Am. Comp., Exs. 11, 17.) The leases also provide that "[t]here will be no recourse to [AMD] for any reasons once the [hogs] have been delivered," and require LeeWee to replace any hog that dies or otherwise reimburse AMD for the cost of the hog. (Id.) Further, the leases contain no provision for the return of the hogs to AMD, either on or before payment in full, and provide that upon selling the hogs, Winger can retain any proceeds in excess of the sums due AMD. (Id.)
The Sow/Gilt/Boar leases provided a "lease cost" of 12.9885 cents per hog per day for 1096 days (i.e., 3 years), while the Feeder Pig leases called for a "lease cost" of 2.8767 cents per hog per day for 120 days. (Am. Compl., Exs. 11, 17.) However, despite the terms of the leases, it appears AMD intended LeeWee to use the cash to purchase the hogs on the open market, but in reality those funds were often used to buy feed and other goods. (B. Osmon Aff. ¶ 32; Winger Dep at 21.)
The leases also purport to give AMD a "Purchase Money Security Interest" in the hogs, apparently as a precaution in case the leases were later found to be loans. (See id.; B. Osmon Aff ¶ 47, Ex. 8.) Sometime after executing these leases, AMD evidently perfected its security interests by filing financing statements with the Ashland County, Ohio, Recorder's Office. (See generally B. Osmon Aff., Ex. 7.)
Apparently, throughout these dealings, AMD believed LeeWee to be a partnership between Winger, Hake, and their wives. John Brown ("Brown"), AMD's technical services and field operations manager, regularly met with both Hake and Winger to discuss LeeWee's operations, including its leases, monthly settlement summaries of those leases, cash flow and nutritional programs, and any new projects. (Brown Aff. ¶¶ 12-13, 16.) According to Brown, Hake was always present for these discussions and appeared to be the decision maker, although both men consulted with one another about decisions. (Id.) In any event, based on these contacts, and the fact that Hake, Winger, and their wives signed the hog leases, Brown apparently believed LeeWee to be a partnership. (Id. ¶¶ 17, 27.)
Additionally, Osmon, AMD's president, believed LeeWee to be a partnership. (B. Osmon Aff. ¶ 10.) In discussing LeeWee's profits, losses and property with Hake and Winger, Osmon claims they would refer to "our profit," "our loss," and "our property." (Id. ¶ 25; T. Osmon Aff ¶ 19.) Like Brown, Osmon regularly met with Hake and Winger to discuss LeeWee's business plans, and observed that "[i]n all cases, both Hake and Winger had a voice in [LeeWee's] business matters, and their decisions were also made after consulting with one another, although Winger usually deferred to Hake's judgment" and that Hake usually handled LeeWee's financial matters with AMD. (Id. ¶¶ 23, 26; B. Osmon Supp. Aff ¶ 3.)
Moreover, Arnold reported having several meetings in 1998-1999 during which Winger and Hake were equally involved in discussing LeeWee business, although Hake often took the lead in these discussions. (Arnold Aff ¶ 10.) Finally, Toni Osmon, AMD's secretary/treasurer, notes that most, but not all, the checks AMD disbursed to LeeWee were signed by both Winger and Hake. (T. Osmon Aff. ¶ 11.)
However, in contrast, Winger says that he and Hake were not partners, that Hake did not share in the profits for LeeWee, did not invest in LeeWee, and did not make any management decisions for LeeWee. (Winger Dep. at 22-23, 118-119, 121.) In fact, Winger stated that "[Hake] didn't have a role with LeeWee," other than "physically transport[ing]" contracts between AMD and himself and he even thought that Hake might have actually been AMD's agent or employee. (Id. at 23-24, 121.) Moreover, neither LeeWee, Winger, nor Hake filed partnership tax returns; instead, Winger (the only person to file individual tax returns for LeeWee's profit or loss) would file under Schedule F for "Profit or Loss From Farming," (Id. at 31-34, Ex. C-H) (containing Winger's tax returns for 1993-1998). Moreover, while AMD required financing statements from both Winger and Hake, Hake's statements did not list any LeeWee assets or liabilities while Winger's did, (B. Osmon Dep. at 103-104), and AMD never requested partnership financial statements for LeeWee itself. (Osmon Dep. at 32-33.) Finally, LeeWee's checks were only drawn on the account of "David Winger d/b/a LeeWee Ltd." and signed by Winger alone. (B. Osmon Dep. at 177.)
During his deposition, Winger was unable to point to any concrete evidence that Hake was AMD's agent or employee, but his suspicion was apparently founded upon the fact that he did not pay Hake and doubted that Hake would gratuitously travel 200-400 miles just for his signature. (Winger Dep. at 121-124.)
As for the hog leases, Winger claims he asked Osmon why Hake needed to sign them, and Osmon allegedly responded that it was for additional security. (Winger Dep. at 23.) Thus, Winger believed that Hake was merely a cosigner on the leases. (Id.)
Additionally, Winger testified that both he and Hake would occasionally attend meetings with AMD where his hog farming operation would be discussed, but insists that Hake's individual business operations were discussed as well. (Winger Dep. at 40.) These operations were discussed jointly because Hake and Winger were similarly situated in the hog market, so what was good for one was good for the other. (Id. at 41.) It was in this vein that Hake and Winger, long time friends, would consult with one another about their businesses, particularly since Hake's feed sale commissions were directly linked to the strength of Winger's hog farming operation. (Winger Dep. at 23, 27, 41, 77, 136-137).
In the late 1990s, LeeWee purchased about $1.5 million worth of feed from Hake's distributor annually. (Winger Dep. at 26-28)
IV. SUMMARY JUDGMENT STANDARD
Summary judgment is proper "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 the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). However, Rule 56(c) is not a requirement that the moving party negate his opponent's claim. Fitzpatrick v. Catholic Bishop of Chicago, 916 F.2d 1254, 1256 (7th Cir. 1990). Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery, against a party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and in which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552-53 (1986). The standard for granting summary judgment mirrors the directed verdict standard under Rule 50(a), which requires the court to grant a directed verdict where there can be but one reasonable conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511 (1986). A scintilla of evidence in support of the non-moving party's position is not sufficient to successfully oppose summary judgment; "there must be evidence on which the jury could reasonably find for the plaintiff." Id. at 2512; North Am. Van Lines, Inc. v. Pinkerton Sec. Sys., Inc., 89 F.3d 452, 455 (7th Cir. 1996); In Re Matter of Wildman, 859 F.2d 553, 557 (7th Cir. 1988); Klein v. Ryan, 847 F.2d 368, 374 (7th Cir. 1988). No genuine issue for trial exists "where the record as a whole could not lead a rational trier of fact to find for the nonmoving party." Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 322 (7th Cir. 1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356 (1986)).
Initially, Rule 56 requires the moving party to inform the court of the basis for the motion, and to identify those portions of the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. The non-moving party may oppose the motion with any of the evidentiary materials listed in Rule 56(c), but reliance on the pleadings alone is not sufficient to withstand summary judgment. Goka v. Bobbitt, 862 F.2d 646, 649 (7th Cir. 1988); Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir. 1983), cert. denied, 464 U.S. 960 (1983); Guenin v. Sendra Corp., 700 F. Supp. 973, 974 (N.D. Ind. 1988). In ruling on a summary judgment motion, the court accepts as true the non-moving party's evidence, draws all legitimate inferences in favor of the non-moving party, and does not weigh the evidence nor the credibility of witnesses. Anderson, 477 U.S. at 249-51, 106 S.Ct. at 2511; North Am. Van Lines, Inc., 89 F.3d at 455. However, "[i]t is a gratuitous cruelty to parties and their witnesses to put them through the emotional ordeal of a trial when the outcome is foreordained" and in such cases summary judgment is appropriate. Mason v. continental Ill. Nat'l Bank, 704 F.2d 361, 367 (7th Cir. 1983).
Substantive law determines which facts are material; that is, which facts might affect the outcome of the suit under the governing law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. Irrelevant or unnecessary facts do not preclude summary judgment even when they are in dispute. Id. The issue of fact must be genuine. Fed.R.Civ.P. 56(c), (e). To establish a genuine issue of fact, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356; First Nat'l Bank of Cicero v. Lewco Sec. Corp., 860 F.2d 1407, 1411 (7th Cir. 1988). The non-moving party must come forward with specific facts showing that there is a genuine issue for trial. Matsushita, 475 U.S. at 586; 106 S.Ct. at 1356. A summary judgment determination is essentially an inquiry as to "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-252, 106 S.Ct. at 2512.
V. DISCUSSION
National City, in its motion for summary judgment, contends that AMD's claims fail first, because LeeWee was not a partnership as a matter of law, but rather just a fictitious name for Winger himself; and second, because National City's security interest has priority over AMD's security interest and because the UFTA is inapplicable to this case. National City also argues that it is entitled to summary judgment on AMD's fraudulent transfer and conversion claims even if LeeWee is not a partnership.
For its part, AMD concedes that if LeeWee is not a partnership or a joint venture, summary judgment is appropriate in favor of National City on all claims, (see AMD's Resp. Br. at 32 n. 5), but it argues that genuine issues of material fact preclude summary judgment on the partnership, fraudulent transfer, and conversion issues.
AMD has made passing references that LeeWee may be a joint venture. Because a "joint venture is a partnership for the purposes of a single business enterprise," Anchor v. O'Toole, 94 F.3d 1014, 1024 (6th Cir. 1996), and because "courts generally apply partnership law to joint ventures," Vargo v. Clark, 716 N.E.2d 238, 242 (Ohio App.Ct. 1998), we will collapse our analysis of whether LeeWee is a joint venture into our partnership discussion.
A. LeeWee is not a Partnership as a Matter of Law
While the Court has received a virtual mountain of evidence in this case, a close analysis of it reveals that AMD's asserted partnership argument is unavailing.
Under Ohio law, a partnership is "an association of two or more persons to carry on as co-owners a business for profit," OHIO REV. CODE § 1775.05(A), and in determining the existence of a partnership, the Ohio Code provides some rules for the Court to consider:
Ohio has adopted the Uniform Partnership Act of 1914. See OHIO Rev. CODE § 1775, et seq.; In re Tower Metal Alloy Co., 200 BR. 598, 607 (Bankr. S.D. Ohio 1996); In re Bell Beckwith, 112 B.R. 858, 860 (Bankr. N.D. Ohio 1990).
(C) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.
(D) The receipt by a person of a share of the profits of a business is prima-facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:
(1) as a debt by installments or otherwise
(2) as wages of an employee or rent to a landlord. . . .
OHIO REV. CODE § 1775.06.
Although both parties cite to various cases which imprecisely set forth factors to consider in determining the existence of a partnership, the Sixth Circuit has catalogued the elements AMD must actually show: "(1) an express or implied partnership contract between the parties; (2) the sharing or profits and losses; (3) mutuality of agency; (4) mutuality of control; and (5) co-ownership of the business and of the property used for partnership purposes or acquired with partnership funds." Anchor v. O'Toole, 94 F.3d 1014, 1024 (6th Cir. 1996); Grendell v. Ohio Envtl. Prot. Agency, 764 N.E.2d 1067, 1077 (Ohio Ct.App. 2001). Each of these elements must be proved to establish the existence of a partnership. Anchor, 94 F.3d at 1024.
We will address each of these elements in turn.
(1) There is no express or implied partnership contract as a matter of law
First, AMD appears to argue that the hog leases executed by Winger and Hake amount to express partnership agreements because both men signed as the "Producer." Indeed, AMD contends that "by signing the lease as Producer, Hake [and Winger] obtained a right to derive income (and presumably profit) therefrom." (AMD's Resp. Br. at 15.)
However, in Ohio, an "express contract occurs when the parties' assent to a contract's terms is expressed through an offer and acceptance," but AMD has presented no evidence of either an offer or acceptance between Hake and Winger regarding their respective rights and obligations in LeeWee. United Nat. Ins. Co. v. SST Fitness Corp., 309 F.3d 914, 919 (6th Cir. 2002) (applying Ohio law) (citing Legros v. Tarr, 540 N.E.2d 257 (Ohio 1989)). Nevertheless, AMD suggests that because both Hake and Winger signed the hog leases on behalf of the "Producer" they are entitled to share as partners in any profits generated by the leases. However, this argument overlooks the rather obvious point that the leases were not negotiated between Hake and Winger, but were between AMD on one side and Hake and Winger on the other. The leases are silent on Hake and Winger's respective rights to share any profits, to control the management, or to distribute partnership property. See Anchor, 94 F.3d at 1024. Simply stated, the hog leases do not evidence Hake and Winger's intention to operate LeeWee as co-owners for a profit. See OHIO REV. CODE § 1775.05(A). Accordingly, AMD has failed to show that the hog leases amount to express partnership contracts between Hake and Winger, and the record does not otherwise reveal the existence of an express partnership contract.
Moreover, AMD has not pointed to any evidence tending to show the existence of an implied partnership contract. "A contract implied in fact occurs when a meeting of the minds is demonstrated by surrounding circumstances, allowing a factfinder to infer the existence of a contract by tacit understanding." SST Fitness, 309 F.3d at 919; see also Legros, 540 N.E.2d 257; Lucas v. Costantini, 469 N.E.2d 927 (Ohio 1983) ("A contract implied in fact may be proved by showing that the circumstances surrounding the parties' transactions make it reasonably certain that an agreement was intended.")
In contrast, the circumstances here reveal that Hake and Winger never had a "meeting of the minds" to operate LeeWee as a partnership. Clearly Winger did not believe that LeeWee was a partnership. After all, he testified that LeeWee was not a partnership, that Hake was not a partner, and that Hake did not receive any share of LeeWee profits, or even invest in the business. (Winger Dep. at 26-27.) In fact, Winger apparently believed that Hake actually worked for AMD, because Winger did not pay him and doubted that Hake's involvement amounted to charity. (Id. at 121-124.) Further, whenever Hake, in Winger's presence, implied to others that a partnership existed, Winger rebuked him for making misrepresentations. (Id. at 126.) See cf, Stuart v. Denton, 280 P.2d 351, 353 (Or. 1955) (under Uniform Partnership Act, defendant's failure to object to his being introduced as a partner is evidence of the existence of a partnership); 59A Am. Jur.2d Partnership § 227 (1987).
Moreover, Winger's belief that LeeWee was not a partnership is further supported by the fact that it never filed any partnership tax returns, see Berger v. Dare, 649 N.E.2d 1316, 1319 (Ohio App.Ct. 1994) (filing partnership tax returns is one factor in determining whether business is a partnership); also In re Needleman; 204 B.R. 524, 527 (Bankr. S.D. Ohio 1997); In re Estate of Nuss, 646 N.E.2d 504, 507 (Ohio App.Ct. 1994); West One Trust Co. v. Morrison, 861 P.2d 1058 (Utah Ct.App. 1993), and Hake apparently never claimed any of LeeWee's profits and losses on his personal tax returns while Winger did. Additionally, LeeWee's checks were only drawn on the account of "David Winger d/b/a LeeWee Ltd." and signed by Winger alone. (B. Osmon Dep. at 177.) See Needleman, 204 B.R. at 529 (individual's sole authority to write checks for business supported his belief that business was sole proprietorship); Harvey, 632 N.E.2d at 961. Finally, it appears that Hake did not believe that he was a LeeWee partner, since he did not list any LeeWee assets or debts on his financial statement submitted to AMD. (B. Osmon Dep. at 32-33).
In fact, a fair reading of the record suggests Hake and Winger had different objectives with regard to LeeWee. See Grendell, 764 N.E.2d at 1075 (differing objectives of alleged partners suggests no implied partnership or joint venture agreement). Winger's objective was to grow pigs to be sold to slaughter, and hopefully to get LeeWee to turn a profit in the process. Apparently this was the reason that Winger reinvested LeeWee's profits, if it had any, back into LeeWee. In contrast, it appears that Hake was concerned with getting Winger to expand his hog farming operations, so he could pump up his own commissions from feed sales. After all, even Osmon noted that Hake was a "master" of captive business, and that it was Hake who hatched the plan to bring AMD and Winger together in the first place. (See Osmon Dep. at 17, 22, 29.)
Thus, in evaluating all of the circumstances here, clearly there was no meeting of the minds between Winger and Hake to operate LeeWee as a partnership, and thus, no implied partnership contract existed as a matter of law.
(2) There is no competent evidence of sharing profits and losses
Next, National City argues that there is no competent evidence that Hake and Winger actually shared LeeWee profits and losses. AMD, in turn, contends that there is at least sufficient evidence to create a genuine issue of material fact on this issue.
As previously mentioned, the sharing of profits and losses is an essential element in establishing the existence of a partnership, Anchor, 94 F.3d at 1024, and the sharing of profits is prima facie evidence that an individual is a partner. OHIO CODE § 1775.06(D). However, partners need not expressly contract to share losses, and in the absence of an express agreement, a court will imply that the parties intended to share losses in the same proportion as profits. Vargo, 716 N.E.2d at 242.
Here, it appears that Winger and Hake never actually shared LeeWee's profits. Indeed, Winger testified that Hake never shared in LeeWee's profits, (Winger Dep. at 22-23), and Hake's tax returns do not list any partnership income from LeeWee. (B. Osmon Dep. at 137, Ex. Q.) Moreover, Hake's financial statements did not list any LeeWee assets or debts, while Winger's financials do. (B. Osmon Dep. at 32-33).
Nevertheless, AMD argues that because Hake and Winger agreed, in AMD's view, to share the profits and losses in the hog leases, this element is satisfied, even without proof of sharing profits and losses in fact. Although we could find no Ohio cases directly on point, cases from other jurisdictions (who, like Ohio, have adopted the Uniform Partnership Act) recognize that an agreement to share profits is sufficient, even if no profits are recovered. See cf, Soley v. Vankeppel, 665 N.E.2d 508, 512-13 (Ind.Ct.App. 1995) ("Where a person is to share in the profits of a business, it is evidence that he is a partner in the business regardless of whether he actually receives any profits."); Hanford v. Maplewood Stationary Business Park, 621 N.E.2d 347, 350 (Ind.Ct.App. 1993); Dalton v. Austin, 432 A.2d 774, 777 (Me. 1981) ("sharing [of profits] is not required if . . . the agreement itself implies that the parties contemplated the sharing of profits."); Reddington v. Thomas, 262 S.E.2d 841, 843 (N.C.Ct.App. 1980); 59A Am. Jur.2d Partnership, § 50 (1987). However, AMD's argument is misplaced here because it is premised on the fundamental fallacy that the hog leases somehow rise to the level of agreements to share profits and losses. As discussed supra, they do not. Indeed, the leases are silent about Hake's and Winger's rights to share profits and losses, so they cannot amount to express profit sharing agreements. Moreover, there is no evidence which even suggests that Hake and Winger had a meeting of the minds to share LeeWee's profits and losses as partners. See SST Fitness, 309 F.3d at 919.
Next, AMD argues that Osmon's rather self-serving testimony that Winger and Hake referred to "our profits" and "our losses" in his presence is sufficient to raise an issue of fact as to whether they actually shared profits and losses. (AMD's Resp. Br. at 18.) However, certainly if Hake actually shared in LeeWee's profits there would be some documentary record, but AMD has not pointed to any tax returns, financial statements, checks from a partnership checking account, or other financial documentation evidencing that Hake actually shared LeeWee's profits or revenues. Moreover, even if Winger or Hake made these statements (they are hearsay after all, but National City has not sought to strike them), they are easily explained by the fact that both Winger and Hake had closely aligned, but separate operations, and "what was good for [one] was good for [the other]." (Winger Dep. at 41.) Thus, as Winger's exclusive feed supplier, Hake's commissions rose and fell in lockstep with the comparable success of Winger's operation.
Finally, AMD argues that it need not show profit sharing at all because LeeWee was a failing business that took on more than $5 million in debt, and Hake actually shared these losses with Winger. However, AMD has cited to no authority, and we could find none, holding that the mere fact that two individuals shared a debt conclusively establishes that they are partners sharing partnership losses. Rather, this absence of case law is easily explainable since the "sharing of losses is not always and exclusively an indicium of partnership or joint adventure." Chipman v. Steinberg, 106 A.D.2d 343, 344, aff'd, 482 N.E.2d 925 (N.Y. 1985) (applying Uniform Partnership Act). After all, there may be another reason that two individuals share a debt. Here, both Winger and Hake signed the hog leases, creating joint liability for a breach of contract. Stated most simply, no one would conclude that two roommates who sign a lease are "partners" just because they both are on the hook for the rent.
Accordingly, AMD has failed to demonstrate that Winger and Hake either agreed to share profits and losses or shared them in fact.
(3) AMD has presented no evidence of mutuality of agency
National City also argues that the record contains no evidence that Hake and Winger had the unilateral authority to bind one another or LeeWee to a contract. AMD apparently concedes the point since it has not responded to this argument, despite the fact that it filed a sur-response brief.
Moreover, after thoroughly reviewing the record, the Court agrees with National City that there is no evidence of mutuality of agency. Indeed, AMD has not presented any evidence that Hake bound LeeWee to any contract by virtue of his signature, or that he otherwise had the authority to take action on LeeWee's behalf. See Howman v. Reed, 1985 WL 10763, *1 (Ohio Ct.App. May 22, 1985) (no mutuality of agency when individual lacked authority to act on enterprise's behalf); Simandle, 445 N.E.2d at 736 (for partnership, individuals must be able to bind business enterprise). Accordingly, AMD has failed to demonstrate Hake and Winger's mutuality of agency.
(4) AMD has failed to demonstrate mutuality of control
National City also argues that AMD has not shown that Hake and Winger shared the authority to control and manage LeeWee. AMD, in contrast, contends that the testimony of its own employees make clear that Hake and Winger jointly managed LeeWee.
Mutuality of control is the "equal right or authority to direct and govern the movements and the conduct of each other" in carrying out the enterprise. Silver Oil Co., Inc. v. Limbach, 541 N.E.2d 612, 615 (Ohio 1989) (addressing mutuality of control in joint ventures); Cassity v. Oren Fab Supply, Inc., 1993 WL 112536, *3 (Ohio App.Ct. April 12, 1993). However, "evidence of mere joint contribution falls short of the requisite proof of mutuality of control." Casey v. Sealey's Ceramic Services, Inc., 1994 WL 124849, *3 (Ohio App.Ct. April 13, 1994) (citing Heritage Oldsmobile Cadillac v. Fifth Third Bank, 1990 WL 151754, *5 (Ohio App.Ct. Oct. 10, 1990)).
Here, we cannot say that AMD has presented evidence that Hake and Winger had the equal authority to direct and govern the movements of each other in carrying out LeeWee's operations. Although AMD has pointed to evidence that Winger typically consulted Hake before making decisions, and that its employees evidently believed Hake to be the decisionmaker, (see Brown Aff ¶ 12, B. Osmon Aff ¶¶ 24, 26; Arnold Aff. ¶¶ 13-16), it has not presented any evidence that Hake made management decisions in fact or had the actual authority to do so. Indeed, Winger testified that Hake did not make any management decisions for LeeWee, (Winger Dep. at 23), and Hake apparently did not even have the authority to write checks for LeeWee, which were only drawn on the account of "David Winger d/b/a LeeWee Ltd." and signed by Winger alone. (B. Osmon Dep. at 177.) See, e.g., Rivkin v. Coleman, 978 F. Supp. 539, 543 (S.D.N.Y. 1997) (under Uniform Partnership Act, "[c]ontrol may be established by showing, for example, authority to write checks or issue invoices"); Needleman, 204 B.R. at 529.
Rather, it appears that Hake's involvement with LeeWee was nothing more than the mere contribution of ideas and advice. Casey, 1994 WL 124849, at *3 Certainly, Hake was knowledgeable about the hog-pork market, and given his mastery of captive business, doubtless sophisticated in livestock financing. Moreover, considering that his feed sale commissions largely depended on the relative success of Winger's operation, there can be little doubt that Hake was motivated to provide whatever advice he could to help Winger through good times and bad. However, Hake's consultation and advice simply do not rise to the level of partnership control.
Accordingly, AMD has failed to establish Hake and Winger's mutuality of control in regard to LeeWee.
(5) Co-ownership of LeeWee property
Finally, National City contends that there is no evidence that Hake and Winger were co-owners of LeeWee property. AMD, in turn, appears to argue there is at least sufficient evidence to create an issue of fact as to whether Hake and Winger were actually co-owners of LeeWee's hogs.
Indeed, AMD appears to contend that its employee's testimony that Hake and Winger would refer to the hogs as "our property" is sufficient to create an issue of fact. (See B. Osmon Aff ¶ 25; T. Osmon Aff. ¶ 19.) of course, this testimony does not establish that Hake and Winger actually co-owned the hogs, a point reinforced by AMD's rather inconsistent claim that it owns the hogs under its leases.
Moreover, even if AMD did not actually own the hogs, AMD's evidence would only create an issue of fact regarding this one element. However, the joint ownership of property, by itself, does not establish a partnership. OHIO REV. CODE § 1776.06(B) ("joint property . . . does not of itself establish a partnership"). Instead, to prove the existence of a partnership, AMD must prove all five elements, but as discussed above, it has failed to do so. Anchor, 94 F.3d at 1024.
Once again, it is questionable whether AMD's testimony that Hake and Winger would occasionally refer to "our property" is admissible. After all, these supposed comments are hearsay, but because National City has not sought to strike them, they will be considered. See N.D. Ind. L.R. 56.1(d).
Thus, in considering each of the elements needed to prove the existence of a partnership, the Court concludes that AMD has failed to show that LeeWee is a partnership as a matter of law. Indeed, this case is analogous to In re Estate of Nuss, in which the Ohio Appellate Court found that despite a community of interest in a farm, a mother and son's farming operation was not a partnership because there was no written or oral partnership agreement, no payment of partnership taxes, and no indication that the parties shared net profits. 646 N.E.2d at 507-508.
At best, AMD might be able to make out a partnership by estoppel claim based on its understandings and dealings with Hake and Winger. See OHIO REV. CODE § 1775.15(A) (partnership by estoppel requires proof that a person, by words or conduct, represents himself as a partner with one or more persons who are not actual partners); Montgomery Ward Co. v. Barger, 160 N.E.2d 554 (Ohio Ct.App. 1958). However, we need not reach that issue here because partnership by estoppel only exists for the limited purpose of imposing liability on alleged partners when a person justifiably relies on their partnership representations. Id. Consequently, the doctrine simply cannot be applied against National City here. Moreover, partnership by estoppel is inapplicable even against Hake and Winger because they are already individually liable to AMD on the hog leases.
Accordingly, because no reasonable jury could find LeeWee to be a partnership, it must be, as National City argues, merely a fictitious name for Winger's farming operation. Moreover, although AMD concedes that summary judgment is appropriate on all its claims if the Court concludes that LeeWee was not a partnership, we will nevertheless proceed to consider whether National City's security interests have priority over AMD for purposes of the conversion claim, and whether Winger's transfer of funds to National City was fraudulent. B. AMD's Conversion Claim Fails Because National City has Priority
Because it makes more sense to do so, we will address AMD's conversion claim before its UFTA claim. Additionally, we will hereinafter substitute "Winger" for "LeeWee."
Although AMD's response brief denies that Count II of the Complaint is a conversion claim (Resp. Br. at 48) and its so-called "Sur-Reply" suggests that it may actually be an action for detinue or for replevin (Pl.'s Sur-Resp. at 6-7), it admitted, under questioning from the Court during the May 1, 2003, status and scheduling conference, that Count II was actually a claim for conversion.
National City contends that its security interests have priority over AMD because the hog leases merely amount to disguised security agreements, and because it perfected its security interest before AMD. As previously noted, AMD concedes these points, and has not bothered to respond to these arguments. Nevertheless, we will address them to complete the record.
(1) The hog leases are actually disguised security agreements
Whether a particular "lease" is to be construed as a genuine lease or a disguised security agreement is a matter governed by the Uniform Commercial Code. OHIO REV. CODE § 1301.01 (KK)(2) provides that a given "lease" will be deemed a security agreement if, first, the putative lessee's payment obligations are not subject to termination by the lessee, and, second, any of the following apply:
Although the leases contain a provision providing that they are to be "governed by and construed under the laws of this State of Indiana," (Am. Compl., Exs. 11 17), we can discern no difference between the Indiana and Ohio statutes addressing whether a lease is really a disguised security agreement, compare IND. CODE § 26-1-1-201 (37) with OHIO REV. CODE § 1301.01(KK). Accordingly, we decline to perform a choice of law analysis, and will instead apply Ohio law.
(a) The original term of the lease is equal to or greater than the remaining economic life of the goods.
(b) The lessee is bound to renew the lease for the remaining economic life of the goods or is about to become the owner of the goods.
(c) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.
(d) The lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.
Id.
Here, the hog leases do not provide for termination by the lessee. In contrast, the leases provide that Winger has "no recourse to AMD for any reason once pigs have been delivered" and that he is not entitled to "[d]iscounting . . . due to the death loss of pigs in the lease, regardless of cause or reason." (Compl., Exs. 11 17.) Thus, Winger clearly has no meaningful right to terminate the hog leases.
Moreover, the record reveals that the original terms of the leases are equal to or greater than the remaining economic life of the hogs, and that Winger has the option to become the owner of the hogs for no additional consideration.
Turning first to the economic life of the hogs, we note that "[w]here the term of the agreement consumes the majority of the useful life of the goods in question, that agreement resembles a purchase contract or financing arrangement rather than a lease." In re Nationwise Automotive, Inc., 250 B.R. 900, 904-905 (Bankr. S.D. Ohio 2000) (citing In re Beker Indus. Corp., 69 B.R. 937, 943 (Bankr.S.D.N.Y. 1987)). In this case, Winger testified that feeder pigs would be raised in LeeWee's feeder pig finishing barns for approximately 16-18 weeks (i.e., 112-126 days) before being taken to market. (Winger Dep. at 12.) Certainly, the Feeder Pig Leases consume the majority of the useful life span of the feeder pigs since their terms last for 120 days. (See Am. Compl., Ex. 12-13.)
Further, the leases provided Winger with the ability to become the owner of the hogs for no, or only nominal, additional consideration upon compliance with the leases. OHIO REV. CODE § 1301.01 (KK)(2)(d). "Generally, if the lessee's option price is approximately equal to the fair market value of the property, the lease is considered a 'true lease,'" Telmark, Inc. v. Schierloh, 658 N.E.2d 43, 45 (Ohio Ct.App. 1995), because the lessee is not considered to have any equity in the property. Brown Motors Leasing v. Reacher, 608 N.E.2d 1162, 1164 (Ohio Ct. App. 1992). Although the hog leases at issue here did not expressly provide Winger with the option to buy, they clearly granted him an equitable interest in the hogs. Indeed, both the Feeder Pig Leases and the Sow/Gilt/Boar Leases expressly provided that after selling the hogs, Winger could retain any sums in excess of amount due AMD. (Am. Compl., Exs. 11 17.) Thus, once Winger complied with the terms of the leases, he effectively owned the hogs, and was entitled to reap the benefit of his equitable interest in them.
Thus, under Ohio Rev. Code § 1301 (KK)(2), it is clear that these hog leases are not true leases, but rather are merely disguised security agreements. of course, this point is reinforced by the fact that the hog leases contain an express provision purporting to give AMD a security interest in the hogs.
(2) National City's security interest has priority
Having found that the hog leases are really just disguised security agreements, we turn to consider whether National City's security interest takes priority over AMD's interest. On this score, National City argues that because it was the first to properly perfect its security interest and because AMD's security interest is not really a purchase money security interest, it has priority.
(a) National City was the first to perfect its security interest
First, National City argues that it properly perfected its security interest in all of Winger's livestock in 1994, when he first obtained a line of credit and entered into the first security agreement with National City. The Ohio Uniform Commercial Code for secured transactions provides the following framework for perfecting a security interest: "[a] security interest is perfected [1] when it has attached and [2] when all of the applicable steps required for perfection have been taken, as provided in sections 1309.21 [.]" OHIO REV. CODE § 1309.22(A); Farm Credit Serv. of Mid-America, ACA v. Nofzinger, 642 N.E.2d 430, 432 (Ohio Ct.App. 1994).
In 2001, Ohio recodified its law of secured transactions, but since all of the events in this case occurred prior to that date, we will apply the prior version.
Here, National City's security interest attached because Winger signed a security agreement, in exchange for a transfer of funds and a time of credit, which specifically granted National City a security interest in all of Winger's present and future livestock and proceeds, including the hogs he owned at the time. See OHIO REV. CODE § 1309.14 (a security interest attaches to collateral when (1) the debtor has signed a written security agreement which contains a description of the collateral; (2) value has been given; and (3) the debtor has rights in the collateral); Bowshier v. Chrysler Financial Corp., 144 F. Supp.2d 919, 929 (S.D. Ohio 2001).
Moreover, it is clear that National City took all the steps necessary to perfect its security interest. To perfect a security interest, OHIO REV. CODE § 1309.21 and § 1309.07(C) required National City's financing statement to be filed in the Ashland County, Ohio, Recorder's Office. Since National City performed that obligation on January 31, 1994, its security interest in Winger's hogs was perfected as of that date.
Finally, Ohio Rev. Code § 1309.31(E) provides that the priority of multiple security interests in the same collateral is determined by whoever was the first in time to perfect their security interest. Here, National City perfected its interests on January 31, 1994, and claims that this was before AMD was able to perfect its interests. We are uncertain precisely when AMD got around to perfecting its security interests, but it does not appear that they filed any security agreements with the Ashland County Ohio Recorder's Office prior to 1997. (See T. Osmon Aff., Ex. 2.) Accordingly, the only conclusion that can be reached on this record is that National City was the first to perfect its security interest in Winger's hogs, and this extended to the proceeds of their sale.
(b) AMD does not have a purchase money security interest in the hogs
Even if National City was the first to perfect its security interest, AMD may still have priority if, as it claims, it has a purchase money security interest in the hogs. A purchase money security interest is a security interest that is "taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used." OHIO REV. CODE § 1309.05; Key Bank Nat. Ass'n v. Huntington Nat. Bank, 2002 WL 701941, *4 (Ohio Ct.App. April 24, 2002).
However, here, the very terms of the "leases" provide that AMD bought hogs owned by Winger and then "leased" them back. As such, AMD did not provide the funds with which Winger first acquired an interest in the collateral, and therefore, it does not have a purchase money security interest. Furthermore, Winger apparently did not use these funds to purchase hogs, since he would use AMD's financing to obtain feed, supplies, or whatever else he needed. (Winger Dep. at 21.) Accordingly, as a matter of law, AMD does not have a purchase money security interest.
Moreover, even if it could be inferred that Winger used AMD funds to purchase some hogs, AMD has failed to sufficiently identify which hogs were subject to its purchase money security interest, particularly given Winger's apparent commingling of hogs. (Winger Dep. at 19) (noting that perhaps 60% of his hogs were "leased"). After all, where, as here, two creditors both claim rights to commingled livestock, AMD can only hold priority to the hogs it can specifically identify as subject to its purchase money security interest. See United States v. MidStates Sales Co., 336 F. Supp. 1099, 1103 (D. Neb. 1971) (creditor only entitled to proceeds of collateral where it can prove, by matching ear-tags, that particular livestock was subject to its purchase money security interest) (cited with approval in Farmers State Bank Trust Co. v. Mikesell, 554 N.E.2d 900 (Ohio App.Ct. 1988)); see also Letting v. Agristar Credit Corp. 686 F.2d 442 (6th Cir. 1982) (particularized identification of livestock is crucial to determining purchase money maker's rights).
Accordingly, because AMD does not have a purchase money security interest in Winger's hogs and because National City was the first to properly perfect its security interest, AMD's conversion claim fails as a matter of law.
C. AMD's Fraudulent Transfer Claim Also Fails as a Matter of Law
Finally, National City contends that AMD's fraudulent transfer claim fails because there was never a "transfer" as defined by UFTA. of course, as discussed supra, AMD concedes that if LeeWee is not a partnership, National City is entitled to summary judgment on this claim. Nevertheless, we will proceed to address it on the merits as well.
AMD, in its amended complaint, contends that because it financed Winger's hogs, his transfer of the hog proceeds to National City amount to a fraudulent transfer under the UFTA. See OHIO REV. CODE § 1336.01, et seq.
To establish liability under the UFTA, AMD must follow one of two statutory routes. The first requires AMD to show that Winger made a transfer "with [the] actual intent to hinder, delay, or defraud any creditor of the debtor." OHIO REV. CODE § 1336.04(A)(1). Under the second route, AMD can show that Winger made a fraudulent transfer if:
[Winger did not receive] reasonably equivalent value in exchange for the transfer or obligation, and if either of the following apply:
(a) [Winger] was engaged or was about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction;
(b) [Winger] intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay them as they became due.
OHIO REV. CODE § 1336.04(A)(2).
However, AMD fails under either route because, as a matter of law, Winger never made a "transfer" as that term is defined under the UFTA. Indeed, a "transfer" is the "disposing of or parting with an asset." OHIO REV. CODE § 1336.01(L). An "asset," in turn, is "property of the debtor, but does not include . . . property to the extent it is encumbered by a valid lien," OHIO REV. CODE § 1336.01(B)(1), and a "valid lien" is "[one] that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings." OHIO REV. CODE § 1336.01(M); Longo Contsr., Inc. v. Asaptech Services, Inc., 748 N.E.2d 1164, 1170 (Ohio Ct.App. 2000).
In this case as discussed supra, Winger owned the hogs in question, but those hogs were subject to National City's perfected security interest, which apparently exceeded the value of the proceeds Winger transferred to it. Thus, because the proceeds which AMD claims entitlement to were fully encumbered by National City's valid lien, its UFTA claim fails as a matter of law.
CONCLUSION
For the foregoing reasons, AMD's cross-motion for partial summary judgment is DENIED as untimely, and National City's motions to strike and for summary judgment are GRANTED. The clerk is directed to enter judgment in favor of National City and against AMD.
SO ORDERED.