Opinion
No. A05-161.
Filed September 6, 2005.
Appeal from the District Court, Blue Earth County, File No. C5032031.
Kenneth R. White, Law Office of Kenneth R. White, P.C., Mankato, Mn, (for appellant)
Eric J. Magnuson, Raphael T. Wallander, Shanda K. Pearson, Rider Bennett, Llp, Minneapolis, Mn; and Scott A. Fenske, Minneapolis, Mn, (for respondent)
Considered and decided by Peterson, Presiding Judge; Stoneburner, Judge; and Hudson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellant, who has a judgment against respondent Shari Candies, Inc. for breach of contract, challenges the district court's grant of summary judgment dismissing appellant's claim for a constructive trust over Shari Candies' assets, in which respondent U.S. Bank has a perfected security interest. We affirm.
FACTS
Beginning in the summer of 1996, respondent Shari Candies used appellant Richard McCluhan Associates, Inc. d/b/a Express Personnel Services of Mankato, to help staff its candy-bagging business. In May 2003, respondent U.S. Bank became the primary lender to Shari Candies and perfected a security interest in all of Shari Candies' assets. At that time, Shari Candies' account with appellant was current. In late June or early July 2003, without appellant's knowledge, significant problems of inventory overstatement at Shari Candies were discovered, placing it in a deficit relationship with U.S. Bank. U.S. Bank refused to extend additional credit to Shari Candies but allowed it to continue to operate while it sought a buyer. Lighthouse Management was hired to provide advisory and management services.
Shari Candies operated on a cash basis with some of its vendors for a few months but failed to pay anything on appellant's account. Appellant sent regular bills, and Shari Candies assured appellant that its bills would be paid. But by mid-September, Lighthouse Management's function changed from management assistance to liquidation.
Appellant sued on its account. Appellant and Shari Candies stipulated to an award of damages to appellant in the amount of $129,497.72 plus interest. They further stipulated that U.S. Bank could intervene in the action, and appellant could amend its complaint to seek to impose a constructive trust on Shari Candies' assets and proceeds from sale of those assets sufficient to satisfy appellant's judgment. U.S. Bank intervened and moved for summary judgment on the amended complaint, arguing that appellant is not entitled to impose a constructive trust on Shari Candies' assets and that even if so entitled, such a trust cannot supersede U.S. Bank's perfected security interest in those assets. The district court, agreeing that U.S. Bank's status as a secured party gives it priority over the constructive trust sought by appellant, granted summary judgment to U.S. Bank. This appeal followed.
DECISION
Standard of Review
Summary-judgment motions are granted when the pleadings, depositions, answers to interrogatories, and admissions, together with any affidavits, show that there is no genuine issue of material fact and a party is entitled to judgment as a matter of law. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993); Minn. R. Civ. P. 56.03. On a motion for summary judgment, "`a court may not weigh the evidence or make factual determinations.'" State ex rel. Hatch v. Allina Health Sys., 679 N.W.2d 400, 406 (Minn. App. 2004) (quoting Fairview Hosp. Health Care Servs. v. St. Paul Fire Marine Ins. Co., 535 N.W.2d 337, 341 (Minn. 1995)). "The reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted." Fabio, 504 N.W.2d at 761. A reviewing court need not defer to a trial court's decision on a pure question of law. Frost-Benco Elec. Ass'n v. Minn. Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984). "[S]ummary judgment cannot be defeated with unverified and conclusory allegations or by postulating evidence that might be developed at trial." N. States Power Co. v. Minn. Metro. Council, 684 N.W.2d 485, 491 (Minn. 2004) (quotation omitted).
Constructive Trust and U.C.C. Priority Scheme
Appellant first argues that there is at least a disputed issue of material fact as to whether or not it is entitled to a constructive trust on the assets of Shari Candies. "[T]he existence of [a] constructive trust is a question of fact." Freundschuh v. Freundschuh, 559 N.W.2d 706, 711 (Minn.App. 1997), review denied (Minn. Apr. 24, 1997). A constructive trust requires a fiduciary relationship or "any relationship giving rise to justifiable reliance or confidence," and "the abuse by defendant of confidence and trust bestowed under it to plaintiff's harm." Id. Constructive trusts often involve wrongdoing, but they can apply if there is "clear and convincing evidence that it would be `morally wrong' for the property holder to retain the funds." Spiess v. Schumm, 448 N.W.2d 106, 108 (Minn.App. 1989).
The district court appears to have agreed with appellant that there is a question of fact regarding whether appellant is entitled to a constructive trust. The district court noted that "there is evidence that [appellant] relied on promises of payment made by Shari Candies' management . . . [and] that Shari Candies may have abused [appellant's] trust and was unjustly enriched." But the district court concluded that U.S. Bank's secured party status takes priority over any interest appellant may claim in Shari Candies' assets.
Whether a constructive trust can defeat an innocent party's perfected security interest in the assets of an entity that was unjustly enriched is a matter of first impression. Appellant argues that the constructive trust, as an equitable remedy, "must be able to step in front of a secured party in order to achieve justice." While there may be merit to appellant's proposition when the secured party has had some role in bringing about the unjust enrichment, we find no merit with regard to an innocent secured party such as U.S. Bank in this case.
See Ninth Dist. Prod. Credit Assoc. v. Ed Duggan, Inc., 821 P.2d 788, 797, 800 (Colo. 1991) (concluding that because secured creditor was "involved in the transaction by which the unsecured creditor supplied goods or services that enhanced the value of the secured collateral," trial court erred by failing to instruct a jury on unjust enrichment).
It is undisputed that U.S. Bank had a perfected security interest in all of Shari Candies' assets, and there is no evidence that U.S. Bank had any role in inducing appellant to extend further services to Shari Candies when Shari Candies was not paying appellant's bills. The district court correctly concluded that there is nothing about this case that warrants disruption of the U.C.C.'s hierarchy of priorities. See Minn. Stat. § 336.9-322 (2002) (setting forth U.C.C. priority scheme).
Appellant argues that this court can supplement the U.C.C. with principles of equity (unless displaced by provisions in the U.C.C.). Minn. Stat. § 336.1-103 (2002). But we note that "where U.C.C. provisions are determinative, the application of equitable principles is unnecessary." Airlines Reporting Corp. v. Norwest Bank, 529 N.W.2d 449, 452 (Minn.App. 1995) (quotation omitted).
This court applies the law in effect of the time of the transaction. Fin Ag, Inc. v. Hufnagle, Inc., ___ N.W.2d ___, ___, 2005 WL 1669408, * 7 (Minn. App).
Appellant provides no authority for its argument that U.S. Bank waived its priority over unsecured creditors by allowing Shari Candies to use assets in which U.S. Bank had a secured interest to continue its business after the financial problems were discovered. As U.S. Bank points out, such use of secured assets is merely the normal course of business.
Furthermore, the security agreement requires any waiver to be in writing. A waiver can exist despite such a requirement, when the evidence demonstrates a course of dealing and oral consent to a waiver — but, even if we accepted appellant's argument of waiver based on course-of-dealing evidence, there is no evidence of oral consent to a waiver in this case. Waiver must be based on more than course-of-dealing evidence alone to show "an intentional relinquishment of a known right, and it must clearly be made to appear from the facts disclosed." Citizen's Nat'l Bank of Madelia v. Mankato Implement, Inc., 441 N.W.2d 483, 486-87 (Minn. 1989) (quotation omitted). "Waiver is ordinarily a question of fact for a jury, unless only one inference may be drawn from the facts." Pollard v. Southdale Gardens of Edina Condo. Ass'n., Inc., 698 N.W.2d 449, 453 (Minn.App. 2005). Here, the district court did not err because there is no evidence from which an exception to the requirement of a written waiver could be inferred.