Opinion
21-P-578
03-24-2022
SHAMROCK FINANCE LLC v. SOURCE ONE FINANCIAL CORPORATION.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
This appeal involves security interests under article 9 of the Massachusetts Uniform Commercial Code (UCC), G. L. c. 106, §§ 9-315, 9-330. The plaintiff, Shamrock Finance LLC (Shamrock), asserted claims against the defendant, Source One Financial Corporation (Source One), for conversion of proceeds, violation of G. L. c. 93A, § 11, and declaratory judgment. Shamrock now appeals following a final judgment (1) dismissing its conversion and chapter 93A claims pursuant to Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974), and (2) declaring that Source One's security interest has priority. Because this panel cannot definitively say at this stage that Shamrock's allegations do not entitle it to relief, we vacate the judgment and remand for further proceedings.
Background. Shamrock's complaint alleged that it provided financing to an automobile dealer named Platinum Cars, Inc. (the dealer), so the dealer could purchase inventory. In connection with this financing, Shamrock filed a UCC-1 financing statement to perfect its security interest in the dealer's assets, including the dealer's chattel paper and proceeds from the sale of the dealer's chattel paper. Source One, a separate lender, provided indirect financing to the dealer's retail customers so they could purchase their vehicles. More specifically, the dealer made loans to its customers and Source One then purchased those loans from the dealer. There is no dispute that the loans constituted chattel paper as defined in G. L. c. 106, § 9-102 (a ) (11).
The complaint further alleged that after the dealer defaulted on its obligations to Shamrock, Shamrock demanded that Source One turn over certain assets to which Shamrock claimed entitlement. This suit followed. Although Shamrock's complaint was broad enough to encompass a claim of a security interest in the chattel paper itself, Shamrock's principal allegations were that Source One improperly withheld from the dealer certain money, which Shamrock described as proceeds, that Source One owed the dealer in connection with the purchase of the chattel paper. Shamrock claimed a perfected security interest in the alleged proceeds withheld by Source One. Shamrock claimed that Source One's retention of the alleged proceeds constituted conversion and violated chapter 93A, and that Shamrock was entitled to a declaratory judgment that it had a perfected security interest, superior to any interest of Source One, in those proceeds.
Source One moved to dismiss the conversion and chapter 93A claims for failure to state a claim upon which relief can be granted. A judge allowed the motion, concluding that under G. L. c. 106, § 9-330, Source One had a priority interest in the chattel paper and certain proceeds thereof. The judge then ordered the entry of judgment declaring that Source One's interest in the chattel paper and proceeds had priority over Shamrock's security interest. This appeal followed.
Source One attached to its motion to dismiss various documents concerning its financial relationship with the dealer. The judge considered these documents, without objection. See Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 45 n.4 (2004) ; Navarro v. Burgess, 99 Mass. App. Ct. 466, 467 n.4 (2021).
Discussion. "[A] motion to dismiss under rule 12(b)(6) may be allowed only where the factual allegations, accepted as true, do not plausibly suggest an entitlement to relief" (emphasis added). Marabello v. Boston Bark Corp., 463 Mass. 394, 398 n.5 (2012), citing Curtis v. Herb Chambers I–95, Inc., 458 Mass. 674, 676 (2011) ; Iannacchino v. Ford Motor Co., 451 Mass. 623, 635–636 (2008). Our review is de novo. See Curtis, supra. Here, although we are skeptical of several of Shamrock's theories, we are unable to conclude that, treating the complaint's factual allegations as true, there is nothing in it plausibly suggesting an entitlement to relief.
Source One's motion to dismiss, and the judge's memorandum of decision, focused largely on the priority of interests in the chattel paper itself. The judge concluded that, under § 9-330, Source One had priority in that chattel paper. We see no error in that analysis, and on appeal Shamrock effectively concedes the point.
At oral argument on the motion to dismiss, however, Shamrock asserted, as in its complaint, a priority interest in the proceeds from the sale of the chattel paper, meaning amounts Source One allegedly owed or should have paid to the dealer (but did not pay) in exchange for acquiring the chattel paper. Shamrock asserted that § 9-315 (a ) (2) gave it a security interest in such proceeds. Shamrock differentiated those proceeds from the amounts that consumers might pay Source One as holder of the chattel paper (e.g., monthly payments on the consumers’ loans), which could also be termed proceeds. Shamrock conceded that Source One had a priority interest in the latter type of proceeds, apparently under § 9-330 (c ). The memorandum of decision did not address § 9-315 and mentioned only in passing the priority of interests in the proceeds of the chattel paper. It is on the alleged proceeds under § 9-315 (a ) (2) that we now focus.
Shamrock's complaint illustrated its claim by discussing Source One's purchase from the dealer of chattel paper consisting of a retail sales installment contract entered into by a consumer named Carmelo Flores (Flores contract). The complaint alleged that the amount financed, and to be provided by Source One to the dealer, was $16,699. The complaint then specified particular amounts that Source One allegedly owed but did not pay to the dealer in connection with the Flores contract; instead, Source One allegedly deducted these amounts from the amount financed and paid the dealer only $1,451.07. Shamrock contends that these deductions were improper and in some instances were made to offset the dealer's antecedent debts or other obligations to Source One.
Among the alleged improper deductions was $13,000 for an "advance" paid to the dealer a few days before the execution of, and specifically with respect to, the Flores contract. Shamrock acknowledged at oral argument before us that Source One paid this amount to the dealer and that Shamrock had a security interest in that amount as proceeds of chattel paper. We are unable to see how Shamrock, by reason of this deduction, has a claim against Source One for conversion or violation of chapter 93A where Source One paid the $13,000 to the dealer in connection with the Flores contract.
The $13,000 check from Source One to the dealer bears a notation on the memo line, "Quote #59716," which corresponds to an identifying number on the Flores retail sales installment contract.
Another of the alleged improper deductions was $1,100 as an "unearned discount." Source One has asserted that such discounts reflect that Source One, in buying chattel paper, takes on the risk of nonpayment by the consumer, and that Source One is entitled to earn some profit as compensation for that risk. Source One has asserted that it may do so by agreeing with the dealer on a price for the chattel paper that is less than the amount financed -- a price that reflects Source One's assessment of the value of the chattel paper. Shamrock does not point to anything in the UCC that allows a court to determine that the price agreed upon by the dealer and Source One -- two private parties to an apparently arms-length economic transaction -- was too low and that Source One owes the dealer any additional amount as proceeds.
Another alleged improper deduction was $112.76, which it could be inferred reflects a first monthly payment due from the consumer (Flores) to Source One but made instead to the dealer. Yet another such deduction was for a $200 "VSI Insurance" payment, which it could be inferred represents an offset of the amount paid by the consumer to the dealer to compensate Source One for the cost of certain insurance. Source One purchases such insurance to protect its interest in the vehicle securing the loan to the consumer. If these characterizations are accurate, it is unclear how the alleged deductions represent proceeds owed but not paid to the dealer, such that Shamrock could have a security interest under § 9-315 (a ) (2) in those amounts still in Source One's possession.
At this stage, however, all reasonable inferences must be drawn in Shamrock's favor, see Curtis, 458 Mass. at 676, and so we reach no definitive conclusions on the nature of the alleged deductions discussed above. Nor do we draw conclusions regarding the other allegedly improper deductions described in the complaint. It may very well be that those deductions represent mutually agreed-upon adjustments to the price of chattel paper Source One purchased from the dealer, rather than proceeds Source One owed but not did not pay to the dealer and in which Shamrock somehow had a security interest. These issues cannot be resolved without further proceedings on remand.
To be clear, we do not state whether any of the deductions are proceeds, and there may be other reasons why the deductions would not be considered proceeds. The parties may further develop this issue on remand.
We add two observations that may assist in narrowing the issues. First, if Shamrock had a security interest in any proceeds in Source One's possession, that "security interest attache[d] to any identifiable proceeds of collateral" (emphasis added). G. L. c. 106, § 9-315 (a ) (2). Second, although "conversion may lie if an individual wrongly exercises dominion or control over the money of another," Weiler v. PortfolioScope, Inc., 469 Mass. 75, 87 (2014), "[c]onversion occurs only when a defendant exercises wrongful control over specific personal property, not a debt." Gossels v. Fleet Nat'l Bank, 453 Mass. 366, 372 (2009). Successful claims for the conversion of money have typically involved situations in which defendants misappropriated identifiable funds given to them to hold for others. See, e.g., Matter of Hilson, 448 Mass. 603, 604-606, 611-612 (2007) ; Grand Pac. Fin. Corp. v. Brauer, 57 Mass. App. Ct. 407, 408, 412-413 (2003). As this issue has not been briefed, we express no view on whether Shamrock's allegations of entitlement to funds held by Source One are sufficient to state a claim for conversion.
Conclusion. The judgment is vacated and the case is remanded for further proceedings consistent with this memorandum and order.
So ordered.
vacated and remanded