Opinion
No. CV 03 0518990 S
May 25, 2004
MEMORANDUM OF DECISION
The plaintiff, TruServ Corporation (TruServ), has brought a multicount complaint against the defendant, John A. Stefanik (Stefanik), claiming that his actions breached a security interest that TruServ had with its debtor, C.J.N. Associates (CJN). TruServ has moved for summary judgment as to liability only on two counts and Stefanik has moved for summary judgment as to all counts.
The undisputed facts are as follows. TruServ is a wholesaler for hardware stores that carry the name "True Value." In November 1998, TruServ entered into an agreement with CJN and its principal, Lawrence Carboni, and thereafter Carboni operated Maple End Hardware in Bristol, Connecticut. Stefanik was the owner of the premises where the hardware store was located and became the landlord to CJN.
Commencing in November 1998 and continuing to July 2000, pursuant to the agreement between TruServ and CJN, CJN purchased inventory from TruServ that was the subject of a security interest in favor of TruServ. A UCC-1 form was filed with the Connecticut Secretary of the State's office that disclosed TruServ's security interest.
TruServ terminated its relationship with CJN in July 2000 partly on the ground that CJN had not paid for the inventory supplied. CJN vacated the premises in July/August 2000, and Stefanik received the keys to the store from Carboni at that time. Subsequently Stefanik, who was owed rent by CJN, conducted a "going out of business" sale of the inventory left by CJN on the premises and received $8-9 thousand dollars from the sale. He used some of the funds to pay the utility costs at the premises and turned the balance of the funds realized over to his own mortgagee.
Stefanik did not remit the proceeds of the sale of the inventory to TruServ, did not contact TruServ at any time regarding the inventory, and never gave it the opportunity to take possession of the inventory. Stefanik never notified TruServ that he intended to conduct the sale. He has admitted that he never conducted a UCC search to ascertain the existence of a security interest in the inventory before or after the liquidation sale. Thereafter, learning that Stefanik had received proceeds from his sale, this suit was commended.
TruServ's complaint is in seven counts. The first count claims a remedy under General Statutes § 42a-9-315(a)(2) to the "identifiable proceeds" from its security agreement. The second count alleges tortious interference by Stefanik with the security interest between TruServ and CJN. The third count charges that Stefanik committed civil theft while the fourth count alleges conversion. The fifth count accuses Stefanik of fraud by non-disclosure. The sixth count seeks a finding that Stefanik was unjustly enriched by receipts of the sale proceeds. The seventh count asserts a trademark violation against Stefanik.
This is a provision of Connecticut's version of Article 9 of the Uniform Commercial Code (UCC). Henceforth the court will abbreviate to give only the UCC citation.
As indicated, the parties have, in varying degrees, moved for summary judgment. Summary judgment "shall be rendered forthwith if the pleadings, affidavits and any other proof . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Practice Book § 17-49. "In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist." Nolan v. Borkowski, 206 Conn. 495, 500 (1988).
"The party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact . . ." (Internal quotation marks omitted.) Gould v. Mellick Sexton, 263 Conn. 140 (2003). "[T]he genuine issue aspect of summary judgment requires the parties to bring forward before trial evidentiary facts, or substantial evidence outside the pleadings, from which the material facts alleged in the pleadings can warrantably be inferred . . . A material fact has been defined adequately and simply as a fact which will make a difference in the result of the case." (Citation omitted; internal quotation marks omitted.) Buell Industries, Inc. v. Greater New York Mutual Ins. Co., 259 Conn. 527, 556 (2002).
"The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law . . . and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact." (Internal quotation marks omitted.) Schilberg Integrated Metals Corp. v. Continental Casualty Co., 263 Conn. 245, 252 (2003). "The existence of the genuine issue of material fact must be demonstrated by counter affidavits and concrete evidence." (Internal quotation marks omitted.) Mozeleski v. Thomas, 76 Conn. App. 287, 290 (2003).
Turning to the first count, there is no dispute between the parties that under UCC § 9-315(a)(2) or its predecessor, UCC § 9-306(2) that TruServ's security interest "continues in `any identifiable proceeds' from a disposition of collateral." Norwich Savings Society v. Independent Bank Trust Co., 39 Conn.Sup 39, 43 (1983). Stefanik first claims that the proceeds may not be traced by the secured creditor beyond "the hands of the debtor." (Defendant's brief on Summary Judgment at page 7.) On this point, the preferred view is, however that "[t]here is no requirement in the Code that the proceeds be received by the debtor, and the creditor's rights thereto are not affected when proceeds are received by a third person." Centerre Bank v. New Holland Div. of Sperry Corp., 832 F.2d 1415 (7th Cir. 1987), quoting 9 R. Anderson, Uniform Commercial Code, § 9-306:24 (3d ed. 1985). See also Farnum v. C.J. Merrill, Inc., 264 A.2d 150, 156 (Me. 1970), concluding that the proceeds may be traced to anyone who specifically receives them.
Stefanik claims secondly that TruServ must demonstrate that there are identifiable proceeds and, that the facts are undisputed that the proceeds have not been identified. Stefanik states that TruServ cannot trace the specific goods that made up the inventory of CJN and further trace these funds realized to their disposition.
TruServ replies that there is no question that the majority of items left in the store were subject to security agreements including its own. See Deposition of Carboni at page 23. In addition TruServ can clearly trace the proceeds of the sale to Stefanik's bank account. This sufficiently raises a genuine issue of material fact to allow the case to proceed to trial. See Central Washington Bank v. Mendelson-Zeller, 779 P.2d 697, 703 (Wash. 1989) ("The Bank is not attempting to assert a superior security interest in these specific cash proceeds against another creditor . . . Rather, the Bank seeks only a simple money judgment against [the third party] for its conversion of the cash proceeds of the [debtor's] apple crop"); Metropolitan Bank v. La Sher Oil Co., 101 S.W.3d 252, 256 (2003) (court rejected the third party's contention that proof of debtor's business records were needed; there was sufficient evidence that the proceeds "came from" the secured collateral).
On the second claim, tortious interference, both parties have moved for summary judgment. Both rely on the general rule that this tort requires proof of "some improper motive or improper means." Suffield Development Associates Ltd. Partnership v. National Loan Investors, 64 Conn. App. 192, 204 (2001). The court concludes that there are genuine issues of material fact on this count. Truserv's proof is that Stefanik acted without any justification in conducting the authorized sale and was specifically told by Carboni of TruServ's security interest. Stefanik counters that he waited until he heard from Carboni that he was abandoning the inventory before he conducted the sale. Such factual matters cannot be resolved on summary judgment.
The third and fourth counts allege a conversion. The third count also seeks as a remedy the treble damages for this conversion as allowed by General Statutes § 52-564 for civil theft. Contrary to Stefanik's contention, TruServ may maintain its action for conversion as a matter of law. See Case Credit Corp. v. Portales National Bank, 966 P.2d 1172, 1174 (N.M. 1998); Ceres Fertilizer, Inc. v. Beekman, 308 N.W.2d 347 (Neb. 1981) (unauthorized sale of creditor's collateral constitutes conversion).
Stefanik has also moved for summary judgment on the ground that the facts do not justify a finding of civil theft or conversion. TruServ claims factually to be an owner of the inventory, while Stefanik denies it. The court concludes that there are genuine issues of material fact and denies Stefanik's motion for summary judgment. See Marion Plaza v. Fahey Banking Company, Court of Appeals of Ohio, Case No. 9-2000-59, March 6, 2001, denying summary judgment to a creditor who claimed that a landlord had converted proceeds, because of outstanding factual issues.
The court grants summary judgment to Stefanik on the fifth count alleging fraud by nondisclosure. TruServ has not presented facts by more than the usual burden of a preponderance of the evidence, that Stefanik clearly and equivocally made representations that he was the rightful owner of the goods. Weisman, Trustee v. Kaspar, 233 Conn. 531, 540 (2002); Suffield Development Asso. Limited Partnership v. National Loan Investors, 260 Conn. 766, 777 (2002). Rather the undisputed proof is that he acted with the permission of the owner to liquidate the inventory so that his outstanding rent might be paid.
Stefanik moves for summary judgment on the sixth count alleging unjust enrichment, claiming that this cause of action only applies to a defendant in direct relation with TruServ. The court disagrees. An action for unjust enrichment may be maintained where there is no actual contract and there has been a benefit incurred. Mayotte Brothers Construction Company v. Finney, 42 Conn. App. 578, 581 (1996); Eastern Metal Products, Inc. v. DePerry, 44 Conn. App. 60, 62 (1997): "Unjust enrichment is a very broad and flexible equitable doctrine . . . which has as its basis that it is contrary to equity and good conscience for the defendant to retain a benefit which has come to him at the expense of TruServ." (Citations omitted.) There are, however, genuine issues of material fact that require the court to deny Stefanik's motion for summary judgment. TruServ has raised an issue of material fact — whether and how Stefanik was benefitted by his taking the proceeds of the sale.
Finally both parties have moved for summary judgment on the seventh count which makes common law, and federal and state statutory trademark claims. With regard to General Statutes § 35-111, providing a remedy for breach of state-registered trademarks, TruServ offered to produce evidence that the trademark was registered in Connecticut, but has failed to do so. Therefore the court grants summary judgment on this portion of the count.
The court finds that there are genuine issues of material fact on the common law and federal claims, involving whether Stefanik intended to cause confusion or to deceive the public. Estate of Presley v. Russen, 513 F. Sup. 1339, 1362 (D.N.J. 1981). The proof submitted with the motions shows that there was a small True Value sign on the premises at the same time as a large yellow sign gave notice of the inventory sale. At trial the parties may develop for the jury whether leaving the original sign on the building confused the public.
To conclude, the court grants Stefanik's motion for summary judgment on count five and count seven in part and denies both parties' motions for summary judgment in all other respects. So ordered.
Henry S. Cohn, J.