Associates v. Primary Bank

• Court: District Court, D. New Hampshire
• Decided: February 8, 1996
• Docket: CV-95-253-M
• Status: Published

Opinion

Associates v . Primary Bank CV-95-253-M 02/08/96 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Associates Commercial Corporation, Plaintiff, v. Civil N o . 95-253-M Primary Bank, Defendant. O R D E R

This civil dispute stems from the parties' competing claims

to the assets of Commonwealth Thomas, Inc. ("CTI"), a dealer and

manufacturer of customized vehicles which is apparently now

insolvent. Each party says it properly perfected a priority

security interest in certain assets of CTI and each claims that

the other wrongfully seized (or foreclosed upon) assets to which

it was not entitled.

Plaintiff, Associates Commercial Corporation ("Associates") moves the court to dismiss the counterclaims brought by defendant, Primary Bank (the "Bank"). Associates asserts that none of the Bank's counterclaims states a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). The Bank does not contest dismissal of Count Five of its counterclaims. It does, however, object to the dismissal of the remaining counts. Standard of Review

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) is one of

limited inquiry, focusing not on "whether a plaintiff will

ultimately prevail but whether the claimant is entitled to offer

evidence to support the claims." Scheuer v . Rhodes, 416 U.S. 232, 236 (1974). In considering a motion to dismiss, "the

material facts alleged in the complaint are to be construed in

the light most favorable to the plaintiff and taken as admitted,

with dismissal to be ordered only if the plaintiff is not

entitled to relief under any set of facts he could prove."

Chasan v . Village District of Eastman, 572 F.Supp. 5 7 8 , 579

(D.N.H. 1983), aff'd without opinion, 745 F.2d 43 (1st Cir. 1984)

(citations omitted).

Facts

Viewed in the light most favorable to the Bank, the material

facts alleged in the counterclaim appear as follows. In 1991,

the Bank began a lending relationship with CTI. In May, 1994,

the Bank augmented CTI's line of credit to $1,250,000.00. As a

condition of increasing the line of credit, the Bank sought and,

at least in its view, obtained a first position security interest

in all CTI's assets except those vehicles (and related parts and

2 accessories) which had been purchased with funds advanced by

Associates. The Bank claims that prior to lending money to C T I ,

it contacted Associates to confirm its understanding of the

parties' respective security interests. The Bank states that

representatives of both CTI and Associates confirmed that

Associates' security interest attached exclusively to vehicles

(and related parts and other assets) financed by Associates.

Satisfied that it could and would obtain a priority security

interest in all of CTI's remaining assets, the Bank agreed to

lend CTI additional money. CTI then executed a security

agreement with the Bank, by which it granted the Bank a priority

security interest in all of its assets other than the limited

inventory which it had previously pledged as security to

Associates. The Bank properly perfected that security interest.

Eventually, CTI was no longer able to pay its creditors.

Associates occupied CTI's business offices, for the purpose of

monitoring its affairs. CTI then voluntarily relinquished to the

Bank certificates of title to vehicles on which the Bank claims

to hold a security interest and in which it claims Associates has

no interest (or, at best, a subordinate interest). Shortly

thereafter, Associates took possession of much of CTI's inventory

3 of parts and supplies. It also took possession of CTI's

inventory of busses and, subsequently, sold them at a public

auction.

The Bank claims that it holds a superior security interest in much of the inventory seized and liquidated by Associates. It

also claims that Associates conducted its foreclosure sale of

those assets in a manner that was not "commercially reasonable."

Accordingly, the Bank asserts that Associates violated duties

owed to CTI's other secured creditors, like the Bank, under the

Uniform Commercial Code.

Discussion

The essence of Associates' motion to dismiss is that the

Bank has failed to append to its counterclaims any documentation

in support of its assertion that i t , and not Associates, holds a

priority security interest in some or all of CTI's assets.

Relying on language contained in the court of appeals' opinion in

Royal v . Leading Edge Products, Inc., 833 F.2d 1 (1st Cir. 1987),

Associates suggests that the Bank's claims should be dismissed as

nothing more than "bald assertions, unsupportable conclusions, or

opprobrious epithets." Id. at 1 . The court disagrees.

4 Associates appears to be confusing the standard of review

applicable to a motion to dismiss with that applicable to a

motion for summary judgment. To be sure, Associates' claims

might have some substance if presented (and appropriately

supported) in the form of a motion for summary judgment. But,

because they are presented as a motion to dismiss, the court must

view all facts alleged in the counterclaim in the light most

favorable to the Bank. From that perspective, Associates' motion

must be denied.

Accepting, as the court must at this juncture, that the Bank

has a properly perfected priority security interest in all assets

of CTI other than the vehicles (and related parts) which CTI

purchased with funds provided by Associates, counterclaim Counts

One, Two, Three, Four, and Six state claims upon which relief may

be granted. Expressed somewhat differently, the Bank has pled

cognizable claims of entitlement to the proceeds from the sale of

CTI's accounts receivable, replacement parts, and vehicles which

are not within the allegedly limited scope of Associates'

security agreement. And, crediting its factual allegations as

true, the Bank states a claim for damages incurred as a result of

Associates having conducted a foreclosure sale in a manner that

5 was neither commercially reasonable nor consistent with its

obligations under the Uniform Commercial Code. Accordingly, the

Bank is entitled to offer evidence in support of those claims.

Contrary to Associates' suggestion, the Bank need not prove its claims at this juncture. Instead, it need only plead

sufficient facts which, if proved at trial, would entitle it to

judgment. Plainly, it has met those minimal pleading

requirements.

Conclusion

Ultimately, resolution of the parties' dispute will likely

turn upon an interpretation of the scope and priority of their

respective security interests in CTI's various assets. Both

parties have pled colorable claims to those assets and both are,

therefore, entitled to offer evidence in support of their claims.

Accordingly, Associates' Motion to Dismiss (document n o . 4 ) is

granted in part and denied in part. Count Five of the Bank's

counterclaims is dismissed. The remaining counts shall, however,

remain.

6 SO ORDERED.

Steven J. McAuliffe United States District Judge February 8 , 1996 cc: Ovide M . Lamontagne, Esq. Thomas J. Donovan, Esq.