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STATE OF MAINE SUPERIOR COURT KENNEBEC, ss CIVIL ACTION DOCKET NO. CV-17-153
BANGOR SAVINGS BANK,
Plaintiff
V. ORDER ON CROSS MOTIONS FORSUMMARYJUDGMENT FUNDING METRICS, LLC d/b/a LENDINI,
Defendant
Before the court are cross motions for summary judgment filed by plaintiff Bangor Savings
Bank ("BSB") and defendant Funding Metrics, LLC d/b/a Lendini ("Lendini"). BSB is represented
by Attorney Erica M. Johanson. Lendini is represented by Attorney Gerald F. Petruccelli. Oral
argument was held on October 6, 2019. For the following reasons, both motions are denied.
In support of their motions, the parties have filed a joint stipulation of facts . Consequently,
the parties dispute involves only the inferences which can be drawn from the otherwise
uncontested facts which are as follows.'
TRT Electric, Inc. ("TRT") was a company that engaged in the provision of electrical
contracting services from 2011 to 2015. TRT's sole shareholder was Joshua Tibbets. Between
2011 and 2015, TRT was a customer of BSB and borrowed over $250,000 in commercial loans.
, At oral argument the Court inquired whether the parties' presentation of a stipulated record was intended to allow the Court to decide disputed inferences and thereby reach a final result. See Blue Sky West, LLC v. Me. Revenue Servs., 2019 ME 137, ~ 16 n.10, 215 A.3d 812 (citing Rose v. Parsons, 2015 ME 73, ~ 8, 118 A.3d 220). Following oral argument, both parties submitted briefs to the Court stating that it was not their intention to have the court enter judgment on a stipulated record but that it was instead their intention to allow the court to detennine whether genuine issues of material fact remain to be decided in the case. Given this agreement, the Court treats the Parties' submissions as motions for summary judgment rather than motions for judgment on a stipulated record. See id.
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t
The loan agreements required TRT to repay its loans in monthly installments. In exchange for the
loans, BSB took and perfected a first-priority security interest in all of Tibbetts and TRT's then-
existing and after-acquired business assets, including TRT's present and future accounts
receivable. Pursuant to the Loan Agreements, TRT was required to obtain BSB's permission
before disposing of or further encumbering BS.B's collateral.
On May 20, 2015, TRT entered into a number of agreements with Lendini including an
Agreement to Purchase and Sell Future Receivables and a Merchant Security Agreement. Pursuant
to these agreements, Lendini wired TRT $98,875 which was deposited into TRT's BSB deposit
account. In exchange for this money, TRT authorized Lendini to withdraw $140,000 out of the
deposit account in daily increments of $1,060.61. Lendini commenced these withdrawals on June
1, 2015, which continued until August 5, 2015. Ultimately, the withdrawals ended when TRT
withdrew Lendini's authorization to continue withdrawing funds. In total, Lendini withdrew
$50,909.28 from TRT's deposit account. TRT did not inform BSB of its agreements with Lendini.
On July 20, 2017, BSB filed the instant complaint against defendant Lendini. The
complaint alleges one count of conversion.
Standard of Review
"The function of a summary judgment is to permit a court, prior to trial, to determine
whether there exists a triable issue of fact or whether the question[s] before the court [are] solely .
. . of law." Bouchard v. American Orthodontics, 661 A.2d 1143, 44 (Me. 1995). "[S]ummary
judgment is appropriate when the portions of the record referenced in the statements of material
fact disclose no genuine issues of material fact and reveal that one party is entitled to judgment as
a matter of law." Currie v. Indus. Sec., Inc., 2007 ME 12,, 11,915 A.2d 400.
2 Discussion
In order to establish a claim for conversion, BSB must show (1) that it has a property
interest in the property Lendini possess; and (2) that it had the right to possession at the time of
the conversion.' See Withers v. Hackett, 1998 ME 164,, 7,714 A.2d 798. In this case, BSB's claim
of conversion is based on its assertion that, due to its perfected security interest in TRT' s accounts
receivable, BSB has a superior right to the $50,909.28 which Lendini withdrew from TRT's
Bangor Savings Bank deposit account between June 1, and August 5, 2015.
As a general matter, it is true that a secured party may maintain an action for conversion
when (1) a debtor makes an unauthorized transfer of collateral; and (2) that unauthorized transfer
constitutes a default under the terms of the security agreement which gives the secured party an
immediate right to the collateral. See e.g. Harley-Davidson Motor Co. v. Bank of New England-
Old Colony, NA., 897 F.2d 611,617 (1st Cir. 1990) (collecting cases). As discussed above, the
summary judgment record in this case shows that BSB possessed a perfected security interest in
all of TRT's business assets, including the contents of TRT's deposit account as well as TRT's
accounts receivable. As a condition of its financing agreements, BSB required TRT to obtain
permission before disposing of or encumbering BSB 's collateral. The security agreement also
specified that TRT's failure to comply with or perform its obligations under the agreement would
constitute a default. Because TRT failed to obtain BSB's permission prior to entering into its
agreements with Lendini, the subsequent transfers of funds from TRT's deposit account constitute
a default under the terms of BSB's agreement with TRT. Consequently, evidence exists which
• In many conversion cases, the party claiming that property has been converted is also required to show that they have made a demand for the return of the property. See Withers v. Hackett, 1998 ME 164,, 7,714 A.2d 798 . This requirement, however, is only necessary in those situations where the holder took the property rightfully. General Motors Acceptance Corp. v. Anacone, 160 Me. 53, 83, 197 A.2d 506 (1964) . In this case, BSB is arguing that Lendini wrongfully acquired the $50,909.28 from TRT.
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could allow BSB to establish a prima facie case for conversion at trial. See Withers , 1998 ME 164,
, 7,714 A,2d 798; Harley-Davidson Motor Co ., 897 F.2d at 617.
However, both parties agree that, because the property which was allegedly converted
consists entirely of funds transferred to Lendini from TRT's deposit account, this dispute is
governed by section 9-1332(2) of Maine's Uniform Commercial Code . This provision states that:
"A transferee of funds from a deposit account takes the funds free of a security interest in the
deposit account unless the transferee acts in collusion with the debtor in violating the rights of the
secured party." 11 M.R.S. § 9-1332(2).
In consequence of this provision, BSB must therefore show that Lendini colluded with
TRT in violating BSB's rights. If Lendini did not act in collusion, then BSB would not retain a
security interest in the transferred funds and therefore would not retain any superior right to
possession of the funds.
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STATE OF MAINE SUPERIOR COURT KENNEBEC, ss CIVIL ACTION DOCKET NO. CV-17-153
BANGOR SAVINGS BANK,
Plaintiff
V. ORDER ON CROSS MOTIONS FORSUMMARYJUDGMENT FUNDING METRICS, LLC d/b/a LENDINI,
Defendant
Before the court are cross motions for summary judgment filed by plaintiff Bangor Savings
Bank ("BSB") and defendant Funding Metrics, LLC d/b/a Lendini ("Lendini"). BSB is represented
by Attorney Erica M. Johanson. Lendini is represented by Attorney Gerald F. Petruccelli. Oral
argument was held on October 6, 2019. For the following reasons, both motions are denied.
In support of their motions, the parties have filed a joint stipulation of facts . Consequently,
the parties dispute involves only the inferences which can be drawn from the otherwise
uncontested facts which are as follows.'
TRT Electric, Inc. ("TRT") was a company that engaged in the provision of electrical
contracting services from 2011 to 2015. TRT's sole shareholder was Joshua Tibbets. Between
2011 and 2015, TRT was a customer of BSB and borrowed over $250,000 in commercial loans.
, At oral argument the Court inquired whether the parties' presentation of a stipulated record was intended to allow the Court to decide disputed inferences and thereby reach a final result. See Blue Sky West, LLC v. Me. Revenue Servs., 2019 ME 137, ~ 16 n.10, 215 A.3d 812 (citing Rose v. Parsons, 2015 ME 73, ~ 8, 118 A.3d 220). Following oral argument, both parties submitted briefs to the Court stating that it was not their intention to have the court enter judgment on a stipulated record but that it was instead their intention to allow the court to detennine whether genuine issues of material fact remain to be decided in the case. Given this agreement, the Court treats the Parties' submissions as motions for summary judgment rather than motions for judgment on a stipulated record. See id.
1 f
t
The loan agreements required TRT to repay its loans in monthly installments. In exchange for the
loans, BSB took and perfected a first-priority security interest in all of Tibbetts and TRT's then-
existing and after-acquired business assets, including TRT's present and future accounts
receivable. Pursuant to the Loan Agreements, TRT was required to obtain BSB's permission
before disposing of or further encumbering BS.B's collateral.
On May 20, 2015, TRT entered into a number of agreements with Lendini including an
Agreement to Purchase and Sell Future Receivables and a Merchant Security Agreement. Pursuant
to these agreements, Lendini wired TRT $98,875 which was deposited into TRT's BSB deposit
account. In exchange for this money, TRT authorized Lendini to withdraw $140,000 out of the
deposit account in daily increments of $1,060.61. Lendini commenced these withdrawals on June
1, 2015, which continued until August 5, 2015. Ultimately, the withdrawals ended when TRT
withdrew Lendini's authorization to continue withdrawing funds. In total, Lendini withdrew
$50,909.28 from TRT's deposit account. TRT did not inform BSB of its agreements with Lendini.
On July 20, 2017, BSB filed the instant complaint against defendant Lendini. The
complaint alleges one count of conversion.
Standard of Review
"The function of a summary judgment is to permit a court, prior to trial, to determine
whether there exists a triable issue of fact or whether the question[s] before the court [are] solely .
. . of law." Bouchard v. American Orthodontics, 661 A.2d 1143, 44 (Me. 1995). "[S]ummary
judgment is appropriate when the portions of the record referenced in the statements of material
fact disclose no genuine issues of material fact and reveal that one party is entitled to judgment as
a matter of law." Currie v. Indus. Sec., Inc., 2007 ME 12,, 11,915 A.2d 400.
2 Discussion
In order to establish a claim for conversion, BSB must show (1) that it has a property
interest in the property Lendini possess; and (2) that it had the right to possession at the time of
the conversion.' See Withers v. Hackett, 1998 ME 164,, 7,714 A.2d 798. In this case, BSB's claim
of conversion is based on its assertion that, due to its perfected security interest in TRT' s accounts
receivable, BSB has a superior right to the $50,909.28 which Lendini withdrew from TRT's
Bangor Savings Bank deposit account between June 1, and August 5, 2015.
As a general matter, it is true that a secured party may maintain an action for conversion
when (1) a debtor makes an unauthorized transfer of collateral; and (2) that unauthorized transfer
constitutes a default under the terms of the security agreement which gives the secured party an
immediate right to the collateral. See e.g. Harley-Davidson Motor Co. v. Bank of New England-
Old Colony, NA., 897 F.2d 611,617 (1st Cir. 1990) (collecting cases). As discussed above, the
summary judgment record in this case shows that BSB possessed a perfected security interest in
all of TRT's business assets, including the contents of TRT's deposit account as well as TRT's
accounts receivable. As a condition of its financing agreements, BSB required TRT to obtain
permission before disposing of or encumbering BSB 's collateral. The security agreement also
specified that TRT's failure to comply with or perform its obligations under the agreement would
constitute a default. Because TRT failed to obtain BSB's permission prior to entering into its
agreements with Lendini, the subsequent transfers of funds from TRT's deposit account constitute
a default under the terms of BSB's agreement with TRT. Consequently, evidence exists which
• In many conversion cases, the party claiming that property has been converted is also required to show that they have made a demand for the return of the property. See Withers v. Hackett, 1998 ME 164,, 7,714 A.2d 798 . This requirement, however, is only necessary in those situations where the holder took the property rightfully. General Motors Acceptance Corp. v. Anacone, 160 Me. 53, 83, 197 A.2d 506 (1964) . In this case, BSB is arguing that Lendini wrongfully acquired the $50,909.28 from TRT.
3 ( (
could allow BSB to establish a prima facie case for conversion at trial. See Withers , 1998 ME 164,
, 7,714 A,2d 798; Harley-Davidson Motor Co ., 897 F.2d at 617.
However, both parties agree that, because the property which was allegedly converted
consists entirely of funds transferred to Lendini from TRT's deposit account, this dispute is
governed by section 9-1332(2) of Maine's Uniform Commercial Code . This provision states that:
"A transferee of funds from a deposit account takes the funds free of a security interest in the
deposit account unless the transferee acts in collusion with the debtor in violating the rights of the
secured party." 11 M.R.S. § 9-1332(2).
In consequence of this provision, BSB must therefore show that Lendini colluded with
TRT in violating BSB's rights. If Lendini did not act in collusion, then BSB would not retain a
security interest in the transferred funds and therefore would not retain any superior right to
possession of the funds. Thus, in the absence of a showing of collusion between Lendini and TRT,
BSB would not be able to prevail on its conversion claim.
Maine's Uniform Commercial Code does not define "collusion ." The official comment to
section 9-1332, however, states that "[t]o deal with the question of the 'bad actor,' this section
borrows 'collusion' language" from U.C.C. section 8-115. 11 M.R.S.A. § 9-1332 U.C.C. cmt. 4.
The commentary to Maine's enactment of section 8-115 states that "the collusion test is intended
to adopt a standard akin to the tort rules that determine whether a person is liable as an aider or
abettor for the tortious conduct of a third party." 11 M.R.S.A. § 8-1115 U.C.C. cmt. 5 (citing
Restatement (Second) of Torts§ 876).
Pursuant to the Restatement, a person is liable to a third party for the tortious conduct of
another if the person "knows that the other's conduct constitutes a breach of duty and gives
substantial assistance or encouragement to the other so to conduct himself." Restatement (Second)
4 of Torts § 876(b).' Thus, in order to have colluded with TRT, Lendini must have (1) been aware
that TRT was committing a wrong against BSB and (2) have provided substantial assistance or
encouragement to TRT toward the commission of that wrong. Id. The mere awareness that TRT
was committing a wrong is not enough. 11 M.R.S.A. § 8-1115 U.C.C. cmt. 5; see also White,
Summers, Hillman, Uniform Commercial Code, Practitioner Treatise Series § 33:39 at 504 (6th
ed.) (stating that normally, knowledge that a payment violates a secured creditors security interest
is not enough for collusion).
In this case, BSB argues that Lendini 's conduct satisfies this standard of collusion because
Lendini was both aware that BSB had a superior security interest and provided substantial
assistance to TRT by entering into the contracts with Lendini. The court takes issue with this
characterization of what constitutes collusion.
This is because the right which BSB asserts Lendini and TRT have violated is BSB 's right
to possession of the collateral stemming from the default caused by TRT's failure to obtain BSB 's
permission to dispose of or encumber the collateral. The right to possession of the collateral,
however, did not arise solely from TRT's contractual relationship with Lendini but instead arose
due to the fact that the relationship was created without BSB's permission. In other words, the
wrong suffered by BSB is TRT' s failure to obtain BSB 's permission before disposing of and
encumbering BSB 's collateral. Thus, in order for Lendini to be found to have colluded with TRT,
BSB must show that Lendini provided substantial assistance or encouragement to TRT to not only
enter into the agreements, but to enter into the agreements without obtaining BSB's permission.
, In addition to subsection b, Restatement § 876 also provides that a person is liable to a third party for the tortious conduct of another if the person "orders or induces such conduct, knowing of the conditions under which the act is done or intending the consequences which ensue" or if the person "gives substantial assistance to the other in accomplishing a tortious result and his own conduct, separately considered, constitutes a breach of duty to the third person." Restatement (Second) of Torts§ 876(a), (c).
5 The mere fact that Lendini executed the agreements with the knowledge that TRT was required to
obtain BSB's permission but had not done so does not amount to substantial assistance. See 11
M.R.S .A. § 8-1115 U .C.C. cmt. 5 (stating "mere awareness that the customer may be acting
wrongfully does not itself constitute collusion").
Conclusion
After reviewing the evidence in the summary judgment record, the Court concludes that a
fact-finder could draw competing inferences about whether Lendini either did or did not
substantially assist or encourage TRT to refrain from obtaining BSB's permission prior to
disposing of or encumbering BSB 's collateral. Consequently, a genuine issue of material fact exists
which requires the Court to deny both parties motions for summary judgment.
The entry is
Plaintiff Bangor Savings Bank Motion for Summary Judgment is DENIED
Defendant Funding Metrics LLC d/b/a LENDINI's Motion for Summary Judgment is DENIED.
~ Date: Justice, Superior c)