RENDERED: AUGUST 1, 2025; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals NO. 2024-CA-1273-MR
DENNIS M. ESPINOZA APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT v. HONORABLE TRACY E. DAVIS, JUDGE ACTION NO. 21-CI-400388
STOCK YARDS BANK & TRUST COMPANY APPELLEE
OPINION AFFIRMING
** ** ** ** **
BEFORE: COMBS, A. JONES, AND KAREM, JUDGES.
COMBS, JUDGE: Dennis Espinoza appeals a summary judgment of the Jefferson
Circuit Court entered in favor of Stock Yards Bank & Trust Company. Espinoza
contends that the trial court erred by concluding that the bank was entitled to
judgment as a matter of law with respect to its claim against him for conversion of
proceeds realized from the sale of its collateral. After our review, we affirm. On March 4 and March 5, 2020, Stock Yards loaned Square E, LLC,
an Illinois limited liability company, a total of 2.5 million dollars. Dennis
Espinoza, an Illinois resident, is the sole member and manager of Square E.
Espinoza made it clear to the bank that he did not intend to incur any personal
liability with respect to the loans. In conjunction with the transactions, Espinoza
executed loan agreements, promissory notes, and commercial security agreements
as “Manager of Square E, LLC.”
Under the terms of the security agreements, Square E granted the bank
security interests in its inventory; accounts; equipment and software; records; and
all proceeds relating to the sale or other disposition of any of this property. There
is no suggestion that the bank failed to file financing statements in accordance with
the requirements of the Uniform Commercial Code. To further secure the bank’s
loans to Square E, Espinoza and his wife, Rosemary, mortgaged certain real
property in Decatur, Illinois.
Square E defaulted on the loan agreements. According to Dennis
Espinoza, “we started closing Square E down and getting the inventory out of there
. . . in . . . June or something of ’20.” To liquidate the inventory, Square E entered
into an agreement with Atlantic Semiconductor (Atlantic) in June 2020 whereby
Atlantic agreed to sell components from Square E’s inventory on a commission
basis. Atlantic’s checks remitting the proceeds were made payable to Espinoza
-2- personally and were marked “C/O Square E, P.O. Box 161, Forsyth Il 62535.” As
payee, Espinoza endorsed the checks and deposited them into a newly opened
regular savings account in his name at Hickory Point Bank in Decatur, Illinois.
The account was designated “C/O Square E, Dennis M Espinoza, 270 Hundley
RD., Forsyth IL 62535” (Espinoza’s home address) in vertical alignment. It is
undisputed that Espinoza, personally, withdrew more than $90,000 from the
Decatur savings account. In November 2021, per the court’s order, Atlantic began
remitting its payments into court.
In July 2021, pursuant to choice-of-venue and choice-of-law
provisions in the parties’ agreements, the bank filed a civil action against Square E,
Dennis Espinoza, and Rosemary Espinoza in Jefferson Circuit Court. The bank
sought to enforce the terms of the promissory notes, security agreements, and
mortgage. It also sought a judgment holding Dennis Espinoza personally liable for
repayment of a portion of the indebtedness. The bank alleged that Square E
defaulted on its obligations and, as a result, the bank’s right to repayment of the
debt had been accelerated. It explained that Square E liquidated some of the
property securing the loans and made some payment toward the outstanding loan
balance with part of the proceeds. The bank alleged that Dennis Espinoza had
taken possession of other property in which it had an interest and had converted the
property to his own use in a manner inconsistent with the bank’s rights and
-3- interests in it. It alleged that Dennis Espinoza was personally liable for the value
of the converted collateral. Square E and the Espinozas answered the complaint
and denied the substantive allegations against them.
In September 2021, the bank filed a motion for partial summary
judgment. The circuit court granted that motion and awarded judgment against
Square E for nearly $800,000.00. Counts 3 and 4 of the complaint relating to the
mortgage executed by the Espinozas were dismissed on the basis that the court
lacked jurisdiction to adjudicate them, and Rosemary Espinoza was dismissed as a
party. Although the claim against Dennis Espinoza had not yet been decided, the
judgment was made final and appealable pursuant to the provisions of our civil
rules. No party appealed the judgment.
In June 2024, the bank filed a motion for summary judgment with
respect to its claim of conversion against Espinoza. The bank explained that at his
deposition, Espinoza stated that he personally made withdrawals from the Decatur
savings account, which was funded exclusively by the Atlantic deposits following
its liquidation of Square E’s component-parts inventory. Espinoza specifically
admitted in his deposition that the components “probably were assets of Square E,
which would’ve been part [of the bank’s collateral]” and that he omitted any
reference to the Atlantic proceeds in his response to the bank’s discovery requests
for an accounting of its collateral. Espinoza stated that he used the funds to pay
-4- legal expenses incurred after Square E defaulted on the terms of the loan
agreements. The bank argued that upon Square E’s default, it was immediately
entitled to its collateral and that Espinoza’s possession and subsequent use of the
proceeds of the sale of that collateral was tortious as a matter of law.
In response, Espinoza contended that the bank could not show that
“[he,] individually, as opposed to the corporate Defendant, Square E, LLC, took
possession of and transferred the funds at issue for his personal use and benefit.”
Consequently, the bank was not entitled to summary judgment.
The circuit court concluded that the bank was entitled to judgment as
a matter of law because there was no genuine issue of material fact concerning
Espinoza’s conversion of the property in which the bank held a valid security
interest. It observed as follows:
It is undisputed that [the bank’s] security agreements encompassed the collateral and proceeds therefrom sold by Square E through Atlantic, and that [the bank] and not Square E was entitled to those proceeds pursuant to the [security agreements].
Espinoza argued that sums from the savings account had been used to
fund legitimate business expenses -- the costs of the litigation commenced by the
bank against him, his wife, and Square E. However, the court concluded that the
purposes to which the withdrawn funds had been put was irrelevant. It observed
that “Square E was not entitled to the proceeds in the first instance under the [terms
-5- of the security agreements.]” Consequently, Espinoza was held personally liable to
the bank for the amounts he had withdrawn from his savings account. This appeal
followed.
On appeal, Espinoza argues that the circuit court erred by concluding
that the bank was entitled to judgment as a matter of law. He contends that there
remain disputed issues of material fact as to whether he exercised dominion and
control over the disputed funds and that the bank presented no evidence to counter
his testimony that he used those funds to cover legal fees.
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RENDERED: AUGUST 1, 2025; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals NO. 2024-CA-1273-MR
DENNIS M. ESPINOZA APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT v. HONORABLE TRACY E. DAVIS, JUDGE ACTION NO. 21-CI-400388
STOCK YARDS BANK & TRUST COMPANY APPELLEE
OPINION AFFIRMING
** ** ** ** **
BEFORE: COMBS, A. JONES, AND KAREM, JUDGES.
COMBS, JUDGE: Dennis Espinoza appeals a summary judgment of the Jefferson
Circuit Court entered in favor of Stock Yards Bank & Trust Company. Espinoza
contends that the trial court erred by concluding that the bank was entitled to
judgment as a matter of law with respect to its claim against him for conversion of
proceeds realized from the sale of its collateral. After our review, we affirm. On March 4 and March 5, 2020, Stock Yards loaned Square E, LLC,
an Illinois limited liability company, a total of 2.5 million dollars. Dennis
Espinoza, an Illinois resident, is the sole member and manager of Square E.
Espinoza made it clear to the bank that he did not intend to incur any personal
liability with respect to the loans. In conjunction with the transactions, Espinoza
executed loan agreements, promissory notes, and commercial security agreements
as “Manager of Square E, LLC.”
Under the terms of the security agreements, Square E granted the bank
security interests in its inventory; accounts; equipment and software; records; and
all proceeds relating to the sale or other disposition of any of this property. There
is no suggestion that the bank failed to file financing statements in accordance with
the requirements of the Uniform Commercial Code. To further secure the bank’s
loans to Square E, Espinoza and his wife, Rosemary, mortgaged certain real
property in Decatur, Illinois.
Square E defaulted on the loan agreements. According to Dennis
Espinoza, “we started closing Square E down and getting the inventory out of there
. . . in . . . June or something of ’20.” To liquidate the inventory, Square E entered
into an agreement with Atlantic Semiconductor (Atlantic) in June 2020 whereby
Atlantic agreed to sell components from Square E’s inventory on a commission
basis. Atlantic’s checks remitting the proceeds were made payable to Espinoza
-2- personally and were marked “C/O Square E, P.O. Box 161, Forsyth Il 62535.” As
payee, Espinoza endorsed the checks and deposited them into a newly opened
regular savings account in his name at Hickory Point Bank in Decatur, Illinois.
The account was designated “C/O Square E, Dennis M Espinoza, 270 Hundley
RD., Forsyth IL 62535” (Espinoza’s home address) in vertical alignment. It is
undisputed that Espinoza, personally, withdrew more than $90,000 from the
Decatur savings account. In November 2021, per the court’s order, Atlantic began
remitting its payments into court.
In July 2021, pursuant to choice-of-venue and choice-of-law
provisions in the parties’ agreements, the bank filed a civil action against Square E,
Dennis Espinoza, and Rosemary Espinoza in Jefferson Circuit Court. The bank
sought to enforce the terms of the promissory notes, security agreements, and
mortgage. It also sought a judgment holding Dennis Espinoza personally liable for
repayment of a portion of the indebtedness. The bank alleged that Square E
defaulted on its obligations and, as a result, the bank’s right to repayment of the
debt had been accelerated. It explained that Square E liquidated some of the
property securing the loans and made some payment toward the outstanding loan
balance with part of the proceeds. The bank alleged that Dennis Espinoza had
taken possession of other property in which it had an interest and had converted the
property to his own use in a manner inconsistent with the bank’s rights and
-3- interests in it. It alleged that Dennis Espinoza was personally liable for the value
of the converted collateral. Square E and the Espinozas answered the complaint
and denied the substantive allegations against them.
In September 2021, the bank filed a motion for partial summary
judgment. The circuit court granted that motion and awarded judgment against
Square E for nearly $800,000.00. Counts 3 and 4 of the complaint relating to the
mortgage executed by the Espinozas were dismissed on the basis that the court
lacked jurisdiction to adjudicate them, and Rosemary Espinoza was dismissed as a
party. Although the claim against Dennis Espinoza had not yet been decided, the
judgment was made final and appealable pursuant to the provisions of our civil
rules. No party appealed the judgment.
In June 2024, the bank filed a motion for summary judgment with
respect to its claim of conversion against Espinoza. The bank explained that at his
deposition, Espinoza stated that he personally made withdrawals from the Decatur
savings account, which was funded exclusively by the Atlantic deposits following
its liquidation of Square E’s component-parts inventory. Espinoza specifically
admitted in his deposition that the components “probably were assets of Square E,
which would’ve been part [of the bank’s collateral]” and that he omitted any
reference to the Atlantic proceeds in his response to the bank’s discovery requests
for an accounting of its collateral. Espinoza stated that he used the funds to pay
-4- legal expenses incurred after Square E defaulted on the terms of the loan
agreements. The bank argued that upon Square E’s default, it was immediately
entitled to its collateral and that Espinoza’s possession and subsequent use of the
proceeds of the sale of that collateral was tortious as a matter of law.
In response, Espinoza contended that the bank could not show that
“[he,] individually, as opposed to the corporate Defendant, Square E, LLC, took
possession of and transferred the funds at issue for his personal use and benefit.”
Consequently, the bank was not entitled to summary judgment.
The circuit court concluded that the bank was entitled to judgment as
a matter of law because there was no genuine issue of material fact concerning
Espinoza’s conversion of the property in which the bank held a valid security
interest. It observed as follows:
It is undisputed that [the bank’s] security agreements encompassed the collateral and proceeds therefrom sold by Square E through Atlantic, and that [the bank] and not Square E was entitled to those proceeds pursuant to the [security agreements].
Espinoza argued that sums from the savings account had been used to
fund legitimate business expenses -- the costs of the litigation commenced by the
bank against him, his wife, and Square E. However, the court concluded that the
purposes to which the withdrawn funds had been put was irrelevant. It observed
that “Square E was not entitled to the proceeds in the first instance under the [terms
-5- of the security agreements.]” Consequently, Espinoza was held personally liable to
the bank for the amounts he had withdrawn from his savings account. This appeal
followed.
On appeal, Espinoza argues that the circuit court erred by concluding
that the bank was entitled to judgment as a matter of law. He contends that there
remain disputed issues of material fact as to whether he exercised dominion and
control over the disputed funds and that the bank presented no evidence to counter
his testimony that he used those funds to cover legal fees.
The standard of review governing an appeal of a summary judgment
is well settled. We must determine whether the trial court erred when it concluded
that there was no genuine issue as to any material fact and that the moving party
was entitled to a judgment as a matter of law. See Kentucky Highlands Inv.
Corporation v. Bank of Corbin, Inc., 217 S.W.3d 851, 853-54 (Ky. App. 2006).
Factual findings are not at issue in this case, and we do not defer to the conclusions
of the trial court. Since we are dealing solely with matters of law, our review is de
novo. See Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001).
Conversion is the wrongful exercise of dominion and control over
property of another. Illinois Central R. Co. v. Fontaine, 217 Ky. 211, 289 S.W.
263 (1926). The measure of damages in a conversion action is the value of the
property at the time of conversion. Nolin Prod. Credit v. Canmer Deposit Bank,
-6- 726 S.W.2d 693 (Ky. App. 1986). Neither motive, intent, nor good faith is
material to the action. Urban v. Lansing’s Adm’r, 238 Ky. 218, 39 S.W.2d 219
(1931). An action for conversion may be prosecuted against the transferee of
collateral who has actual knowledge of the lien. Ranier v. Gilford, 688 S.W.2d
753 (Ky. App. 1985); State Auto. Mut. Ins. Co. v. Chrysler Credit Corp., 792
S.W.2d 626, 627-28 (Ky. App. 1990).
Because this controversy involves the bank’s collateral, provisions of
our Uniform Commercial Code, KRS1 Chapter 355, are also relevant. The
Uniform Commercial Code provides, in part, that a security interest continues in
collateral and its identifiable proceeds. KRS 355.9-315. The bank’s interest in
Square E’s inventory followed the proceeds delivered to Espinoza in the form of
Atlantic’s checks. Consequently, the bank has standing to assert a cause of action
for conversion against Espinoza.
There is no question in this case but that Espinoza, personally,
exercised dominion and control over the disputed property to the exclusion of the
bank, which had a right to possess it. Atlantic’s checks were made to Dennis
Espinoza, and he, personally, negotiated them -- not as manager of Square E.
While each instrument bears the notation: “c/o Square E, P.O. Box 161, Forsyth,
IL 62535,” there is no indication that the checks were payable to Square E in any
1 Kentucky Revised Statutes.
-7- fashion. Having checks made payable to Espinoza -- c/o Square E -- ensured that
Square E could not negotiate them. Hickory Point Bank would have insisted that
the instruments be endorsed by Espinoza. Furthermore, each and every cashier’s
check drawn on the account at Hickory Point Bank named Espinoza, personally, as
remitter. Espinoza alone was able to control disposition of the funds, depriving the
bank of access to the proceeds of its collateral.
Under these circumstances, the trial court did not err by concluding
that Espinoza’s acts constituted conversion. What Espinoza did with the proceeds
following the conversion is immaterial where it is undisputed that he: failed to
advise the bank of their existence when required to make an accounting; diverted
the funds so that the bank lost its ability to access them; and made an affirmative
decision not to use them to pay down the loan balance. Consequently, the bank
was entitled to judgment as a matter of law.
We affirm the judgment of the Jefferson Circuit Court.
ALL CONCUR.
-8- BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
Liz Mosler Matthew R. Lindblom Louisville, Kentucky Louisville, Kentucky
Scott P. Zoppoth Laura B. Grubbs Louisville, Kentucky Louisville, Kentucky
-9-