Polaris Acceptance v. Fain Auto Sales, LLC, IMC of Delaware, LLC

• Court: Superior Court of Delaware
• Decided: March 21, 2024
• Docket: N23C-10-053 JRJ
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

POLARIS ACCEPTANCE, ) ) Plaintiff, ) ) ) v. ) C.A. N23C-10-053 JRJ ) FAIN AUTO SALES, LLC, ) IMC OF DELAWARE, LLC ) and MARK W. LILLARD, ) ) Defendants. )

Date Submitted: February 6, 2024 Date Decided: March 21, 2024

MEMORANDUM OPINION

Upon Defendants’ Motion for Relief from Replevin under Rule 60(b) DENIED

Upon Defendants’ Motion for an Order Holding Plaintiff in Contempt DENIED

Justin M. Forcier, Esq., Reed Smith, LLP, 1201 N. Market Street, Suite 1500, Wilmington, DE 19801. Attorney for Plaintiff.

Anthony Delcollo, Esq., Christopher M. Coggins, Esq., Michael DeSantis, Esq., Offit Kurman, P.A., 222 Delaware Ave, Suite 1105, Wilmington, DE 19801. Attorneys for Defendants.

Jurden, P.J. I. INTRODUCTION

Defendants move for relief from a replevin order, and the entry of a contempt

order, against the Plaintiff who sought replevin. Defendants Fain Auto Sales, LLC

(“Fain”), IMC of Delaware, LLC (“IMC”), and Mark Lillard (“Lillard”)

(collectively “Defendants”), claim that Polaris Acceptance (“Polaris”) improperly

used a stipulated replevin order to remove property from Fain and IMC’s dealership

lots beyond what was specified in the order. Polaris argues it acted in good faith and

seized property it believed it was entitled to. For the reasons that follow,

Defendants’ Motion for Relief from Replevin under Rule 60(b) and Motion for an

Order Holding Plaintiff in Contempt are DENIED.

2 II. BACKGROUND AND PROCEDURAL HISTORY

On December 7, 2021, Polaris and Fain executed the Inventory Financing

Agreement (“Fain IFA”) which allowed Fain to purchase certain equipment and

property for resale in Fain’s motorcycle dealership business (“Collateral”).1 That

same day, Polaris and IMC also executed an Inventory Financing Agreement (“IMC

IFA,” and collectively with the Fain IFA, the “IFAs”) to purchase certain equipment

from Polaris-approved vendors for resale in Fain’s business.2

On October 6, 2023, Polaris filed a replevin action against Defendants due to

non-compliance with payments owed under the IFAs.3 Along with the Complaint,

Polaris filed a Motion for a Hearing for a Writ of Replevin and corresponding Writ

of Replevin.4

The Court granted Polaris’ request for a hearing on the Writ of Replevin and

held one on November 29, 2023.5 Defendant Mark Lillard, the owner and operator

of both Fain and IMC, was in attendance.6

During the hearing, the parties agreed to stipulate to the issuance of the Writ

of Replevin for the Collateral identified in Exhibits B and G to the Complaint.7

1 Compl. ¶¶ 5-26, Trans. ID 71037565 (Oct. 6, 2023). 2 Id.¶ 16. 3 Id. 4 Pl.’s Mot. for Hr’g and Writ of Replevin, Trans. ID 71037565 (Oct. 6, 2023). 5 Order of Hr’g, Trans. ID 71361613 (Nov. 8, 2023). 6 Id. 7 Order Granting Issuance of Writ of Replevin, Trans. ID 71506095 (Nov. 29, 2023). See Compl. 3 Exhibits B and G listed a total of fifty-five (55) motorcycles identified by their

vehicle identification numbers (VINs), as well as certain vehicle parts that were also

identified by their invoice numbers, all of which were located on Fain and IMC

dealership sites.8

At the conclusion of the hearing, the Court asked Polaris to draft an order for

the stipulated replevin and have Defense Counsel9 review (and approve) it before

sending it to the Court.10 Upon receipt of the draft stipulated order, the Court issued

a Replevin Order substantively identical to the one submitted by Polaris and

approved by Defendants.11 The Replevin Order expressly states that the Collateral

subject to the replevin is that identified in Exhibits B and G to the Complaint—the

55 motorcycles in which Polaris held a purchase money security interest.12

On December 1, 2023, in accordance with the Replevin Order, Defendants

permitted Polaris onto their dealership sites to inspect the Collateral subject to the

Replevin Order.13 Three days later, Polaris replevined a significant portion of

Defendants’ property beyond the express scope of the Replevin Order, including

8 Compl., Ex. B and G, Trans. ID 71037565 (Oct. 6, 2023). 9 Defense Counsel at this point was Joseph Stanley, Esq. 10 Transcript from Nov. 29, 2023 Hrg. 27:23-29:04, Trans. ID 71934759 (Feb. 2, 2024). 11 Order Granting Issuance of Writ of Replevin. 12 Id. (“[A] Writ of Replevin [will] be issued for all the Defendants’ Collateral as defined in Exhibits B and G to the Complaint.”). 13 Defs.’ Mot. for Relief from Replevin. 4 additional motorcycles, branded apparel, and garments worn by the dealership

employees.14

On December 28, 2023, Defendants moved for Relief from the Replevin

Order under Rule 60(b)15 and for an Order Holding Plaintiff in Contempt based upon

Polaris’ abuse of the Replevin Order.16

In their Relief Motion, Defendants argue Polaris engaged in “fraudulent

misconduct when it blatantly ignored the constraints of the Replevin Order to which

it stipulated and proceeded to seize an additional seven hundred thousand dollars

($700,000) worth of property over and above that which was identified in the

Replevin Order.”17 Defendants maintain that the “fraudulent misconduct” exhibited

by Polaris entitles them to relief from the Replevin Order.18 In their Contempt

Motion, Defendants argue they are entitled to the return of all property not identified

in the Replevin Order.19

Polaris admits in its Response that it erred when it seized property beyond the

scope of the Replevin Order but points out it has since complied with the Court’s

direction by ceasing all sales of the erroneously seized property and working to

14 Id. ¶ 4. 15 Id. 16 Defs.’ Mot. for Contempt. 17 Defs.’ Mot. for Relief from Replevin ¶ 6 (emphasis in the original). 18 Id. 19 Defs.’ Mot. for Contempt. Defendants also request a fine of $5,000 for each day that the property is not delivered beyond a 7-day deadline. Id. 5 provide a complete inventory of the property taken from the Defendants’

dealerships.20 Further, Polaris argues that its error was in good faith, and it believed

it was acting appropriately under the parties’ agreements to collect the collateral21 as

defined in the IFAs.22 Therefore, Polaris argues that the Defendants have not

established a basis for the Court to find Polaris in contempt.23

III. DISCUSSION

There are two issues present: first, whether Rule 60(b) relieves Defendants of

the Replevin Order; and second, whether Polaris should be held in contempt for its

breach24 of the Replevin Order.

A. Defendants’ Motion for Relief from Replevin Order under Rule 60(b)

Defendants move for Relief from the Court’s Replevin Order under Superior

Court Civil Rule 60(b). Specifically, Defendants seek to obtain relief from the

Replevin Order under Rule 60(b)(3) or, alternatively, 60(b)(1) or (6).25 Pursuant to

Rule 60(b), the Court may set aside an order previously entered for: “(1) mistake,

20 Pl.’s Opp’n to Defs.’ Mot. for Relief from Replevin. 21 The Court notes that the definition of “collateral” in the IFAs is broader than what was specified in the Replevin Order issued by the Court. See generally Compl. 22 Id. ¶ 1. Polaris also argues that Defendants are not prejudiced by Polaris’ actions since they cannot sell the Collateral because they are a non-operating business whose licenses were permanently suspended. Id. The Court does not find this a compelling argument to ignore the confines of a court order and seize property beyond what was permitted. 23 Pl.’s Opp’n to Defs.’ Mot. for Contempt. 24 The Court uses “breach” in this context in reference to Polaris’ actions when it impermissibly seized property beyond the scope of the Replevin Order. 25 Defs.’ Mot. for Relief from Replevin; see Super. Ct. Civ. R. 60(b)(3), (1), (6). 6 inadvertence, surprise, or excusable neglect . . . (3) fraud (whether heretofore

denominated intrinsic or extrinsic), misrepresentation or other misconduct of an

adverse party . . . (6) or any other reason justifying relief.”26 The trial court’s

decision to set aside an order under Rule 60(b) is discretionary. 27 “Because of the

significant interest in preserving the finality of judgments, Rule 60(b) motions are

not to be taken lightly or easily granted.”28 In determining whether to exercise

discretion, the Court may consider equitable principles.29

1. Rule 60(b)(3): the Fraud Exception

To prevail under the fraud exception to Rule 60(b)(3), Defendants must “point

to evidence or facts that would lead a reasonable mind to the conclusion that an

adverse party improperly obtained a [] judgment.”30 This does not include “sinister

suspicions” nor “dark imaginings.”31 The Court will only grant relief if Defendants

prove fraud by clear and convincing evidence.32

26 State v. Salasky, 2023 WL 8649369, at *2 (Del. Super. Dec. 14, 2023) (citing Super. Ct. Civ. R. 60). 27 SARN SD3, LLC v. Czechoslovak Group A.S., 2023 WL 3145917, at *4 (Del. Super. Apr. 27, 2023). 28 Epstein v. Matsushita Elec. Indus. Co., Ltd. (In re MCA, Inc. S'holder Litig.), 785 A.2d 625, 635 (Del. 2001). 29 SARN SD3, LLC, 2023 WL 3145917, at *4. 30 Mullin v. Ascetta, 2021 WL 5710899, at *4 (Del. Super. Dec. 2, 2021) (quoting In re MCA, Inc., 774 A.2d 272, 280 (Del. Ch. 2000)) (internal quotations omitted). 31 Id.; see Smith v. Williams, 2007 WL 2193748, at *1 (Del. Super. July 27, 2007) (“Thus ‘fraud on the court’ is typically confined to the more serious, but fortunately rare, cases involving a corruption of the judicial process itself, such as bribery of a judge or juror, improper influence exerted on the court by an attorney, or involvement of an attorney as an officer of the court in the perpetuation of fraud.”). 32 Mullin, 2021 WL 5710899, at *4. 7 In support of their Motion, Defendants argue that Polaris “engaged in

fraudulent misconduct” when it ignored the scope of the Replevin Order that it

stipulated to and broadsided the Defendants by proceeding to seize property that

“was clearly not covered by either the Complaint or the stipulated Order.”33

Defendants contend that had they been aware of Polaris’ “ulterior motive [] to enter

the Fain and IMC dealerships under cover of the Replevin Order and ultimately seize

any and all property it could reasonably label as ‘collateral’ without regard to the

order’s clear constraints, they never would have stipulated to the entry of [the

Replevin] Order.”34 However, Defendants do not point to any specific “fraudulent

misconduct” that induced them to enter into the stipulated Replevin Order.

Defendants claim Polaris had an “ulterior motive” to abuse the Replevin Order at

the time of stipulation but do not provide specific evidence to support this

contention.35 The evidentiary record is factually barren on this issue, making this

interpretation of Polaris’ intent mere speculation. Polaris’ subsequent actions alone

are insufficient to establish fraud by clear and convincing evidence.

Additionally, the fraud exception under Rule 60(b)(3) is narrowly construed.36

This exception is typically confined to cases of fraud or misrepresentation that

33 Defs.’ Mot. for Relief from Replevin ¶ 6. 34 Id. ¶ 7. 35 See generally Defs.’ Mot. for Relief from Replevin. 36 Smith & Loveless, Inc. v. JJID, Inc., 2016 WL 3929867, at *10 (Super. Ct. July 15, 2016) (citing Smith v. Williams, 2007 WL 2193748, at *4 (Del. Super. July 27, 2007)). 8 threaten “the integrity of the court and its ability to function impartially.” 37 Stated

otherwise, relief will be granted under Rule 60(b)(3) if the fraud, misrepresentation,

or other misconduct impairs the judicial process.38 The judicial process has not been

impaired, and so the Court does not find Defendants have met their high burden of

establishing fraud or misrepresentation under Rule 60(b)(3).

2. Rule 60(b)(1): Mistake, Inadvertence, Surprise, or Excusable Neglect

Alternatively, Defendants argue that even if the Court finds that Polaris had a

basis to exceed the Replevin Order, the Court should grant Defendants relief under

Rule 60(b)(1) “mistake, inadvertence, surprise, or excusable neglect.”39 According

to Defendants, if the Court finds merit in Polaris’ argument that the IFAs entitled it

to exceed the scope of the Replevin Order, there was “evidence of a

misunderstanding between the parties as to the scope of the collateral.”40

Polaris counters that Defendants have failed to demonstrate they had a valid

defense to the replevin action because the IFAs grant Polaris a security interest in

“all personal property.”41 Without a valid defense, Polaris argues, relief would not

be appropriate.42

37 Id. (quoting Postorivo v. AG Paintball Holdings, Inc., 2008 WL 3876199, at *21 (Del. Ch. Aug. 20, 2008)) (internal quotations omitted). 38 Id. 39 Super. Ct. Civ. R. 60(b)(3). 40 Id. ¶ 8. 41 Pl.’s Opp’n. to Defs.’ Mot. for Relief from Replevin. 42 Id. (citing Smith & Loveless, Inc. v. JJID, Inc., 2016 WL 3929867, at *1 (Del. Super. July 15, 2016). 9 The Replevin Order specifically references the Collateral.43 Defendants

would therefore need to provide an evidentiary basis that when stipulating to Polaris

replevining the Collateral, there was “mistake, inadvertence, surprise, or excusable

neglect,” on their part. To be sure, Defendants were not expecting Polaris to overstep

the confines of the Replevin Order. But, there is no evidence to suggest that

Defendants were mistaken when they agreed with Polaris to enter into the Replevin

Order at the time of the stipulation. Therefore, Defendants are unable to show relief

should be granted under Rule 60(b)(1).

3. Rule 60(b)(6): Any Other Reason Justifying Relief

Defendants next assert relief should be granted under Rule 60(b)(6) for “any

other reason justifying relief.”44 Under Rule 60(b)(6), a final order may be set aside

for “any other reason justifying relief from the operation of the judgment.”45 Relief

under Rule 60(b)(6) is an extraordinary remedy.46 This requires a showing of

“extraordinary circumstances.”47

Here, there are no “extraordinary circumstances” that would warrant relief

from the Replevin Order. Defendants and Polaris attended a hearing on the Writ of

43 Order Granting Issuance of Writ of Replevin. 44 Super. Ct. Civ. R. 60(b)(6). 45 Super. Ct. Civ. R. 60(b)(1). 46 Shipley v. New Castle County, 975 A.2d 764, 767 (Del. 2009). 47 Id. 10 Replevin.48 Both parties indicated a stipulation could be reached.49 The parties

discussed the parameters of the stipulation outside of the Court’s hearing.50 The

parties then returned, stating that they agreed to a stipulation to the Collateral.51 The

Court asked Polaris to draft a Replevin Order—approved by the Defendants—that it

incorporated in its Order.52 Defendants have not provided to the Court any

“extraordinary circumstances” that would suggest to the Court its Replevin Order

should be lifted.

Additionally, Polaris maintains that Defendants’ Motion should be denied

because Defendants have no interest in the property seized by Polaris. The crux of

this suit is whether Polaris has an interest in Defendants’ property under the IFAs,

and the Court has not yet reached the merits of Polaris’ claims. Defendants are able

to raise any viable defenses they may have to Polaris’ allegations as the suit

continues.

For the foregoing reasons, the Court finds Defendants’ Motion for Relief from

Replevin Order under Rule 60(b) is DENIED.

B. Defendants’ Motion for an Order Holding Polaris in Contempt

48 Order of Hr’g. 49 Transcript from Nov. 29, 2023 Hrg. 20:08-23:18. 50 Id. 24:09-25:10. The private discussion to stipulate between the parties occurred after extensive discussion about the Writ of Replevin with the Court during the hearing. See generally Id. 51 Id. 25:11-27:22. 52 Id. 28:08-29:11. 11 Defendants seek an order holding Plaintiff in contempt for its breach of the

Replevin Order. The Court has the “inherent authority . . . to impose either civil or

criminal sanctions for contempt.”53 The burden of proof rests with the movant who

must demonstrate contempt of a court order by a preponderance of the evidence.54

If the movant makes out a prima facie case for contempt, the burden then shifts to

the non-moving party to show why it was unable to comply with the court order.55

The Supreme Court has held that “[a] trial judge has broad discretion to impose

sanctions for failure to abide by [court] orders” so long as the “decision to impose

sanctions [] [is] just and reasonable.”56

Polaris admits that it violated the Replevin Order but argues that its good faith

actions afterward have neutralized any prejudice to Defendants.

The Court of Chancery has previously considered “good faith efforts to

comply with [an] order or to remedy the consequences of non-compliance” when

evaluating motions for contempt.57 While Polaris clearly violated the Replevin

Order by taking property beyond the scope of the Replevin Order from Defendants’

dealerships, Polaris has complied with the Court’s verbal orders in the January 26,

2024 hearing by providing the Court and Defendants with an updated inventory of

53 DiSabatino v. Salicete, 671 A.2d 1344, 1348 (1996) (citing Young v. United States ex rel. Vuitton et Fils S.A., 481 U.S. 787 (1987)). 54 TransPerfect Global, Inc. v. Pincus, 278 A.3d 630, 644 (2022). 55 Id. (internal citations and quotations omitted). 56 Gallagher v. Long, 940 A.2d 945 (Del. 2007). 57 Aveta Inc. v. Bengoa, 986 A.2d 116, 1181 (Del. 2009). 12 all seized property, admitting that it violated the Replevin Order, and immediately

ceasing the sale of the property that it took.58

The remedy of civil contempt is meant to serve two purposes: “to coerce

compliance with the order being violated, and to remedy injury suffered by other

parties as a result of the contumacious behavior.”59 Neither of these purposes would

be served by the Court granting contempt here.

While the Court understands Defendants’ frustration at their property being

taken, there has been no harm to Defendants because of the oral no-sell order issued

by the Court and the inventory of seized property provided by Polaris. The outcome

here would be quite different had Polaris not engaged in good faith actions to remedy

its improper seizure. What saves Polaris from contempt is its immediate attempts to

mitigate the potentially harmful effects of its conduct and that Defendants were

ultimately not harmed. The Court does not find that a contempt order is appropriate

here, and therefore, the Defendants’ Motion for an Order Holding Plaintiff in

Contempt is DENIED.

IV. CONCLUSION

For the reasons stated above, the Court finds Defendants’ Motion for Relief

from the Replevin Order under Rule 60(b) and Motion for an Order Holding Plaintiff

58 Pl.’s Opp’n to Defs.’ Mot. for Contempt ¶ 1; Letter to Defense Counsel in Follow up to the Hearing This Morning, Trans. ID 71886511 (Jan. 26, 2024). 59 Delaware State Bar Ass'n v. Alexander, 386 A.2d 652, 665 (Del. 1978). 13 in Contempt are DENIED, and, if it has not done so already, Polaris shall return the

property that was impermissibly seized during the execution of the Replevin Order

to Defendants within 10 days of the issuance of this Order.

IT IS SO ORDERED.

/s/ Jan R. Jurden Jan R. Jurden, President Judge

cc: Prothonotary