Filed: Aug. 10, 2016
Latest Update: Mar. 03, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1551 FOREST CAPITAL, LLC, Plaintiff - Appellant, v. BLACKROCK, INC., Defendant - Appellee. - COMMERCIAL FINANCE ASSOCIATION, Amicus Supporting Appellant, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, Amicus Supporting Appellee. Appeal from the United States District Court for the District of Maryland, at Baltimore. J. Frederick Motz, Senior District Judge. (1:14-cv-01530-JFM) Argued: May 11, 2016 Decided: August 10
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1551 FOREST CAPITAL, LLC, Plaintiff - Appellant, v. BLACKROCK, INC., Defendant - Appellee. - COMMERCIAL FINANCE ASSOCIATION, Amicus Supporting Appellant, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, Amicus Supporting Appellee. Appeal from the United States District Court for the District of Maryland, at Baltimore. J. Frederick Motz, Senior District Judge. (1:14-cv-01530-JFM) Argued: May 11, 2016 Decided: August 10,..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1551
FOREST CAPITAL, LLC,
Plaintiff - Appellant,
v.
BLACKROCK, INC.,
Defendant - Appellee.
------------------------------
COMMERCIAL FINANCE ASSOCIATION,
Amicus Supporting Appellant,
SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION,
Amicus Supporting Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. J. Frederick Motz, Senior District
Judge. (1:14−cv−01530−JFM)
Argued: May 11, 2016 Decided: August 10, 2016
Before GREGORY, Chief Judge, and WILKINSON and DIAZ, Circuit
Judges.
Affirmed by unpublished opinion. Judge Diaz wrote the opinion,
in which Chief Judge Gregory and Judge Wilkinson joined.
ARGUED: Jeffrey A. Wurst, RUSKIN MOSCOU FALTISCHEK, P.C.,
Uniondale, New York, for Appellant. Thomas E.L. Dewey, DEWEY
PEGNO & KRAMARSKY LLP, New York, New York, for Appellee. ON
BRIEF: David C. Gartenberg, DEWEY PEGNO & KRAMARSKY LLP, New
York, New York, for Appellee. David J. Chizewer, Richard M.
Kohn, Amanda G. Penabad, GOLDBERG KOHN LTD., Chicago, Illinois;
Jonathan N. Helfat, Chad B. Simon, OTTERBOURG P.C., New York,
New York, for Amicus Commercial Finance Association. Kevin
Carroll, SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION,
Washington, D.C.; Lewis J. Liman, Sandra M. Rocks, Abena A.
Mainoo, CLEARY GOTTLIEB STEEN & HAMILTON LLP, New York, New
York, for Amicus The Securities Industry and Financial Markets
Association.
Unpublished opinions are not binding precedent in this circuit.
2
DIAZ, Circuit Judge:
BlackRock, Inc., an investment firm, received a letter from
its customer, People’s Power & Gas (“PP&G”), stating that PP&G
had assigned a security interest in its BlackRock account to a
creditor, Forest Capital, LLC. PP&G’s letter requested that
future remittances from the account be sent to Forest. When
PP&G changed its mind and asked to receive funds, BlackRock
complied. According to Forest, BlackRock’s payment to PP&G
violated two sections of Article 9 of the Maryland Uniform
Commercial Code (UCC) and amounted to conversion. The district
court dismissed the complaint for failure to state a claim.
Because the UCC provisions on which Forest relies do not provide
a private right of action, and because the property Forest seeks
to recover is not subject to a claim for conversion, we affirm.
I.
A.
PP&G is an energy service company. 1 It buys energy from ISO
New England (“ISO-NE”), which extends PP&G credit and, for
1We derive our account of the facts from Forest’s
complaint, viewing them in the light most favorable to Forest
and drawing all reasonable inferences in its favor. See
Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.
1992). We have also considered several documents attached to
the complaint and to BlackRock’s subsequent motions, which we
are authorized to rely on because we find them “integral to the
(Continued)
3
collateral, requires PP&G to deposit funds into a BlackRock
account held in PP&G’s name. To perfect its security interest
in the account, ISO-NE entered into a Control Agreement with
BlackRock and PP&G; as relevant here, the Control Agreement
authorized BlackRock to release funds to PP&G at ISO-NE and
PP&G’s joint request.
PP&G, in turn, sells energy to end users on credit, but
rather than collect payment, it sells its accounts receivable to
Forest at a discount. This arrangement between PP&G and Forest,
known as factoring, is set out in a Master Factoring Agreement
(“MFA”). The MFA includes two other obligations relevant here.
First, Forest agreed to fund up to 75 percent of the collateral
PP&G was required to maintain in the BlackRock account. Second,
PP&G granted Forest a security interest in substantially all of
its assets, with the exception of “prepayments to third parties
for energy purchases.” J.A. 41.
In December 2013, Forest discovered that PP&G had “fail[ed]
to fulfill various obligations under the MFA” and, as a result,
declared PP&G in default. J.A. 11. To induce Forest not to
enforce its default remedies, PP&G’s CEO, David Pearsall, sent a
complaint and authentic.” Kensington Volunteer Fire Dep’t, Inc.
v. Montgomery County, 684 F.3d 462, 467 (4th Cir. 2012) (quoting
Philips v. Pitt Cty. Mem’l Hosp.,
572 F.3d 176, 180 (4th Cir.
2009)).
4
letter to BlackRock notifying it of “certain financing
agreements entered into by and between [PP&G] and Forest”:
PP&G has granted Forest a security interest in
substantially all of its assets including, but not
limited to, all payment intangibles which may be owed
at any time by BlackRock . . . to PP&G, including the
return of any deposits or any part thereof given by or
on behalf of PP&G to BlackRock . . . . Accordingly,
this shall serve as notification and authorization
that you are to remit to Forest all monies that may be
or may become payable by BlackRock to [PP&G]. This
instruction cannot be changed except by a writing duly
executed by Forest. All payments to or for the
benefit of PP&G and/or Forest may only be sent by wire
as follows . . . .
J.A. 48. Forest never changed the instruction, but Pearsall
did. He asked BlackRock to remit funds directly to PP&G, and
BlackRock complied, making two payments to PP&G totaling more
than $1,000,000.
B.
Believing itself entitled to the transferred funds, Forest
quickly filed suit, asserting claims of breach of contract
against PP&G, breach of guaranty of validity against Pearsall,
and conversion and a violation of UCC section 9-607 against
BlackRock. The parties agreed to a Stipulation and Order of
Settlement, according to which BlackRock paid some funds from
the account to Forest, and the suit was dismissed without
prejudice, with all parties reserving their rights, remedies,
and defenses.
5
After PP&G entered Chapter 7 bankruptcy, Forest filed suit
against BlackRock for (1) conversion, (2) violation of UCC
section 9-607, (3) violation of UCC section 9-406, and (4) an
accounting. BlackRock moved to dismiss under Federal Rule of
Civil Procedure 12(b)(6), and the district court granted the
motion. Forest Capital LLC v. BlackRock, Inc., No. JFM-14-1530,
2015 WL 874611 (D. Md. Feb. 26, 2015). Forest’s subsequent
motion for reconsideration was denied.
This appeal followed.
II.
We review de novo the district court’s grant of BlackRock’s
motion to dismiss for failure to state a claim. Kensington
Volunteer Fire Dep’t, Inc. v. Montgomery County, 684 F.3d 462,
467 (4th Cir. 2012). We accept as true all of the complaint’s
factual allegations, ensuring that it contains “sufficient
factual matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.’” De’lonta v. Johnson,
708 F.3d
520, 524 (4th Cir. 2013) (quoting Ashcroft v. Iqbal,
556 U.S.
662, 678 (2009)). We may affirm “on any legal ground supported
by the record and are not limited to the grounds relied on by
the district court.” Jackson v. Kimel,
992 F.2d 1318, 1322 (4th
Cir. 1993). Because this case involves matters of state law
only, “our role is to apply the governing state law, or, if
6
necessary, predict how the state’s highest court would rule on
an unsettled issue.” Askew v. HRFC, LLC, 810 F.3d 263, 266 (4th
Cir. 2016) (quoting Horace Mann Ins. Co. v. Gen. Star Nat’l Ins.
Co.,
514 F.3d 327, 329 (4th Cir. 2008)).
On appeal, Forest objects to the dismissal of its claims
for violation of the UCC and for conversion, and it argues that
the district court abused its discretion in ignoring Forest’s
request to amend its complaint and in denying its motion for
reconsideration. We address these issues in turn.
A.
Forest asserts that BlackRock’s transfer of funds to PP&G
was made “in violation of” sections 9-406 and 9-607 of the UCC.
J.A. 17, 18. Because we accept BlackRock’s argument that these
UCC sections do not provide a private right of action, we affirm
the district court’s dismissal of the claims. 2
1.
When determining whether a state statute creates a private
right of action, “the central inquiry [is] whether the
legislative body intended to create [one], either expressly or
by implication.” Fangman v. Genuine Title, LLC, 136 A.3d 772,
779 (Md. 2016) (quoting Baker v. Montgomery County,
50 A.3d
2 We decline to address the district court’s holdings
regarding the validity of Forest’s security interest or the
adequacy of notice given to BlackRock.
7
1112, 1123 (Md. 2012)). Here, Forest does not argue that the
statute expressly creates a right, so we decide only whether one
is implied. Maryland courts ask three questions to determine
whether a state statute implies a private right of action:
(1) Is the plaintiff one of the class for whose
special benefit the statute was enacted? (2) Is there
any indication of legislative intent, explicit or
implicit, either to create such a remedy or to deny
one? (3) Is it consistent with the underlying
purposes of the legislative scheme to imply such a
remedy for the plaintiff?
Id. at 780; see also Erie Ins. Co. v. Chops,
585 A.2d 232, 236-
37 (Md. 1991) (holding that a statute requiring auto insurers to
notify the Motor Vehicle Administration of the cancellation of
an insured’s policy did not create a private right of action in
favor of a plaintiff injured by an uninsured driver whose lapse
in coverage the insurer failed to report). If “neither the
statute nor the legislative history reveals a legislative intent
to create a private right of action for the benefit of the
plaintiff,” a court need proceed no further. Genuine
Title, 136
A.3d at 779 (quoting
Baker, 50 A.3d at 1123).
In construing the UCC, Maryland courts use “the same
principles of statutory construction that . . . would apply in
determining the meaning of any other legislative enactment,”
though some consideration is given to maintaining uniformity
among jurisdictions. Jefferson v. Jones, 408 A.2d 1036, 1039
(Md. 1979). These interpretive principles “require
8
ascertainment of the legislative intent, and if . . .
construction becomes necessary because the terminology chosen is
not clear, then [the court] must consider not only the
significance of the literal language used, but the effect of [a]
proposed reading in light of the legislative purpose sought to
be accomplished.” Id. Moreover, the UCC’s Official Comments
“are an excellent place to begin a search for the legislature’s
intent when it adopted the Code,” though “these comments are not
controlling authority and may not be used to vary the plain
language of the statute.”
Id.
2.
We begin with section 9-406(a). According to Forest, the
statute grants a private right of action to an assignee (Forest)
against an account debtor (BlackRock) who, after receiving
notice that its debt has been assigned, pays the assignor (PP&G)
rather than the assignee. 3
In relevant part, the statute provides:
[A]n account debtor on an account, chattel paper, or a
payment intangible may discharge its obligation by
paying the assignor until, but not after, the account
debtor receives a notification, authenticated by the
assignor or the assignee, that the amount due or to
become due has been assigned and that payment is to be
made to the assignee. After receipt of the
notification, the account debtor may discharge its
3BlackRock objects to being called an account debtor, but
we need not address the issue because of our holding that the
statute does not provide Forest a right of action.
9
obligation by paying the assignee and may not
discharge the obligation by paying the assignor.
Md. Code Ann., Com. Law § 9-406(a). An “account debtor” is “a
person obligated on an account, chattel paper, or general
intangible.” § 9-102(3). An account debtor, therefore, is
simply the name given to a person with certain kinds of payment
obligations. A “general intangible” is “any personal property,
including things in action, other than accounts, chattel paper,
commercial tort claims, deposit accounts, documents, goods,
instruments, investment property, letter-of-credit rights,
letters of credit, money, and oil, gas, or other minerals before
extraction.” § 9-102(42) (emphasis added). This is of course a
catchall definition of exclusion, but the UCC does tell us that
the term “includes payment intangibles and software.” Id.
“Payment intangible” is further defined as “a general intangible
under which the account debtor’s principal obligation is a
monetary obligation.” § 9-102(62).
With these definitions in mind, we return to the operation
of section 9-406(a). A person indebted on a payment intangible
(the account debtor) may satisfy its obligation by paying its
creditor (the assignor) until it receives notice that the
assignor has assigned the right to receive payment. After
notification, the account debtor may satisfy the obligation only
by paying the assignee.
10
To determine whether section 9-406 provides an implied
right of action, we first ask whether Forest (the assignee) is
part of the class for whose special benefit the statute was
enacted. To the extent the statute grants any rights, it grants
one to the account debtor, not to the assignee, as it explains
when the account debtor “may discharge its obligation” and avoid
making payments to both the assignor and assignee. See In re
Taranto, No. 10-76041-AST, 2012 WL 1066300, at *11 (Bankr.
E.D.N.Y. Mar. 27, 2012) (stating that N.Y. U.C.C. Law § 9-406
“prevents different creditors from being paid twice for the same
debt”). The commentary confirms this reading, stating that
“[s]ubsection (a) provides the general rule concerning an
account debtor’s right to pay the assignor until the account
debtor receives the appropriate notification.” Md. Code Ann.,
Com. Law § 9-406 cmt. 2 (emphasis added).
Accordingly, because the statute grants rights to the
account debtor rather than the assignee, we think the better
view of the statute is that account debtors are its special
beneficiaries. Cf. Auto. Acceptance Corp. v. Universal C.I.T.
Credit Corp., 139 A.2d 683, 686 (Md. 1958) (referring to a
similar provision in a now-repealed statute, Md. Code, art. 8,
sec. 2 (1951), as “protecting a debtor who pays to the assignor
without notice of the assignment” (emphasis added)). But even
if we were to assume that Forest is part of the class the
11
legislature was specially intending to benefit, we would still
proceed to the second question, whether there is “legislative
intent, explicit or implicit, either to create . . . a remedy or
to deny one.” Genuine Title, 136 A.3d at 779 (quoting
Baker, 50
A.3d at 1122); see also
id. at 786 (noting that members of the
class for whose benefit a statute was enacted may still lack a
private right of action).
Nothing suggests such an intention. As noted, if section
9-406 grants any rights, it grants them to the account debtor.
It grants no rights to the assignee and imposes no obligations
on the account debtor; whatever “obligation” the account debtor
may have is assumed to exist already. Section 9-406 simply
explains how to satisfy that obligation, providing a potential
defense to an account debtor who has already paid the assignor
or assignee. This is strong evidence that the legislature did
not intend to confer a private right of action. See Baker, 50
A.3d at 1123 (“If a statute’s language provides a right to a
particular class of persons, there is a strong inference that
the legislature intended the statute to carry an implied cause
of action. Conversely, that inference becomes attenuated when
the statute is framed as a ‘general prohibition or a command’ to
a governmental entity or other group or confers a generalized
benefit.” (citations omitted) (quoting Univs. Research Ass’n v.
Coutu,
450 U.S. 754, 772 (1981))). The lack of evidence of
12
legislative intent alone defeats Forest’s argument that section
9-406 confers a right of action.
A right of action for the assignee is also inconsistent
with the underlying purpose of the statute, which is to clarify
an account debtor’s payment obligation when its debt is
assigned. The court’s decision in Platinum Funding Services,
LLC v. Petco Insulation Co., No. 3:09CV1133 MRK, 2011 WL 1743417
(D. Conn. May 2, 2011), makes this point. There, the plaintiff
was a factor who purchased some but not all of the accounts
receivable of the assignor. The plaintiff gave the account
debtor notice under section 9-406 that payment on all invoices
should be made to the plaintiff—the purported assignee—and not
to the assignor.
Id. at *2. When the account debtor made
payments to the assignor on invoices that the plaintiff had
neither purchased nor been assigned, the plaintiff nevertheless
alleged it was entitled to recover under section 9-406, solely
on the basis that notice under the statute created a payment
obligation.
Id. at *6. The court rejected this “novel legal
theory of recovery”: “Because the right to receive payments on
those particular invoices was never assigned to [the plaintiff],
UCC § 9-406 . . . [is] of no help to [the plaintiff’s] cause.”
Id. at *9.
We agree with the court in Platinum Funding that “[t]he
language of UCC § 9-406 . . . presumes that an ‘assignor’ has
13
already assigned its right to receive payment from an account
debtor to an ‘assignee.’” Id. And as the case demonstrates,
creating a private right of action under section 9-406 could
undercut that presumption, creating rights out of nothing more
than a notification and submitting account debtors to
obligations they never agreed to take on. We do not believe the
Court of Appeals of Maryland would recognize such a right of
action.
Nevertheless, Forest relies on Platinum Funding to press
its contention that section 9-406 confers a right of action,
apparently because the plaintiff there characterized its claim
as one made under section 9-406, and the court never explicitly
rejected that characterization. Forest is wrong. First, the
court rejected the plaintiff’s purported 9-406 claim. Second,
whether section 9-406 confers a right of action was not an issue
in the case. Finally, the court’s description of the statute
supports a reading consistent with ours, not Forest’s: “When a
factoring firm . . . provides an account debtor . . . with a
notice under UCC § 9–406 . . ., the notice ensures that if the
factoring firm later sues the account debtor for misdirecting
payments to the factoring firm’s assignor, the account debtor
will not be able to assert in defense that it already paid the
assignor.” Id. at *8. The effect of the notice is to defeat
the account debtor’s defense that it has satisfied the debt, not
14
to create a freestanding cause of action for disregarding the
notice.
In Forest’s view, however, without “an independent cause of
action in favor of a secured party, an assignee would be void of
a remedy after an account debtor failed to abide by a
notification.” Reply Br. at 13. That is not correct. For
example, in IIG Capital LLC v. Archipelago, L.L.C., 36 A.D.3d
401, 402 (N.Y. App. Div. 2007), the plaintiff was a factor who
was assigned accounts receivable on which the defendants were
obligated. Although the plaintiff gave notice of the assignment
under section 9-406(a), the defendants never paid the plaintiff,
who brought claims for breach of contract and account stated.
See
id. at 402-03.
The court denied the defendants’ motion to dismiss,
rejecting in particular their argument that they had already
settled the accounts with the assignor. Id. at 404. Because
the accounts “were assigned to plaintiff pursuant to the
factoring agreement, and proper notice was given [under section
9-406], defendants’ payment in settlement to [the assignor]
would not be a defense to an action by plaintiff to collect on
the accounts.”
Id. As IIG demonstrates, an assignee who has
provided notice under section 9-406 has other remedies available
when an account debtor pays the assignor and refuses to pay the
assignee.
15
3.
We find even less reason to think that UCC section 9-607(a)
provides Forest a private right of action. The statute reads as
follows:
If so agreed, and in any event after default, a
secured party:
(1) May notify an account debtor or other person
obligated on collateral to make payment or otherwise
render performance to or for the benefit of the
secured party;
. . .
(3) May enforce the obligations of an account debtor
or other person obligated on collateral and exercise
the rights of the debtor with respect to the
obligation of the account debtor or other person
obligated on collateral to make payment or otherwise
render performance to the debtor, and with respect
to any property that secures the obligations of the
account debtor or other person obligated on the
collateral . . . .
§ 9-607(a). Subsection (e) clarifies that “[t]his section does
not determine whether an account debtor . . . owes a duty to a
secured party.” § 9-607(e). Rather, as the commentary
explains, “This section establishes only the baseline rights of
the secured party vis-a-vis the debtor [i.e., PP&G]—the secured
party is entitled to enforce and collect after default or
earlier if so agreed.” Id. at cmt. 6 (emphasis added).
The statute does not expressly create a right of action for
a secured party such as Forest, nor does it impose any
obligations on an account debtor. While section 9-607 does give
16
secured parties “the right to enforce claims that the debtor may
enjoy against others,” id. at cmt. 3, the text and commentary
make plain that this is a right against the debtor–assignor, not
the account debtor.
In sum, we hold that there is no private right of action
for transfers made “in violation of [sections 9-406 and 9-607]
of the UCC.” J.A. 17, 18. Accordingly, the claims were
properly dismissed.
4.
In its reply brief, Forest argues for the first time that,
even if it has no claim under the UCC, it has nevertheless
stated a claim for breach of contract. Reply Br. at 15.
According to Forest, “the existence of a breach of contract
claim is still plausible on the face of the Complaint—as the
Complaint alleges that Forest, standing in the shoes of PP&G, is
asserting a claim against BlackRock, an account debtor, as if
BlackRock had failed to pay the funds to PP&G.” Id.
However, “issues raised for the first time on appeal
generally will not be considered.” Karpel v. Inova Health Sys.
Servs.,
134 F.3d 1222, 1227 (4th Cir. 1998) (refusing to
consider a hostile-work-environment claim presented to the
district court after summary judgment had been granted for the
defendant). And even when properly preserved issues are raised
on appeal, they must be raised in the opening brief. See Carter
17
v. Lee, 283 F.3d 240, 252 n.11 (4th Cir. 2002). “Failure to
comply with the specific dictates of this rule with respect to a
particular claim triggers abandonment of that claim on appeal.”
Edwards v. City of Goldsboro,
178 F.3d 231, 241 n.6 (4th Cir.
1999) (emphasis added) (citing Fed. R. App. P. 28(a)(9)(A)); see
also Stevenson v. City of Seat Pleasant,
743 F.3d 411, 416 (4th
Cir. 2014) (holding that the appellants “waived any challenge”
to the district court’s dismissal of multiple claims by failing
to present arguments on appeal regarding those claims); Bocek v.
JGA Assocs., LLC, 537 F. App’x 169, 174 (4th Cir. 2013)
(“Because [the plaintiff’s] position on appeal is that the
defendants’ . . . actions breached the Straw Purchase Agreement,
not the Consulting Agreement, we are constrained to conclude
that [the plaintiff] has waived any breach of contract claim
premised on a breach of the Consulting Agreement.”). The
purpose of this rule “is to avoid unfairness to an appellee and
minimize the ‘risk of an improvident or ill-advised opinion
being issued on an unbriefed issue.’” Brown v. Nucor Corp.,
785
F.3d 895, 920 (4th Cir. 2015) (quoting United States v. Leeson,
453 F.3d 631, 638 n.4 (4th Cir. 2006)).
Here, prior to the one-sentence assertion in its reply
brief, Forest had given no indication that it was pursuing a
claim based on a breach of contract. Indeed, Forest concedes
that it “brought its action against BlackRock based upon
18
BlackRock’s conversion of Forest’s funds.” Reply Br. at 15.
Notably, Forest did not move in the district court to amend its
complaint to allege the claim for breach. Rather, Forest has
insisted throughout the litigation that BlackRock’s liability
arose out of ignoring the notification letter and wrongfully
transferring funds to PP&G, a purported conversion and violation
of the UCC. See, e.g., J.A. 16 (“The . . . transfers by
BlackRock to PP&G at the request of Pearsall, despite the clear
instructions in the Notification Letter, amount to conversion by
defendant BlackRock.”); J.A. 17 (“BlackRock transferred funds
from the BlackRock Account directly to PP&G in violation of
§ 9-607 . . . .”); J.A. 18 (“BlackRock paid funds from the
BlackRock Account directly to PP&G in violation of
§ 9-406 . . . .”); J.A. 426 (Forest stating in a heading of its
memorandum in opposition to BlackRock’s motion to dismiss, “The
Control Agreement Does Not Affect Forest’s Rights”); Appellant’s
Br. at 3 (“BlackRock failed to honor the notice it had received
pursuant to UCC §§ 9-406 and 9-607 and improperly disbursed
funds to PP&G . . . .” (emphasis added)); id. at 6-7 (“BlackRock
disregarded the clear and unambiguous terms contained in the
Notification and made payments directly to PP&G from the
BlackRock Account[,] . . . thereby depriving Forest of its right
to those funds. BlackRock’s failure to abide by the terms of
the Notification was a violation of both UCC §§ 9-406 and
19
9-607.” (emphasis added) (citations omitted)); id. at 8
(“Forest’s Complaint sufficiently set forth viable causes of
action for each of its claims against BlackRock, all of which
arise out of BlackRock’s failure to comply with its obligations
under the UCC.” (emphasis added)).
We decline to consider Forest’s belated breach-of-contract
claim.
B.
Next, Forest objects to the dismissal of its conversion
claim. According to the complaint, BlackRock converted Forest’s
funds when it transferred them to PP&G rather than to Forest.
J.A. 16. The district court dismissed the claim because Forest
did not allege that BlackRock converted funds “for its own use
and benefit.” Forest Capital, 2015 WL 874611, at *1. In
addition to defending the district court’s holding, BlackRock
argues that it did not exercise the necessary control over the
funds or commit any wrongful act, and that the property Forest
is seeking to recover is intangible and therefore not subject to
conversion. Because we agree with this last argument, we do not
reach the others.
Conversion in Maryland has two elements: “a physical act
combined with a certain state of mind.” Darcars Motors of
Silver Spring, Inc. v. Borzym, 841 A.2d 828, 835 (Md. 2004).
“The physical act can be summarized as ‘any distinct act of
20
ownership or dominion exerted by one person over the personal
property of another in denial of his right or inconsistent with
it.’” Id. (quoting Allied Inv. Corp. v. Jasen,
731 A.2d 957,
963 (1999)). The intent element is satisfied by “a wide range
of different states of mind,” but “[a]t a minimum, a defendant
liable of conversion must have ‘an intent to exercise a dominion
or control over the goods which is in fact inconsistent with the
plaintiff’s rights.’”
Id. at 836 (quoting Keys v. Chrysler
Credit Corp.,
494 A.2d 200, 208 (Md. 1985)).
Not all personal property is subject to conversion.
Historically, the tort was confined to recovering tangible
property, but over time it has expanded to cover some, but not
all, intangible property rights. Dan B. Dobbs, et al., The Law
of Torts §§ 709-710 (2d ed. 2016); see Thompson v. UBS Fin.
Servs., Inc., 115 A.3d 125, 130-31 (Md. 2015). “Maryland law
does not recognize a tort claim for conversion of intangible
property interests unless they are merged into a tangible
document over which the defendant exercises some form of
ownership or dominion.”
Jasen, 731 A.2d at 965. Examples
include “a stock certificate, a promissory note, or a document
that embodies the right to a life insurance policy.”
Thompson,
115 A.3d at 131 (citations omitted).
Under Forest’s theory of the case, the property it seeks to
recover must be intangible. If Forest had any right to receive
21
money from BlackRock, it was because section 9-406 transferred
BlackRock’s payment obligation from PP&G to Forest. And,
because section 9-406 applies only to obligations on accounts,
chattel paper, or payment intangibles—here, only a payment
intangible is arguable—Forest had a right to payment only if
BlackRock was obligated on a payment intangible. Because a
payment intangible is, of course, intangible property, and here
it was not “merged into a tangible document over which
[BlackRock] exercise[d] some form of ownership,” it is not
subject to conversion. Jasen, 731 A.2d at 965.
We pause here to note that the parties’ (and the amici’s)
briefs are devoted in large part to the question of whether
BlackRock was obligated on a payment intangible and was
therefore an account debtor under section 9-406. We need not
answer the question, as the conversion claim fails no matter who
is right. If (as Forest contends) BlackRock’s payment
obligation was a payment intangible, then the type of property
at issue could not have been converted—it was intangible and
Forest never alleged it was merged into a document over which
BlackRock exercised dominion. And if (as BlackRock contends)
the obligation was not a payment intangible, then section 9-406
did not apply, the notification letter had no effect, and the
transfer to PP&G did not interfere with Forest’s rights. In
either case, Forest could not state a claim for conversion.
22
To avoid this conclusion, Forest attempts to have it both
ways, characterizing the property interest as a payment
intangible for the purposes of applying section 9-406, but as
money for the purposes of the conversion claim. See Reply Br.
at 21 (“The payment intangible is the property interest—the
monetary obligation which attached to the funds once [ISO-NE]
released its interest.”). For, although money is generally an
intangible not subject to conversion, an exception exists for
“specific segregated or identifiable funds.” Jasen, 731 A.2d at
966. But having conceded that BlackRock’s only possible
obligation to Forest was on a payment intangible, Forest is
stuck with the fact that a payment intangible is by definition
not money. See § 9-102(42) (defining a general intangible,
which includes payment intangibles, as “any personal
property, . . . other than . . . money”). Accordingly,
regardless of whether the transferred funds were “specific
segregated or identifiable funds,” Forest asserts no interest in
them. Its asserted interest is in payment, not in any
particular money.
For this reason, Forest’s reliance on Franklin American
Mortgage Co. v. Sanford Title Services, LLC, No. RDB 10-920,
2011 WL 310469 (D. Md. Jan. 26, 2011), is misplaced. There, the
plaintiff, a mortgage company, alleged that it wired money to a
closing agent, who failed to apply the money to pay off
23
mortgages and closing costs as it had promised. Id. at *1.
According to the court, this money-based conversion claim could
go forward because it met “an exception for a conversion action
seeking funds that were or should have been segregated into
separate accounts.”
Id. at *4. Unlike the plaintiff in
Franklin American, Forest did not give funds to BlackRock that
were diverted from their intended purpose. We do not see how
the case would apply to the facts here, where Forest claims a
right to payment rather than to specific funds.
C.
Forest also takes issue with the district court’s denial of
its request to amend its complaint. Because the issue Forest
wished to address in an amended complaint—whether the BlackRock
funds were “prepayments” excluded from Forest’s security
interest—is not relevant to our disposition of Forest’s claims,
we need not decide whether the district court erred.
D.
Finally, Forest contends that the district court should
have granted its “Motion to Reconsider and/or to Reargue,” which
sought relief under either Rule 59(e) or 60(b) of the Federal
Rules of Civil Procedure.
We would ordinarily review the district court’s decision on
a motion under Rule 59(e) or 60(b) for an abuse of discretion.
See Pac. Ins. Co. v. Am. Nat’l Fire Ins. Co., 148 F.3d 396, 402
24
(4th Cir. 1998) (Rule 59(e)); McLawhorn v. John W. Daniel & Co.,
924 F.2d 535, 538 (4th Cir. 1991) (Rule 60(b)). But because we
are also reviewing the underlying grant of BlackRock’s motion to
dismiss, we have already considered the merits of the judgment
under a de novo standard, which is of course more favorable to
Forest than a review for abuse of discretion. 4 Accordingly, we
need not decide whether the district court abused its
discretion. See
Stevenson, 743 F.3d at 416 (applying de novo
review where notice of appeal sought review of summary-judgment
order as well as Rule 59(e) and Rule 60(b) orders).
III.
We affirm the district court’s judgment dismissing Forest’s
claims under the UCC and for conversion.
AFFIRMED
4
Forest’s motion also addressed the district court’s denial
of its request to amend, which we would review for abuse of
discretion, see Francis v. Giacomelli, 588 F.3d 186, 197 (4th
Cir. 2009); as we have explained, we need not address the issue.
25
