In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 03-4144
VAN DIEST SUPPLY CO.,
                                            Plaintiff-Appellant,
                               v.

SHELBY COUNTY STATE BANK,
                                           Defendant-Appellee.
                         ____________
           Appeal from the United States District Court
                for the Central District of Illinois.
            No. 99 C 3195—Jeanne E. Scott, Judge.
                         ____________
 ARGUED SEPTEMBER 15, 2004—DECIDED OCTOBER 3, 2005
                   ____________


  Before EVANS, WILLIAMS, and SYKES, Circuit Judges.
  WILLIAMS, Circuit Judge. Van Diest Supply Co. and
Shelby County State Bank (“Shelby”) both assert a secu-
rity interest in proceeds of accounts resulting from inven-
tory Van Diest sold to Hennings Feed and Crop Care
(“Hennings”). This case arose after Hennings filed for
bankruptcy and was unable to pay for certain inventory
it had purchased from Van Diest. Pursuant to a loan
agreement with Hennings, Shelby had received the pro-
ceeds of many Hennings accounts receivable. Van Diest
claimed a first, perfected purchase money security inter-
est in proceeds of inventory it sold to Hennings and
sued Shelby for conversion, seeking to recover the pro-
ceeds of inventory it sold to Hennings. The district court, in
2                                              No. 03-4144

granting Shelby’s motion for summary judgment, ruled that
Van Diest had not presented evidence sufficient to carry its
burden of identifying the proceeds. We agree and so affirm
the decision of the district court.


                    I. BACKGROUND
  At issue here are the proceeds of certain inventory that
Van Diest Supply Co. sold to Hennings Feed and Crop Care.
Hennings was a retail dealer in agricultural products,
including chemicals, fertilizer, and limestone who pur-
chased inventory from multiple suppliers, including Van
Diest. In 1983, Van Diest and Hennings executed an
agreement that granted Van Diest a purchase money
security interest in inventory supplied by Van Diest, and
the proceeds from such inventory. We concluded in an
earlier case that the security interest did not extend to
all Hennings inventory; instead, it was limited to inventory
Van Diest supplied to Hennings. Shelby County State Bank
v. Van Diest Supply Co., 

, 840 (7th Cir. 2002).
   Although Hennings had multiple suppliers, it did not (1)
segregate inventory by supplier, (2) track inventory by
supplier, or (3) know on any given day how much inventory
it had on hand from any supplier. On May 16, 1998,
Hennings and Shelby signed a “Draw Note-Fixed Rate”
agreement that allowed Hennings to draw up to $4 mil-
lion at a time, and Shelby made advances to Hennings
under the Note in exchange for Hennings’s accounts
receivable. Shelby then collected the receivables. Shelby
purchased Hennings’s receivables from May 1998 until
either December 14, 1998 or January 7, 1999 and received
payments totaling over $2 million.
  In late March or early April 1999, Van Diest received a
financial statement from Hennings dated September 30,
1998. Based on the financial statement, Van Diest’s credit
manager believed Hennings was insolvent. Van Diest had
No. 03-4144                                                  3

already shipped additional product to Hennings, and
payment was not due until June 11, 1999. Hennings
was still current on its obligations, and Van Diest did not
take any steps to enforce its rights under its security
agreement with Hennings.
  April 1999 also marked the first time that Hennings
conducted a physical inventory. At the time, Hennings’s
computer records listed an inventory of approximately
$7 million, but a check of the physical inventory revealed a
missing $2.5 million in inventory.
  Hennings first defaulted on a payment to Van Diest on
June 11, 1999 and that day, Van Diest sent a demand letter
to Hennings requesting payment in full. Van Diest did not
learn of Shelby’s factoring arrangement with Hennings
until July 1, 1999. Hennings filed for bankruptcy the next
month, on August 23, 1999. Van Diest then demanded
payment of the funds paid to Shelby from the accounts
factored under the Note, and Shelby refused to pay Van
Diest.
  Van Diest filed suit against Shelby, alleging that Shel-
by converted its property. The district court granted sum-
mary judgment in favor of Shelby, and Van Diest now
appeals.


                       II. ANALYSIS
  Our review of a district court’s grant of summary judg-
ment is de novo. Dumas v. Infinity Broad. Corp., 

, 676 (7th Cir. 2005). Summary judgment is proper only
when “there is no genuine issue as to any material fact and
the moving party is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(e); Celotex Corp. v. Catrett, 

, 322 (1986). We will review all the facts and draw all
reasonable inferences in favor of Van Diest, the non-moving
party. 

. To defeat a motion for
4                                                No. 03-4144

summary judgment, the non-moving party cannot rest on
the mere allegations or denials contained in his pleadings,
but “must present sufficient evidence to show the existence
of each element of its case on which it will bear the burden
at trial.” Robin v. Espo Eng’g Corp., 

, 1088
(7th Cir. 2000) (citations omitted). “However, neither
presenting a scintilla of evidence, . . . nor the mere exis-
tence of some alleged factual dispute between the parties or
some metaphysical doubt as to the material facts, is
sufficient to oppose a motion for summary judgment. . . .
The party must supply evidence sufficient to allow a jury to
render a verdict in his favor.” 

(internal citations
omitted).
  Van Diest sued Shelby under a theory of conversion, a
dispute governed by state law. In diversity cases, we
apply the substantive law of the state in which the district
court sits. Erie R.R. Co. v. Tompkins, 

(1938).
Here, Illinois law governs the dispute. In order to recover
for conversion in Illinois, a plaintiff must show: (1) a right
to the property; (2) an absolute and unconditional right
to the immediate possession of the property; (3) a de-
mand for possession; and (4) that the defendant wrong-
fully and without authorization assumed control, dominion,
or ownership over the property. Cirrincione v. Johnson, 

, 70 (Ill. 1998).
  Van Diest held a perfected, first priority purchase money
security interest in the inventory it sold to Hennings.
Shelby, also a secured party, claimed a security interest
in all inventory, accounts receivable, and equipment of
Hennings. Van Diest contends that Shelby converted its
property when Shelby received the proceeds from the sale
of inventory Van Diest had supplied to Hennings. Van Diest
does not challenge the district court’s finding that the funds
Hennings paid to Shelby directly by check written on
Hennings’s bank accounts are not at issue. Still at issue,
though, are the direct payments to Shelby from Hennings’s
No. 03-4144                                                   5

customers which did not pass through Hennings’s bank
account. After Hennings drew on the Note, and Shelby
received accounts, Hennings customers either paid Shelby
directly or wrote checks to Hennings, which Hennings
delivered to Shelby. Van Diest contends it can show that
each of these payments came from the sale of its collateral
by showing the proportion of Hennings’s inventory on the
date of each transaction that was attributable to product
that Van Diest had provided to Hennings.
  The conduct that forms the basis of Van Diest’s complaint
occurred before July 1, 2001 and before the Illinois legisla-
ture enacted a revised version of Article 9 to its Uniform
Commercial Code. See Ill. P.A. 91-893 § 5 (July 1, 2001).
The parties do not dispute that the Code as it existed prior
to July 1, 2001 applies in this case. At the time relevant
here, the Code defined “proceeds” to include “whatever
is received upon the sale, exchange, collection or other
disposition of collateral or proceeds.” 810 ILCS § 5/9-306(1)
(West 1994). Significantly here, the Code also provided that
a party continued to have a security interest in the proceeds
of the sale of inventory to the extent that the proceeds were
“identifiable.” 810 ILCS § 5/9-306(2) (West 1994).
  It is clear in Illinois that commingling does not neces-
sarily make proceeds unidentifiable. First, 810 ILCS § 5/9-
205 (West 1994) specifically provides that “a security
interest is not invalid . . . by reason of liberty in the debtor
to use, commingle, or dispose of all or part of the collat-
eral . . . or to use, commingle, or dispose of proceeds.” In
addition, section 9-306(2) (West 1994) states that a security
interest “continues in any identifiable proceeds.” Finally,
the Illinois Supreme Court recognized in C.O. Funk & Sons,
Inc. v. Sullivan Equip., Inc., 

, 372 (Ill. 1982)
that a security interest could continue in a commingled
account if the proceeds were identifiable. See also Brown &
Williamson Tobacco Corp. v. First Nat’l Bank, 

,
1001-02 (7th Cir. 1974). Therefore, so long as the proceeds
6                                               No. 03-4144

were identifiable, Van Diest’s security interest in the
proceeds of the sale of the inventory it supplied to Hennings
continued.
  The Code does not define the term “identifiable.” It does,
however, direct that its provisions should be supple-
mented by “principles of law and equity.” 810 ILCS § 9/1-
103 (West 1994). Like many other courts, the Illinois
Supreme Court has construed this provision to allow a
party to identify proceeds using a tracing theory known
in the law of trusts as the “lowest intermediate balance
rule.” See 

.
  In this case, the district court concluded that Van Diest
did not present evidence sufficient to allow it to identify
its proceeds. Therefore, it concluded that Van Diest had not
presented evidence that it had an ownership interest in the
proceeds Shelby received from the sale of Hennings’s
inventory, an immediate right to possession of those
proceeds, or that Shelby assumed wrongful control over
those proceeds. Because Van Diest had not presented
sufficient evidence on elements for which it had the burden
at trial, the district court granted Shelby’s motion for
summary judgment.
  On appeal, Van Diest contends the district court erred
when it found it could not trace its proceeds. Unfortunately,
Hennings’s commingling of the inventory it purchased from
multiple suppliers makes this case difficult. Hennings
purchased the same product from more than one supplier,
but it did not segregate the inventory it received by sup-
plier. In addition, although Hennings maintained records of
the products it sold, these records did not track the com-
pany that had supplied Hennings with the product sold.
  Funk is the only Illinois Supreme Court case to con-
sider whether proceeds of collateral were sufficiently
identified to subject them to a security interest. In that
case, the court placed the burden of identification on the
No. 03-4144                                                   7

party seeking to identify the proceeds, stating, “Since Funk
is claiming a prior security interest in property which is
otherwise identified as collateral belonging to the bank
under its after-acquired property clause, the burden of
identifying the proceeds is properly upon 

. The court then found that Funk failed to identify the
proceeds, stating:
      Funk argues that it established a prima facie
      case by showing that secured property was sold,
      that the proceeds were deposited into an account,
      and that other items of inventory were purchased
      from that account, and that upon such showing the
      burden should shift to another to segregate the
      wrongfully commingled funds. Were we concerned
      here with the rights of Funk against Sullivan this
      argument would have considerable merit. The bank,
      however, was neither responsible for Funk’s posi-
      tion nor for the commingling and is at least as
      innocent as Funk. We find no principles in law or
      equity which dictate that the innocent third party
      must suffer the consequences of Funk’s predica-
      ment. Section 9-306 says that the security interest
      attaches to identified proceeds. . . . Funk failed to
      offer the proof required to identify the claimed
      proceeds and is not now entitled a second opportu-
      nity to do so.

clear that Van Diest has the burden of
identifying the proceeds from the sale of the inventory it
supplied. See 

has admitted that it “cannot
at this time state the amount of its pro rata share in the
mass of inventory.” It contends, however, that the amount
of its pro rata share is an issue of fact for trial or rele-
vant only to damages. We disagree that tracing of Van
Diest’s proceeds is only a means to calculate damages and
8                                                No. 03-4144

is not relevant to liability, as Funk clearly states that a
security interest continues only in “identifiable 

. When it recently considered the
same argument, the Eighth Circuit explained, “tracing . . .
is not a measure of damages. It is the primary means
of demonstrating the plaintiff’s rights, and therefore the
defendant’s liability, in cases involving commingled ac-
counts. . . . Without equitable tracing, [the plaintiff] cannot
make out a claim for conversion because it cannot establish
that the funds allegedly converted were identifiable pro-
ceeds in which it had a security interest.” General Elec.
Capital Corp. v. Union Planters Bank, N.A., 

,
1059 (8th Cir. 2005).
   We also disagree with Van Diest that it has presented
sufficient evidence to survive summary judgment and that
only an issue of fact as to the amount of its pro rata share
remains. To carry its burden of identifying proceeds, Van
Diest has chosen to employ a pro rata tracing method
that it contends was used in In re San Juan Packers, Inc.,

(9th Cir. 1983), and In re Halmar Distributors,
Inc., 

(Bankr. D. Mass. 1999). Although Illinois
courts have not considered whether proration is
an appropriate means of tracing where more than one
creditor has a security interest in commingled proceeds,
cf. 

(recognizing lowest interme-
diate balance rule as an appropriate method of tracing),
other courts have recognized that proration can be used
to trace commingled proceeds. See 

; Gen. Motors Acceptance Corp. v. Norstar Bank, N.A., 

(N.Y. Sup. Ct. 1988); Bombardier Capital, Inc.
v. Key Bank of Maine, 

(Me. 1994). Shelby
agrees that, as a general matter, the pro rata method of
tracing is an acceptable methodology for tracing collateral.
It contends, however, that the method is not appropriate
here.
  The court in Halmar described the proration method of
tracing proceeds as an approach where “a court may
No. 03-4144                                                9

consider identifiable proceeds as a pro-rata share of the
commingled account, the share being determined by the
percentage of collateral owned by the secured creditor
before the proceeds were 

. In
this case, as a result of the Note agreement between
Hennings and Shelby, Hennings’s customers either paid
Shelby directly or wrote checks to Hennings which
Hennings delivered to Shelby. Van Diest maintains it
can demonstrate that each payment resulted from the
sale of its collateral by showing the proportion of
Hennings’s inventory on the date of each transaction
attributable to inventory Van Diest had supplied to
Hennings. As the district court explained, Van Diest’s
approach posited that if, “[f]or example, on October 1, 1997,
Van Diest had supplied Hennings with 10% of its inventory
in Product A, then Van Diest would have had a security
interest in 10% of the total inventory in Product A on that
day, and 10% of the proceeds from the sale of Product A on
that day.”
  The problem with the methodology Van Diest has em-
ployed is that it requires it to present evidence at some
point in time of the percentage of Hennings inventory
supplied by Van Diest. Van Diest, however, has presented
no such evidence. To the contrary, Van Diest acknowl-
edges that “It was not possible to know the total amount of
any particular product that was on hand on any particular
day. No records exist that show the various percentages of
products supplied by different suppliers as of any particular
day.” (Undisp. Facts 11.)
  If there was evidence of the proportion of Hennings
inventory attributable to Van Diest, then to show the
proportion of sale attributable to Van Diest product on
any given day, Van Diest could present evidence of in-
creases and decreases in Hennings’s inventory over time as
Hennings purchased more inventory from suppliers and
10                                              No. 03-4144

sold inventory to customers. Without an initial percentage,
however, Van Diest’s methodology fails.
  In an effort to present the necessary evidence, Van Diest
submitted the affidavit of Douglas Main, a paralegal,
numerous records, and reports Main produced from these
records. Main selected October 1, 1997 as the starting point
for determining Van Diest’s interest in inventory it supplied
to Hennings. He then created reports, including a report
summarizing Hennings’s purchases by product during the
period from October 1, 1997 through December 9, 1998.
This report detailed the total dollars of all purchases, the
total dollar of purchases from Van Diest, and the resulting
percentage of Van Diest’s purchases to the total of all
purchases. For each product detailed, Main then multiplied
this percentage against every account for which an invoice
appeared on Shelby’s records, regardless of when the
account was generated or whether the account had been
paid by check from an account debtor or by Hennings from
its general deposit account. Main concluded that Shelby
received $5,095,034.15 from the sale of Hennings’s inven-
tory and that 18.66%, or $950,477.55, was the proportionate
share subject to Van Diest’s security interest.
  Main stated that in arriving at his conclusions, he made
several assumptions. These assumptions included that
the data he received concerning Hennings’s purchases of
inventory was accurate and that “Van Diest’s shares of
the beginning product inventories were in the same propor-
tion to its shares of those same products which it supplied
during the period of 10/1/97 through 12/9/98.” The district
court concluded that neither assumption had support in the
record.
  Van Diest contends that the district court’s determination
that the records were unreliable constituted a factual or
credibility determination not proper at the summary
judgment stage. It is undisputed, however, that on any
No. 03-4144                                              11

given day in 1998 or 1999, Hennings did not know how
much inventory it had in its warehouse from any supplier.
Moreover, Hennings did not check its records against
a physical inventory until April 1999. It is also undis-
puted that the physical inventory count revealed that the
computer records used by Main, which listed inventory of $7
million, overstated the actual inventory by $2.5 million.
  Significantly, even if Hennings’s records accurately
recorded the inventory as of October 1, 1997, Van Diest has
not presented any evidence of the amount of that inventory
that was subject to its security interest. Main assumed that
Van Diest’s proportion of Hennings’s inventory on that date
was the same as the proportion in which it supplied
Hennings thereafter, but there is nothing in the record to
support that assumption. Van Diest cannot overcome a
motion for summary judgment with speculation. See
Packman v. Chi. Tribune Co., 

, 637 (7th Cir.
2001). Because the starting balances of each product
necessarily affect later percentages, speculation as to the
starting proportions means that all future percentages
Main calculated were also merely speculative. Showing the
amount of product supplied to Hennings after October 1,
1997 is not sufficient when there is no evidence of the
starting proportion.
  Although the court in Halmar found a creditor had
identified proceeds using the pro rata method, Halmar does
not help Van Diest. In Halmar, the parties agreed on the
quantity of inventory before commingling and agreed on the
proportion of starting inventory subject to the secured
creditor’s 

. From there, the secured
creditor presented evidence of the total product shipped to
a company and calculated the percentage attributable to it.

plaintiff in Halmar, however, Van Diest has
presented no evidence of the percentage of inventory it
supplied before the goods were commingled.
  In short, Van Diest had the burden of identifying its
proceeds, and it has not presented evidence to show that it
12                                               No. 03-4144

could do so under the only methodology it presented. Of
course, this is a difficult result for Van Diest, as Hennings,
one of its long-time customers, failed to pay it for inventory
it had ordered. Noticeably absent from this case, of course,
is Hennings. Hennings’s inability to pay its debts means
that there are insufficient funds to pay both Van Diest and
Shelby. Under Illinois law, however, the burden fell to Van
Diest to identify its proceeds. See 

(“We
find no principles in law or equity which dictate that the
innocent third party must suffer the consequences of Funk’s
predicament. . . . Funk failed to offer the proof required to
identify the claimed proceeds and is not now entitled a
second opportunity to do so.”) Because Van Diest did not
present evidence that it could do so, we are compelled to
affirm.


                    III. CONCLUSION
  For the foregoing reasons, the decision of the district
court is AFFIRMED.

A true Copy:
       Teste:

                         ________________________________
                         Clerk of the United States Court of
                           Appeals for the Seventh Circuit




                    USCA-02-C-0072—10-3-05