WILLIAM T. THURMAN, U.S. Bankruptcy Judge.
The matter before the Court is the Plaintiffs' Motion for Summary Judgment on Plaintiffs' Conversion Claim against Black Iron, LLC and Memorandum in Support (the "Motion") filed on October 15, 2018 at Dkt. No. 399. The Plaintiffs in this action will be collectively referred to as "Wells Fargo Rail" and the Defendants will be collectively referred to as "Black Iron." Wells Fargo Rail seeks summary judgment in its favor on its Eighth Claim for Relief for conversion against Black Iron. Black Iron filed a response to the Motion on November 12, 2018 at Dkt. No. 410. Wells Fargo Rail filed a reply on November 21, 2018 at Dkt. No. 419.
At the hearing on the Motion held on November 29, 2018, Troy Aramburu and Bret Evans appeared on behalf of Wells Fargo Rail. Dana Farmer and Blake Hamilton appeared on behalf of Black Iron. The Court heard oral argument, read the briefs filed by the parties, conducted its own independent review of the law and makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. For a complete perspective on this ruling, the Court's Memorandum Decision on Defendants/Third-Party Plaintiffs' Motion for Summary Judgment on Black Iron, LLC's Claims and Memorandum in Support (Dkt. No. 67), entered on Dec. 5, 2018 at Dkt. No. 80 in Case No. 17-2088 (the "Memorandum Decision on Storage Fees") should also be considered as there is an unavoidable
The jurisdiction of this Court is properly invoked under 28 U.S.C. § 1334, and has been expressly consented to by the parties. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2), and this Court may enter a final order. Venue is proper under the provisions of 28 U.S.C. §§ 1408 and 1409. Notice of the hearing is found to be proper in all respects.
Under Federal Rule of Civil Procedure 56(a), which is made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, the Court shall grant a motion for summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).
Substantive law determines which facts are material and which are not. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Whether a dispute is genuine turns on whether the evidence is such that a reasonable fact finder could return a verdict for the non-moving party. The court does not weigh evidence or make credibility determinations at this point, see id. at 249, 106 S.Ct. 2505, but is to decide whether there is a genuine issue for trial.
The moving party bears the burden to show that it is entitled to summary judgment. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This burden includes properly supporting its summary judgment motion as required by Rule 56(c). See Murray v. City of Tahlequah, Okla., 312 F.3d 1196, 1200 (10th Cir. 2002). Once the moving party meets this burden, "the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter," Concrete Works of Colorado, Inc. v. City & County of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (citations omitted).
This dispute arose out of a lease transaction involving railcars and locomotives used in a mining venture near Cedar City, Utah.
On April 2, 2015, CML Metals, through its chairman Michael Conboy, entered into an Asset Purchase Agreement ("APA") with Steve Gilbert, President of Gilbert Development Corporation ("GDC") to transfer substantially all of CML Metal's assets to GDC. On April 29, 2015, GDC assigned its rights to receive CML Metal's assets under the APA to Black Iron. GDC remained obligated for several assumed liabilities that were listed in the APA. This asset purchase transaction closed on or about May 5, 2015. Since that date, Black Iron has owned the Property upon which the Equipment is located. While the land was now owned by Black Iron, some of the railroad tracks were owned by Union Pacific Railroad Company or by CML Railroad.
Wells Fargo Rail did not know about the asset sale until after it had closed. On May 8, 2015, Steve Gilbert called Robert Bowers, an attorney representing First Union Rail Corporation (a predecessor of Wells Fargo Rail, which will be referred to simply as Wells Fargo Rail for ease of reference), and told Mr. Bowers that the railcars and locomotives would need to be removed or Black Iron would impose storage costs.
In mid-August, Steve Gilbert discovered that Wells Fargo Rail intended to file a lawsuit against Black Iron. On August 20, 2015, the individual at Black Iron who had been communicating with Wells Fargo Rail about moving the railcars sent an email stating:
Wells Fargo Rail canceled the repair vendor it had scheduled to arrive on the Property on August 24, 2015. While there is evidence that Steve Gilbert told representatives of Wells Fargo Rail that he would charge it $100 per day per railcar for storage, there is no evidence that Wells Fargo Rail ever agreed to pay this amount. In fact, Wells Fargo Rail repeatedly stated it intended to move the railcars, not pay storage.
After the "cease and desist" email, no one traveled to the Property to physically work on the railcars to implement their removal, although emails dated throughout the fall of 2015 sent by and between individuals at Black Iron, Wells Fargo Rail, and Union Pacific (which owned some of the railroad tracks) contain discussion about the preparations necessary to move the railcars. This included inspecting the tracks, inspecting the railcars and locomotives, making necessary repairs to the railcars and locomotives, and arranging for personnel to travel to the property to conduct these activities.
On March 15, 2016, an attorney for Black Iron sent a letter to an attorney representing Wells Fargo Rail authorizing Wells Fargo Rail to enter the Property to repair and extract the railcars and locomotives.
"In Utah, a cause of action for conversion exists when: (i) there is willful interference with personal property; (ii) without lawful justification; (iii) by which the person entitled to the property is deprived of its use or possession; and (iv) the party alleging conversion was entitled to immediate possession of the property at the time of conversion. Importantly, courts have found that while intentional conduct is required, conscious wrongdoing is not. As a result, the intent to exercise dominion is enough to satisfy a conversion claim." Nilson v. JPMorgan Chase Bank, N.A., 690 F.Supp.2d 1231, 1252 (D. Utah 2009) (internal citations omitted); see also Bonnie & Hyde, Inc. v. Lynch, 305 P.3d 196, 205 (Ct. App. Utah 2013); Jones v. Salt Lake City Corp., 78 P.3d 988, 992 (Ct. App. Utah 2003).
The Court must consider whether the facts previously stated constitute willful interference with the Equipment. While Wells Fargo Rail owned the Equipment, it did not own either the railroad tracks or the land underlying the railroad tracks. In order to access its Equipment, Wells Fargo Rail needed the cooperation of the owners of the railroad tracks and the land. Union Pacific, which owned at least some of the railroad tracks, cooperated in the efforts to inspect and repair the tracks so the Equipment could be removed.
The fact patterns of cases discussing conversion include cases in which a party physically took chattel away from the complainant. See Lawrence v. Intermountain, Inc., 243 P.3d 508, 514 (Ct. App. Utah 2010) (finding conversion when the Plaintiff gave the vehicle to another individual, thus frustrating the Defendant's efforts to recover the vehicle); Firkins v. Ruegner, 213 P.3d 895, 898 (Ct. App. Utah 2009) (finding conversion when Plaintiff removed the vehicles from Defendant's possession); Nilson v. JPMorgan Chase Bank, N.A., 690 F.Supp.2d 1231, 1252 (D. Utah 2009) (finding Defendants are likely to prevail on the claim for conversion because the Plaintiffs directed the payment of the distributions, which are personal property rightfully belong to the Defendants, for their own benefit when they knew or should have known that some or all of the payments were made wrongfully).
There are also cases in which a party prevented access to chattel, and that is also considered interference within the meaning of a conversion claim. See Bennett v. Huish, 155 P.3d 917, 928 (Utah Ct. App. 2007) (finding that plaintiffs were entitled to a refund of unused funds pursuant to an oral agreement, and so the defendant converted
Accordingly, the Court concludes that when Black Iron withdrew permission for Wells Fargo Rail to come onto the Property to remove its Equipment, it willfully interfered with Wells Fargo Rail's personal property within the meaning of a conversion claim.
Black Iron asserts that no conversion took place because it had a lawful justification in preventing access to the Equipment, i.e., Wells Fargo Rail delayed in removing the Equipment and then lost its right to remove the Equipment due to a possessory lien asserted by Black Iron for unpaid storage fees. The Court therefore turns to a consideration of whether or not Wells Fargo Rail unduly delayed in removing the Equipment, and whether or not Black Iron was lawfully justified in keeping the Equipment until Wells Fargo Rail had paid the amounts requested by Black Iron. The Court notes that this argument substantially overlaps Black Iron's claim for storage fees and trespass made against Wells Fargo Rail, and which was decided in the Memorandum Decision on Storage Fees. The same analysis from that case is repeated here.
Black Iron's first assertion is that Wells Fargo Rail unduly delayed in removing its Equipment. Black Iron informed Wells Fargo Rail that it needed to remove its Equipment on May 8, 2015 and withdrew permission for Wells Fargo Rail to access the Property on Aug. 20, 2015. This time period was three months and twelve days. Prior to May 8, 2015, Wells Fargo Rail did not know that it would be required to move its Equipment.
Wells Fargo Rail submitted declarations, depositions and emails regarding the effort necessary to move the Equipment. The Declaration of Andrew Sutherland, the Vice-President for Fleet Maintenance at Wells Fargo Rail states:
Accordingly, Wells Fargo Rail had contracted with a repair vendor by June 18, 2015. It was apparently the repair vendor's schedule that determined the Aug. 24, 2015 start date, and Toni Cornforth at Black Iron was aware of this. There is no evidence that Black Iron communicated to Wells Fargo Rail that this start date was unreasonable.
In its briefing and at the hearing, Black Iron cited to the emails and efforts made by Wells Fargo Rail during the summer of 2015 to inspect, repair and prepare its Equipment for removal. It asserts that Wells Fargo Rail moved slowly and unduly delayed. However, any hints of impatience are missing from the contemporaneous emails themselves. In an email dated June 18, 2015, Cyndi Gilbert, an attorney for Black Iron, stated that "We appreciate FURC's professionalism in inspecting the cars, etc. . . . in making this transition as painless as possible."
Black Iron asserts that the three and a half months between May 8, 2015 and Aug. 20, 2015 was a reasonable time period to move the Equipment, but does not support this assertion with facts. See Fed. R. Civ. Pro. 56(c)(1)(A); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (stating that when a properly supported motion for summary judgment is made, the adverse party must set forth specific facts showing that there is a genuine issue for trial). Within six weeks of being informed that the Equipment needed to be moved, Wells Fargo Rail had hired a repair vendor. The repair vendor was to start work Aug. 24, 2015. Black Iron has not shown facts that would demonstrate that it was an unreasonable delay to hire a repair vendor who needed about eight weeks to mobilize a repair team to central Utah. After most of those eight weeks had elapsed, Black Iron withdrew permission for the repair vendor to enter its Property on only four days notice.
The evidence points to the conclusion that Wells Fargo Rail was working with Black Iron's cooperation to remove the Equipment and had hired a repair vendor which could start work on Aug. 24, 2015. The evidence also supports the conclusion that Black Iron did not inform Wells Fargo Rail that the deadline would be Aug. 20, 2015, but that it caught Wells Fargo Rail by surprise when Black Iron withdrew permission to come on the Property. Black Iron has not submitted sufficient facts that would support a different conclusion.
The evidence shows, and is sufficient for the Court to find, that the Aug. 20, 2015 deadline to remove the Equipment from the Property was determined by the filing of a lawsuit, and not by the passage of a "reasonable" period of time to extract the Equipment. The evidence further shows, and is additionally sufficient for the Court to find, that Wells Fargo Rail was taking reasonable steps to extract its Equipment. Black Iron's claim that Wells Fargo Rail unduly delayed in its efforts to remove its Equipment is thus unavailing.
The next defense raised to conversion by Black Iron is the allegation that it had a valid possessory lien on the Equipment, such that it was lawful for it to forbid entry to the Property until Wells Fargo Rail paid the amount demanded. First, the Court notes that there was no formal monetary demand made when permission was revoked on Aug. 20, 2015. According to the evidence before the Court, Black Iron assessed storage fees of $2,494,420 in April 2016.
Black Iron asserts that it is entitled to a statutory warehouse lien over the Equipment. Under Utah law, a "warehouse" may have a lien against a bailor "on the goods covered by a warehouse receipt or storage agreement." Utah Code Ann. § 70A-7a-209(1).
The statute defines a "warehouse" as "a person engaged in the business of storing goods for hire." Utah Code Ann. § 70A-7a-102(m). Black Iron asserts that nothing in the statute requires that the person be solely engaged in the business of storing goods for hire. To support this assertion, Black Iron relies on Enerco, Inc. v. SOS Staffing Services, Inc., 52 P.3d 1272 (Utah 2002). The court in Enerco considered whether a lease agreement conferred the status of warehouseman on the landlord. The tenant asserted that the landlord was liable as a warehouseman for the tenant's property losses. This is factually distinguishable from the present case, as there was no warehouse lien being asserted in Enerco. The court did allow for a broader definition of "warehouse" and stated that "the question of whether or not someone is a warehouseman depends upon whether he has accepted `the responsibility of safekeeping the property of others entrusted to him.'" Id. at 1275 (quoting Barlow Upholstery & Furniture Co. v. Emmel, 533 P.2d 900, 901 (Utah 1975)). From this statement, Black Iron concludes that if a person expects to be paid to accept responsibility for storage and safekeeping of another's property, then that person is a warehouseman.
The Court is persuaded that with the right set of facts, an entity may be considered a warehouseman even if it is not primarily in the business of storing goods. However, Black Iron does not submit sufficient evidence that it accepted the responsibility for storage and safekeeping of the Equipment. Black Iron purchased the Property where the Equipment was located, and immediately asked Wells Fargo Rail to remove its Equipment. Wells Fargo Rail did not ask Black Iron to accept responsibility for storage and safekeeping of the Equipment, but began working to remove the Equipment. Black Iron then threatened to impose storage costs, and then denied Wells Fargo Rail access to the Property. The language in the Enerco case presupposes a party that wishes its chattel to be kept, i.e., the warehouseman accepts property entrusted to him by the owner. In this situation, from the evidence presented, Wells Fargo Rail had no desire to entrust its Equipment to Black Iron, and did not ask Black Iron to accept it. Black Iron retained the Equipment on its Property despite Wells Fargo Rail's desire to remove it. This conduct does not make Black Iron a warehouseman. See, e.g., Mesa Development, Inc. v. Railroad Storage and Drayage, Inc., 2011 WL 8184136 (Utah Dist. Ct. 2011) (finding that no warehouse lien existed in the absence of a storage agreement, among other factors).
While the Court does not believe Black Iron would be considered a warehouseman
Black Iron asserts that it has a storage receipt, after a fashion. The evidence that Black Iron submits is to quote from an email dated Sept. 2, 2015 from attorney Robert Bowers, representing Wells Fargo Rail's predecessor, to Cyndi Gilbert, an attorney representing Black Iron. Black Iron quotes the email thus: "Recall that it was Black Iron/GDC that asked that the equipment be removed if [Wells Fargo Rail] wasn't willing to pay to store them in place." From this sentence, Black Iron asserts that Wells Fargo Rail acknowledged a storage agreement. However, the sentence is taken out of context. The pertinent section of the email is as follows:
The full email makes it clear that Wells Fargo Rail did not want Black Iron to keep Wells Fargo Rail's Equipment. This is further supported by the Declaration of Robert C. Bowers, in which he states that he did not make any sort of storage agreement with Steve Gilbert or anyone else at Black Iron.
The case law relied on by Black Iron is unavailing as the cases are factually distinguishable. Black Iron quoted Bush v. Lane for the proposition that "Where one performs for another, with the other's knowledge, a useful service of a character usually charged for, and the latter expresses no dissent, or avails himself of the service, a promise to pay the reasonable value of the services is implied." Bush v. Lane, 161 Cal.App.2d 278, 326 P.2d 640, 641 (Dist.
"When goods are delivered to a warehouseman for storage and no warehouse receipt is issued at the time of delivery, an implied contract of storage arises containing those terms required by law." George v. Bekins Van & Storage Co., 33 Cal.2d 834, 205 P.2d 1037, 1046 (1949). This case is also factually distinguishable because the goods were never delivered to Black Iron for storage. The Equipment was left on the Property when CML Metals sold its assets to Black Iron, and Black Iron immediately asked that it be removed, and then prevented Wells Fargo Rail from removing the Equipment.
The Court concludes as a matter of law that Black Iron did not have a warehouse lien for storage fees.
The third element of a conversion claim is that the interference deprives the person entitled to the chattel of the chattel's use or possession. When Black Iron sent the original "cease and desist" email on Aug. 20, 2015, it ended Wells Fargo Rail's permission to enter the Property and access the Equipment. This had the effect of depriving Wells Fargo Rail of the use and possession of the Equipment.
In March 2016, permission was again granted for Wells Fargo Rail to retrieve its Equipment. As before, Wells Fargo Rail contacted the same repair vendor who apparently needed a couple of months notice before it could dispatch its team of mechanics, technicians and their equipment to the Property. The repair vendor traveled from St. Louis, Missouri to the Property near Cedar City, Utah in mid-July 2016 with service vehicles, tools, and inventory to repair the Equipment and prepare it to be removed.
Before the repair vendor could complete its work, Black Iron conditioned permission to remove the Equipment upon payment of $23,058,000.
The Court notes that the case law involving conversion claims do not require the chattel's owner to go to extraordinary lengths to repossess the chattel. For example, in Lawrence v. Intermountain, Inc., 243 P.3d 508, 514 (Ct. App. Utah 2010), the Plaintiff converted the vehicle when he gave it to another individual, thus frustrating the Defendant's efforts to recover the vehicle. The court did not require the rightful owner to track down the second
In none of these cases did the court require the rightful owner to go to extraordinary lengths to regain the chattel. Payment of $23,058,000 would be an extraordinary requirement to satisfy. The payment of $100 per railcar per day requested by Black Iron is forty times higher than the rate in the storage agreement that Wells Fargo Rail had entered into during that same time period for Oregon Eastern Railroad to store the railcars for $2.50 per railcar per day.
"An interest in the property which does not carry with it a right to possession is not sufficient; the right to maintain the action may not be based upon a right to possession at a future time. In short, a conversion does not occur until the defendant exercises control over property that is inconsistent with the plaintiff's right of possession to that property." Fibro Tr., Inc. v. Brahman Fin., Inc., 974 P.2d 288, 296 (Utah 1999) (internal quotation marks and citation omitted). See also Jones v. Salt Lake City Corp., 78 P.3d 988, 992 (Ct. App. Utah 2003) (finding no conversion where the owner was legally forbidden to own firearms, and so was not entitled to immediate possession of the firearms).
Under the Leases, Wells Fargo Rail reserved the right to require CML Metals to return the Equipment upon default.
The Leases for the Equipment were not expressly dealt with in the Asset Purchase Agreement, and the parties appear to assume that the Leases with their rights and obligations did not pass to Black Iron. However, when the Lease was breached by CML Metals, Wells Fargo Rail had the
The Court finds that sufficient evidence was submitted to persuade the Court that Black Iron converted the Equipment when it denied Wells Fargo Rail access to the Property in order to retrieve the Equipment. Black Iron did not carry its burden to submit evidence that would raise a genuine issue of material fact on the elements of conversion.
Therefore, Wells Fargo Rail's motion for summary judgment should be GRANTED.
An order will be entered herewith.