Opinion
Civil No. 00-800-HA
August 20, 2002
OPINION AND ORDER
The history of this case already includes a grant of summary judgment in favor of defendants Dianne Lagrand, Deborah A. Kahl, and the Clarice Janet Kahl Trust, and a default judgment against defendant Brian Lagrand. Much of the background of the case was set forth in the court's Opinion and Order of February 19, 2002.
Presently before the court is a joint motion for summary judgment by defendants Ron Sutton and Sutton and Johnson (hereinafter Sutton), and Richard Schmunk and Quality Chain Corporation (hereinafter Schmunk). Defendant Schmunk has also filed a motion to strike his deposition testimony.
Schmunk's name is spelled incorrectly in the caption of the complaint, but will be spelled correctly herein.
BACKGROUND
The plaintiff has alleged claims for conversion against defendants Sutton and Schmunk because of their purchase of tire chains from Brian Lagrand, who purchased the chains from the plaintiff but failed to pay for them. According to the plaintiff, the value of the chains was approximately $700,000.
Lagrand was in the business of selling tire chains, and thus was a "merchant" within the meaning of ORS 72.1010 et seq. (The Oregon UCC). Plaintiff was quitting the tire chain business and selling its entire stock of chains. Therefore, its price to Lagrand for the inventory was substantially less than its offers to other merchants who were trying to buy only select portions of the inventory. In fact, Schmunk, a longtime purchaser of tire chains from the plaintiff, had attempted to purchase a part of the plaintiff's inventory but was unable to negotiate the purchase price he wanted.
The plaintiff ultimately sold the chains to Lagrand on credit. The chains were shipped beginning in approximately January, 2000. The last shipment appears to have been in late February. The plaintiff's decision to extend credit to Lagrand was based on the plaintiff's desire to get rid of its inventory of tire chains and an erroneous assessment of Lagrand's credit rating, although the plaintiff did not alter its conduct or perfect a security interest in the tire chain inventory when it discovered that Lagrand was not a good credit risk. The plaintiff was always aware that Langrand would be selling the chains prior to the time when payment was due.
Lagrand sold much of the tire chain inventory to Sutton and Schmunk, who also are "merchants" within the meaning of the Oregon UCC.
These sales began in March, 2000. Schmunk did not want to do business directly with Brian Lagrand, so Sutton purchased all of the chains from Lagrand and then resold them to Schmunk.
The plaintiff relies on the rumor of Brian Lagrand's poor reputation as evidence to support an inference that Sutton and Schmunk knew that Lagrand was not able to transfer good title to the chains. However, the record in this case is clear that Sutton was comfortable doing business with Lagrand. Further, although Schmunk testified in his deposition that he had heard "stories" of Lagrand's dishonesty, his only example was his getting into a fight with Lagrand twelve years earlier over what he characterized as a "frivolous lawsuit" which Lagrand had filed against Schmunk's business partner.
The lack of any first-hand knowledge of Brian Lagrand's dishonesty is inconsistent with Lagrand's reputation, but is nonetheless the record upon which the decision on the defendants' motion to dismiss must be based.
After the plaintiff was aware of its potential problems with Lagrand, Richard Schmunk called Greg Gillespie, the plaintiff's territorial sales manager. The call was probably made in March. It is undisputed that Schmunk initiated the contact. Gillespie recalls that he saw the Cooper chains that Schmunk was purchasing from Lagrand, was told that Schmunk was paying Lagrand by check for each shipment of chains, and had a discussion about the risk of dealing with Lagrand. Schmunk also spoke several times with Steve Coward, the plaintiff's manager of credit and collections, about direct sales between Cooper and Quality Chains. According to Coward, they spoke briefly about Lagrand during the first conversation, and Schmunk asked whether Cooper had made a UCC filing on the chains it had shipped to Lagrand. Coward told him that no filing had been made and no security interest had been perfected. Coward did not ask Schmunk about any chains he had purchased from Lagrand, although he knew that Schmunk had purchased some of the Lagrand chains. These calls were probably made in March and April. At some point Gillespie also reported his observations to Coward, and was sent back to Schmunk with an investigator. The investigator interviewed Schmunk and Sutton on May 1, 2000, at which time almost all of the chains had been received from Lagrand and nearly all were paid for. It is clear from the record that the plaintiff knew for more than a month that Sutton and Schmunk were purchasing chain from Lagrand, and probably had known for three months that Lagrand's credit rating was not what plaintiff originally thought. However, at no point did the plaintiff raise any concern to Schmunk about payment for the tire chains.
The investigator was first briefed on the problem with the Lagrand sale in late March, but did not interview Schmunk until one month later.
The plaintiff has submitted an affidavit from Richard Hagerty, who was Lagrand's business partner in the purchase of the chains from the plaintiff. Apparently Hagerty initiated a meeting with Sutton and Schmunk in mid April, 2000, which was after Sutton and Schmunk had started receiving shipments of chain from Lagrand. Hagerty told them that he did not believe that Lagrand intended to pay Cooper for the tire chains. According to Hagerty, he inferred this from a comment made by Lagrand. Sutton remembers that Hagerty "didn't know whether [Lagrand] was going to pay for them or not." Schmunk remembers the meeting, but was of the opinion that Hagerty was asking them if they were paying Lagrand for the chains because Hagerty was not seeing any of the money.
Hagerty is a named defendant in this case, and the claims against him are still pending.
STANDARD OF REVIEW
A party is entitled to summary judgment as a matter of law if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c); Bahn v. NME Hosp's, Inc., 929 F.2d 1404, 1409 (9th Cir.) cert. denied, 112 S.Ct. 617 (1991).
The moving party must carry the initial burden of proof. The party meets this burden by identifying portions of the record on file which demonstrate the absence of any genuine issue of material fact. Celotex Corp. V. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 2552 (1986). Once the initial burden is satisfied, the burden shifts to the opponent to demonstrate through the production of probative evidence that there remains an issue of fact to be tried. Id. The facts on which the opponent relies must be admissible at trial, although they need not be presented in admissible form for the purposes of opposing the summary judgment motion. Id.
The court must view the evidence in the light most favorable to the non-moving party. Bell v. Cameron Meadows Land Co., 669 F.2d 1278, 1284 (9th Cir. 1982). All reasonable doubt as to the existence of a genuine issue of fact should be resolved against the moving party. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir. 1976). The inferences drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Valadingham v. Bojorquez, 866 F.2d 1135, 1137 (9th Cir. 1989). Where different ultimate inferences may be drawn, summary judgment is inappropriate. Sankovich v. Insurance Co. Of North America, 638 F.2d 136, 140 (9th Cir. 1981).
Deference to the non-moving party does have some limit. The non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e) (emphasis added). The "mere existence of a scintilla of evidence in support of the plaintiff's position would be insufficient." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986). Therefore, where "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986).
DISCUSSION 1. Motion to Strike
As a preliminary matter, defendant Schmunk's motion to strike is denied. There is no clear evidence that plaintiff's counsel was aware that Schmunk was represented in this matter, and there is no prejudice to Schmunk.
2. Motion for Summary Judgment
Conversion is the intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel. Mustola v. Toddy, 253 Or. 658, 663 (1969). Under the Oregon UCC, which governs this case, any "entrusting of possession of goods to a merchant who deals in goods of that kind gives the merchant power to transfer all rights of the entruster to a buyer in the ordinary course of business." ORS 72.4030(3). Entrusting includes
any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting of the possessor's disposition of the goods have been such as to be larcenous under the criminal law.
The plaintiff rightly concedes that Lagrand would be considered a merchant dealing in chains, and on the facts of this case means that plaintiff entrusted the chains to Lagrand, who was able in turn to transfer good title to the chains. However, the plaintiff argues that Sutton and Schmunk were not buyers in the ordinary course of business, and thus they could not purchase good title to the chains.
A "buyer in ordinary course of business" is "a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person . . . in the business of selling goods of that kind." ORS 71.2010(9). Good faith "in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.
The plaintiff argues first that Sutton and Schmunk did not purchase the chains "in the ordinary course" because they inspected the chains at Lagrand's warehouse prior to purchase and also because Sutton had not ever bought that quantity of tire chain before. However, all parties to the transaction were merchants and these arguments by the plaintiff cannot support an inference that the chains were not purchased in the ordinary course. Oregon law takes an expansive view of what can pass as the ordinary course of business. Thorn v. Adams, 125 Or. App. 257 (1993). A merchant's largest purchase or a merchant buying goods while inspecting those goods is not out of the ordinary.
The plaintiff also offers a list of circumstances to support its argument that Sutton and Schmunk were not honest in fact and did not observe reasonable commercial standards of fair dealing in the trade. However, the plaintiff relies Lagrand's poor reputation to bind these circumstances together as though Lagrand's reputation put Sutton and Schmunk on notice that some illegal activity was occurring. The evidence in this record contains undisputed evidence that Sutton had never suffered any loss dealing with Lagrand, and Schmunk's only example of Lagrand's bad reputation consisted of a fight and what Schmunk characterized as a frivolous lawsuit.
The plaintiff argues that the meeting with Hagerty and the price paid for the chains give ample support to the inference of bad faith. However, the Hagerty meeting was not what the plaintiff wants it to be. It is clear that Hagerty did not know whether Lagrand was going to pay for any or all of the chains, regardless of his suspicions. He was trying to find out if Sutton and Schmunk were paying Lagrand because Lagrand was not giving any of the money to Hagerty. Further, any probative value of this evidence is completely negated by the undisputed evidence that Schmunk took it upon himself to confirm that Lagrand had good title to the chains and that the plaintiff did not have any security interest in the chains.
The prices charged by Lagrand were not suspicious when one considers the quantity that he had purchased from the plaintiff. The plaintiff's evidence, when considered as a whole, does not support an inference that Schmunk and Sutton were not buyers in the ordinary course of business. The goal of the Oregon Uniform Commercial Code is to free the marketplace and promote commerce. "The protection of property rights . . . is not an ideal of the commercial law." Thorn, 125 Or. App. at 262.
CONCLUSION
Defendant Richard Schmunk's motion (#181) to strike is denied. The defendants' motion (#165) for summary judgment is granted.