Opinion
Case No. 2:04-CV-00538.
October 6, 2005
OPINION AND ORDER
Plaintiff Fifth Third Bank (Central Ohio) ("Fifth Third") brings this action alleging that it is entitled, by reason of a perfected security interest, to collect the accounts receivable and IBM/Promotional credits and payments ("Receivables") belonging to its borrower, 3X Corporation ("3X"), which filed for relief under Chapter 7 of the Bankruptcy Code on November 25, 2003. Fifth Third alleges that Defendant Avnet, Inc. ("Avnet"), has collected a substantial portion of the Receivables in contravention of that security interest. This matter is before the Court on Avnet's Motion for Leave to File Amended Answer and Affirmative Defenses (Doc. # 36), on Avnet's Motion for Leave to File Counterclaim (Doc. # 37) and, with the consent of the parties, 28 U.S.C. § 636(c), on the parties' cross motions for summary judgment (Doc. ## 24, 38). For the reasons that follow, Avnet's Motion for Leave to File Amended Answer and Affirmative Defenses, Avnet's Motion for Leave to File Counterclaim and Avnet's Motion for Summary Judgment are DENIED and Fifth Third's Motion for Summary Judgment is GRANTED.
I. BACKGROUND
Fifth Third is an Ohio banking entity formed under the laws of the State of Ohio. (Complaint at ¶ 1). Fifth Third is the successor in interest, by merger, to several banking entities including, but not limited to, "Fifth Third Bank, Central Ohio." (Notice of Removal, Exhibit B). Fifth Third Bank, Central Ohio, was merged out of existence on December 28, 2000, when a Certificate of Merger was filed with the Secretary of State of Ohio. Id. As noted on the Certificate of Merger, the name of the surviving entity was "Fifth Third Bank, Western Ohio," which immediately changed its name as a result of that merger to "Fifth Third Bank." ( Id., Exhibit C).
On November 4, 2002, Fifth Third renewed a debt with 3X that had been originally created prior to the bank merger. (Affidavit of David Peura at ¶¶ 4, 5 ("Peura Aff."), attached as Exhibit A to Fifth Third's Motion For Summary Judgment.) Specifically, Fifth Third and 3X renewed a revolving note in the amount of $1,400,000.00 and a term note in the amount of $464,333.36 (jointly referred to as "Notes"). (Peura Aff. ¶ 4 and Exhibits A-1 and A-2 attached thereto).
Mr. Peura is the Vice President of Fifth Third Bank and is directly responsible for the collection of the obligations of 3X to Fifth Third. (Peura Aff. ¶¶ 1, 2).
In conjunction with the renewal of the Notes on November 4, 2002, 3X executed a Security Agreement granting Fifth Third a security interest in all of its assets including, but not limited to, all accounts receivable, all contracts and all contract rights. (Peura Aff. ¶ 5 and Exhibit A-3 attached thereto). The Security Agreement denominates the lender as "Fifth Third Bank." An Ohio Uniform Commercial Code ("U.C.C.") Financing Statement identifying Fifth Third Bank, Central Ohio, as the lender was filed in the Office of the Ohio Secretary of State on August 8, 2000, i.e., prior to the date this entity was merged out of existence. (Peura Aff. ¶ 8 and Exhibit A-4 attached thereto).
On March 17, 2003, Avnet and 3X executed a Receivables Agreement by which 3X conveyed all of its right, title and interest in the Receivables to Avnet. (Affidavit of Gary Williams at ¶¶ 11, 12 ("Williams Aff."), attached as the Exhibit A to Avnet's Motion for Summary Judgment and Exhibit B attached thereto). The essence of the Receivables Agreement provides for the sale of 3X's Receivables to Avnet on a transaction-by-transaction basis. (Williams Aff. ¶ 8).
Gary Williams is the Vice President of Finance and Operations for Avnet and has supervisory control over the transactions between Avnet and 3X. (Williams Aff. ¶¶ 3, 4).
In November 2003, 3X filed for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court, Southern District of Ohio, Eastern Division. (Peura Aff. ¶ 9). At the time of that filing, 3X had accounts receivable with a stated value totaling approximately $1,040,739.00 and was entitled to IBM/Promotional credits and payments of an unknown value. (Peura Aff. ¶ 10).
Fifth Third complains that Avnet has continued to collect money from the Receivables in contravention of Fifth Third's lien. (Peura Aff. ¶ 11). Fifth Third, denominating itself as "Fifth Third Bank (Central Ohio)," initiated this action in state court seeking damages resulting from Avnet's alleged wrongful collection and retention of funds. Fifth Third brought claims for relief based on conversion and unjust enrichment requesting that the court require Avnet to provide an accounting and award Fifth Third compensatory and punitive damages. On June 21, 2004, Avnet removed the action to this Court based on diversity jurisdiction.
On July 12, 2004, Avnet filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. # 7). In that motion, Avnet argued that "Fifth Third Bank (Central Ohio)" lacked standing to sue because the complaint had been filed in the name of a non-existent legal entity and because its claims are based on promissory notes that were purportedly executed almost two years after "Fifth Third Bank, Central Ohio," ceased to exist.
On November 12, 2004, this Court denied in part and granted in part Avnet's motion to dismiss. Specifically, the Court held that Fifth Third did not lack standing to sue and that Fifth Third's causes of action for unjust enrichment and for accounting did not state claims upon which relief could be granted. (Doc. # 20).
II. MOTION FOR LEAVE TO AMEND AND MOTION FOR LEAVE TO FILE
On July 8, 2005, Avnet filed a Motion for Leave to File Amended Answer and Affirmative Defenses. (Doc. # 36). On that same day, Avnet also filed a Motion for Leave to File Counterclaim. (Doc. # 37).
In its Motion for Leave to File Amended Answer and Affirmative Defenses, Avnet seeks to assert the affirmative defenses of comparative negligence and of contributory negligence. In its Motion for Leave to File Counterclaim, Avnet seeks to assert a claim of conversion based on Ohio law.
Rule 15(a) provides, in relevant part: "A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served. . . . Otherwise a party may amend the party's pleading only by leave of court . . . and leave shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). "The decision as to whether justice requires the amendment is committed to the district court's sound discretion." Moore v. City of Paducah, 790 F.2d 557, 559 (6th Cir. 1986). A court may refuse to allow the amendment if it finds undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies in the pleading, undue prejudice to the opposing party or futility of the amendment. Foman v. Davis, 371 U.S. 178, 182 (1962); Robinson v. Michigan Consol. Gas Co., 918 F.2d 579, 591 (6th Cir. 1990). In the absence of any of these factors, a party should be afforded the opportunity to amend its pleading. Foman, 371 U.S. at 182.
"If a proposed amendment would be vulnerable to a motion to dismiss or to strike, `it would be an idle move for the Court to allow an amendment over the objection of the opposing party who could simply make a formal motion to dismiss or strike after leave to amend is granted.'" Prebble v. Hinson, 825 F. Supp. 185, 186 (S.D. Ohio 1993) (citations omitted). See also Thiokol Corp. v. Dep't of Treasury, State of Michigan, Revenue Div., 987 F.2d 376, 382-83 (6th Cir. 1993).
In the instant case, Avnet's motions are untimely. This Court's Preliminary Pretrial Order (Doc. # 16) required that any amendments to the pleadings were to be filed within twenty-one days following resolution of a then-pending motion to dismiss. The motion to dismiss was resolved on November 12, 2004. (Doc. # 20). Thus, this Court's Order required that any amendments to the pleadings be filed by December 3, 2004. Nothing stated in Avnet's July 8, 2005, motions — filed seven months after the date established for amendments and just five days prior to Fifth Third's memorandum contra Avnet's motion for summary judgment — convinces the Court that it should overlook the previously set date and allow the amendments to the answer and the addition of a counterclaim.
In addition, the proposed counterclaim and affirmative defenses are legally insufficient. First, Avnet's proposed amendment to its answer seeks to assert the affirmative defenses of comparative negligence and contributory negligence. Fifth Third, however, has alleged that Avnet engaged in the intentional tort of conversion. See Schafer v. RMS Realty, 138 Ohio App.3d 244, 301 (Summit County 2000) (conversion is considered an intentional tort under Ohio law). "[C]ontributory negligence and comparative negligence are no defense to a[n] . . . intentional tort." Lambert v. Shearer, 84 Ohio App. 3d 266, 275 (Franklin County 1992) (citing Schellhouse v. Norfolk W. Ry. Co., 61 Ohio St.3d 520, 525 (1991)); see also Bank One of Ohio v. Brown, 22 Ohio App.3d 82, 83 (Summit County 1985) (contributory negligence cannot stand as a defense to conversion). Consequently, these two defenses are not colorable under Ohio law in a cause of action for conversion.
Second, Avnet's proposed counterclaim, which seeks to assert a claim of conversion, merely seeks affirmative relief on the same theories and facts underlying the defense pursued by Avnet from the outset. For the reasons stated infra, this Court concludes that Avnet's defense to Fifth Third's claim of conversion is legally insufficient. It follows, then, that Avnet cannot prevail on a claim of conversion against Fifth Third.
Accordingly, Avnet's Motion for Leave to File Amended Answer and Affirmative Defenses (Doc. # 36) and Avnet's Motion for Leave to File Counterclaim (Doc. # 37) are both denied.
III. SUMMARY JUDGMENT MOTIONS
Both parties have moved for summary judgment on Fifth Third's remaining conversion claim. The standard for summary judgment is well established. This standard is found in Fed.R.Civ.P. 56, which provides in pertinent part:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c). Pursuant to Rule 56(c), summary judgment is appropriate if "there is no genuine issue as to any material fact. . . ." In making this determination, the evidence must be viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). Summary judgment will not lie if the dispute about a material fact is genuine, "that is, if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, summary judgment is appropriate if the opposing party fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The mere existence of a scintilla of evidence in support of the opposing party's position will be insufficient; there must be evidence on which the jury could reasonably find for the opposing party. Anderson, 477 U.S. at 251.
In its Motion for Summary Judgment, Avnet argues that the Receivables Agreement between it and 3X effectively either sold or assigned the Receivables to Avnet in such a manner that Fifth Third's security interest did not attach to them. Because Fifth Third lacked a security interest in the Receivables, Avnet concludes that Fifth Third cannot prevail on its claim for conversion under Ohio law. Additionally, Avnet argues that, because Fifth Third's conversion claim must fail, so must its claim for punitive damages.
In its Motion for Summary Judgment, Fifth Third contends that Avnet's collection of the Receivables contravenes its security interest in those Receivables and constitutes conversion under Ohio law. Fifth Third alleges that because it has a valid, subsisting and perfected security interest in 3X's after acquired property, including the Receivables, Avnet has improperly collected and retained the funds from the Receivables. In addition, Fifth Third alleges that it is entitled to punitive damages because Avnet's wrongful collection of the Receivables was intentional and malicious.
A. Conversion
The tort of conversion is defined as "a distinct act of dominion wrongfully exercised over another's personal property in denial of his right or inconsistent therewith." LB Folding Co., Inc. v. Gergel-Kellem Corp., 94 Ohio App.3d 511, 519 (Cuyahoga County 1994) (quoting 18 Ohio Jurisprudence 3d (1980), "Conversion and Replevin," § 1). "Thus, the elements required for conversion are: (1) a defendant's exercise of dominion or control; (2) over a plaintiff's property; and (3) in a manner inconsistent with the plaintiff's rights of ownership." American Chem. Soc'y v. Leadscope, Inc., 2005 Ohio 2557, Franklin App. No. 04AP-305, 2005 Ohio App. LEXIS 2428, at *24 (May 24, 2005) (citing Cozmyk Enters. v. Hoy, Franklin App. No. 96APE 10-1380, 1997 Ohio App. LEXIS 2864 (June 30, 1997)).
In the case sub judice, there is no dispute that Avnet has exercised dominion and control over the Receivables by regularly collecting funds associated with those Receivables. Thus, the issues before the Court are whether Fifth Third can establish the second and third elements in an action for conversion under Ohio law, i.e., does Fifth Third possess rights to the Receivables and, if so, did Avnet exercise dominion and control over the Receivables in a manner inconsistent with Fifth Third's rights. Both parties agree that this issue is governed by the Ohio Uniform Commercial Code.
1. Which party owns the rights to the Receivables?
The parties disagree as to (a) whether Fifth Third has any interest at all in the Receivables, (b) whether Fifth Third's security interest attached to the Receivables, and (c) whether Fifth Third's ownership interest in the Receivables is void.
a. Fifth Third has a valid, perfected security interest in the Receivables.
Avnet argues that Fifth Third has no interest whatsoever in the Receivables. Avnet presents uncontroverted evidence that, on March 17, 2003, Avnet and 3X executed a Receivables Agreement conveying the Receivables from 3X to Avnet. (Williams Aff. ¶¶ 11, 12 and Exhibit B attached thereto). Avnet contends that, because of the plain language of the Receivables Agreement executed between it and 3X, Fifth Third cannot hold any legal interest whatsoever in the Receivables. The Court disagrees.
Fifth Third's actions before the execution of the Security Agreement between Avnet and 3X were legally sufficient to create a valid, perfected security interest in 3X's Receivables. Specifically, Fifth Third presents uncontroverted evidence that 3X is indebted to Fifth Third for nearly two million dollars, as evidenced by the Notes. (Peura Aff. ¶ 4 and Exhibits A-1 and A-2 attached thereto). In conjunction with the execution/renewal of the Notes on November 4, 2002, 3X executed and delivered to Fifth Third a Security Agreement. (Peura Aff. ¶ 5 and Exhibit A-3 attached thereto).
Pursuant to the terms and conditions of the Security Agreement, 3X granted a security interest to Fifth Third in all its assets including, but not limited to, the Receivables. (Peura Aff. ¶ 6 and Exhibit A-3 at Section 2 attached thereto). Fifth Third perfected its security interest by filing a U.C.C. Financing Statement in the Office of the Ohio Secretary of State. (Peura Aff. ¶ 8 and Exhibit A-4 attached thereto); see also Ohio Revised Code ("O.R.C.") § 1309.312(A) (governing the perfection of a security interest in accounts receivable).
Moreover, a security interest in proceeds qualifies as a perfected security interest if the security interest in the original collateral was perfected. O.R.C. § 1309.315(A)(1). Thus, Fifth Third's perfected security interest in the Receivables also qualifies as a perfected security interest in the proceeds Avnet is collecting in conjunction with the Receivables.
Thus, the Court concludes that Fifth Third's actions were legally sufficient to create a valid, perfected security interest in the Receivables, and that Fifth Third holds, by operation of law, a perfected security interest in the proceeds of the Receivables.
b. Avnet's purchase of the Receivables did not prevent Fifth Third's security interest from attaching.
Avnet argues that the Receivables were transferred by 3X to Avnet in such a manner that Fifth Third's security interest did not attach to them, thereby rendering Avnet the owner of the Receivables. Avnet cites to no case law or statute to support this contention; Avnet simply declares that the "plain language" of the Receivables Agreement between it and 3X prevented Fifth Third's security interest from attaching. The Court disagrees.
Fifth Third presents uncontroverted evidence that on November 4, 2002, 3X executed and delivered to Fifth Third a Security Agreement creating in Fifth Third a security interest in the Receivables which was perfected by filing a U.C.C. Financing Statement. (Peura Aff. ¶¶ 4, 5, 8). Fifth Third also presents uncontroverted evidence that the Security Agreement in effect between it and 3X prohibited 3X from selling or transferring a security interest in the Receivables without the express consent of Fifth Third. (Peura Aff. at ¶ 7 and Exhibit A-3 at Section 6(k) attached thereto). Further, Ohio's Uniform Commercial Code, O.R.C. § 1309.315, makes clear "that a security interest continues in collateral unless the secured party authorizes the disposition free of the security interest." RFC Capital Corp. v. EarthLink, Inc., 2004 Ohio 7046, Franklin App. No. 03AP-735, 2004 Ohio App. LEXIS 6507, at *34 (December 23, 2004) (citations omitted). 3X, however, sold or transferred a security interest in the Receivables without the express consent of Fifth Third.
On March 17, 2003, 3X entered into the Receivables Agreement with Avnet whereby it purportedly sold or transferred all rights in the Receivables to Avnet. (Williams Aff. ¶¶ 11, 12). Because 3X had previously granted all rights in the Receivables to Fifth Third, 3X's action rendered Avnet a "third party purchaser." A third party purchaser lawfully obtains another's collateral only if the debtor, here 3X, is authorized to sell it. See RFC Capital Corp. 2004 Ohio 7046, Franklin App. No. 03AP-735, 2004 Ohio App. LEXIS 6507, at *40-42 (citations omitted). Simply put, a seller can sell only what it owns.
In the instant case, 3X sold/transferred all rights to the Receivables twice — first to Fifth Third and later to Avnet. Because 3X had no right to sell what at that point belonged to Fifth Third, Avnet's purchase of the Receivables was not a "lawful" purchase. Under Ohio law, because "it is the [third party purchaser] who has the power to ascertain any potential conditions prior to sale and the status of those conditions" it is the third party purchaser who "must bear the consequences of purchasing another's collateral." Id. at *39 (citing Northern Commercial Co. v. Cobb, 778 P.2d 205, 209 (Alaska 1989) ("The purchaser can easily protect itself by checking the records for any security interests in the item, requiring proof of consent, and making payment directly to the creditor.").
Thus, the Court concludes that Fifth Third's valid, perfected security interest in the Receivables was in no way vitiated by the Receivables Agreement executed between Avnet and 3X. By its filing of the U.C.C. Financing Statement with the office of the Ohio Secretary of State, Fifth Third properly put all potential future purchasers of the Receivables on notice that it possessed an interest in the Receivables. Avnet's subsequent purchase of the Receivables did not divest Fifth Third of its prior, superior, interest.
c. Fifth Third's security interest is not void.
Alternatively, Avnet argues that, even if the Court concludes that the Receivables are subject to the collateral of "Fifth Third Bank," the security interest in the Receivables is void because the plaintiff in this matter has failed to establish that it has succeeded to the rights of "Fifth Third Bank." The Court disagrees.
Avnet made this same argument in its motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. # 7). In that motion, Avnet argued that "Fifth Third Bank (Central Ohio)" lacked standing to sue because the complaint was filed in the name of a non-existent legal entity and because its claims are based on promissory notes that were purportedly executed almost two years after "Fifth Third Bank, Central Ohio" ceased to exist. On November 12, 2004, this Court rejected that argument:
There is no evidence, or even a suggestion, that the action was instituted without authority or on behalf of anyone but a proper party. The fact that Plaintiff Fifth Third Bank referred to itself in the caption and one paragraph of the complaint as "Fifth Third Bank (Central Ohio)" does not divest Plaintiff of standing or this Court of jurisdiction.
(Doc. # 20 at 11).
Although Avnet's motion to dismiss was couched in terms of jurisdiction, the Court's reasoning in denying that motion applies equally to the issue currently before it. The fact that Fifth Third has referred to itself by different names over the course of time and in the Notes and/or the U.C.C. Financing Statement is not determinative. The official comment to O.R.C. § 1309.39 indicates that Ohio has adopted a system of notice filing. At the time Fifth Third's Financing Statement was filed in August 2000, the formal requirements for a Financing Statement were set out in O.R.C. § 1309.39(A):
A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral.
In July 2001, O.R.C. Chapter 1309 was substantially reorganized and re-numbered. The current statute, O.R.C. § 1309.502(A) provides:
. . . [A] financing statement is sufficient only if it:
1. Provides the name of the debtor;
2. Provides the name of the secured party or a representative of secured party; and
3. Indicates the collateral covered by the financing statement.
In the case sub judice, there is no dispute that the original Financing Statement met these requirements. Avnet argues, however, that the security interest originally vested in Fifth Third Bank, Central Ohio, did not remain with plaintiff Fifth Third because, after the Financing Statement was filed, Fifth Third Bank, Central Ohio, was merged out of existence. However, plaintiff Fifth Third is indisputably the successor in interest to Fifth Third Bank, Central Ohio. Moreover, Ohio law provides that, in the event of a corporate merger, "[t]he surviving or new entity possesses all assets and property . . . of each constituent entity. . . ." O.R.C. § 1701.82(A)(3). Moreover, a Financing Statement remains effective despite minor errors unless the errors "makes the Financing Statement seriously misleading." O.R.C. § 1309.506(A); Steego Auto Parts Corp. v. Markey, 2 Ohio App.3d 200, 202 (Fulton County 1981).
Steego is instructive: The plaintiff in that case, Steego Auto Parts Corporation, claimed that its lien against the defendant, Roger Markey, was superior to BancOhio's lien against the same debtor because BancOhio's U.C.C. Financing Statement was rendered ineffective when BancOhio, having changed its name from Peoples Savings Bank to BancOhio, left the name Peoples Savings Bank on the Financing Statement. The Steego court concluded that the Financing Statement was nevertheless sufficient to secure BancOhio's lien:
Inaccuracies in a financing statement do not make it ineffective unless the errors are seriously misleading. In the case sub judice, . . . Peoples Savings Bank Co., was succeeded in interest by BancOhio. Plaintiff-appellant [Steego] has not shown that . . . any inquiry sent to the secured creditor under the name of Peoples Savings Bank would not have provided the necessary information. Financing statements are filed under the debtor's name and any change or error in the secured party's name would not hinder the search of the records. The financing statements met the requirements of R.C. 1309.39(A) [now § 1309.502(A)], and provided the necessary notice to any party searching the record and, as such, were not seriously misleading.Id. at 202.
As in Steego, the U.C.C. Financing Statement in this case was rendered technically inaccurate when "Fifth Third Bank, Central Ohio," was succeeded in interest by "Fifth Third Bank." However, "[i]naccuracies in a financing statement do not make it ineffective unless the errors are seriously misleading." Id. In the instant case, the Court concludes that the corporate merger and Fifth Third's name change did not render its Financing Statement ineffective because those events are simply not "seriously misleading" as to the identity of the debtor or secured party.
Moreover, as the Steego court points out, Financing Statements are filed under the debtor's name and any change in Fifth Third's name would not have impeded a search for creditors of 3X. A search of the public record would have clearly indicated that Fifth Third had a subsisting, perfected security interest in the Receivables. Accordingly, the Court concludes that Fifth Third's security interest is not void.
d. The Court concludes that Fifth Third has established the second element of conversion under Ohio law.
The second element of a cause of action for conversion under Ohio law requires that a party establish that it owned or had a legally sufficient interest in the property at issue. American Chem. Soc'y v. Leadscope, Inc., 2005 Ohio App. LEXIS 2428, at *24. Based on the foregoing, the Court concludes that, even when viewing the facts in the light most favorable to Avnet, Fifth Third has proven that it has a perfected security interest in the Receivables, that 3X's subsequent sale or transfer of the Receivables to Avnet did not vitiate Fifth Third's previously attached and perfected security interest and that Fifth Third's security interest is not void because of the corporate merger or changes in Fifth Third's name.
2. Is Avnet's exercise of dominion and control over the Receivables inconsistent with Fifth Third's rights in the Receivables?
The parties disagree as to (a) whose security interest first perfected, and as to (b) whose security interest has priority.
a. Avnet's interest in the Receivables was automatically perfected, but that does not mean that its interest is superior to Fifth Third's interest.
Avnet argues that its interest in the Receivables is superior to Fifth Third's interest because Avnet's interest was automatically perfected. Avnet cites no case law or statutory authority for the proposition that a security interest entitled to automatic perfection is likewise entitled to priority over an earlier perfected security interest.
The Court, however, agrees with Avnet's contention that its security interest was automatically perfected. See O.R.C. § 1309.309(C) (automatic perfection of a security interest via the sale of receivables); O.R.C. § 1309.309(B) (automatic perfection of a security interest via the assignment of receivables). Consequently, Avnet is vested with a security interest in the Receivables that automatically perfected upon attachment, i.e. on March 17, 2003, the date the Receivables Agreement was executed.
Automatic perfection, however, does not necessarily translate into priority. Thus, the Court must consider the law related to conflicting security interests to ascertain which party's security interest has priority.
b. Fifth Third's security interest has priority over Avnet's security interest.
Both Avnet and Fifth Third possess perfected security interests in the Receivables. Priority of a security interest dates from the earlier of the time a filing covering the collateral is first made or the security interest is first perfected. See O.R.C. § 1309.322(A)(1).
In the instant case, Fifth Third's security interest in the Receivables was perfected on August 8, 2000, by Fifth Third's filing of a U.C.C. Financing Statement. (Peura Aff. ¶ 8 and Exhibit A-4 attached thereto). Avnet's security interest in the Receivables automatically perfected on March 17, 2003. O.R.C. § 1309.309. Consequently, Fifth Third's security interest in the Receivables and the proceeds of the Receivables takes priority over Avnet's security interest in the Receivables.
c. The Court concludes that Fifth Third has established the third element of conversion under Ohio law.
The third element of a cause of action for conversion under Ohio law requires that a plaintiff establish that the defendant exercised control or dominion over the plaintiff's property in a manner inconsistent with the plaintiff's rights. American Chem. Soc'y v. Leadscope, Inc., 2005 Ohio App. LEXIS 2428, at *24. The Court concludes that, even when viewing the facts in the light most favorable to Avnet, Fifth Third has established that Avnet's collection of funds associated with the Receivables is inconsistent with Fifth Third's rights in the Receivables.
3. Fifth Third has established that Avnet converted its property.
The Court concludes that there is no genuine issue of material fact as to whether Fifth Third established conversion of its property by Avnet and, accordingly, Fifth Third is entitled to summary judgment on this issue.
B. Punitive Damages
Fifth Third asks this Court to award it punitive damages for Avnet's wrongful collection of proceeds in connection with the Receivables because Avnet acted knowingly and intentionally. Punitive damages are private fines levied in civil cases to punish reprehensible conduct and to deter its future occurrence. Gertz v. Robert Welch, Inc., 418 U.S. 323, 350 (1974). "[P]unitive damages are specifically designed to exact punishment in excess of actual harm to make clear that the defendant's misconduct was especially reprehensible." Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 54 (1991). Punitive damages are not recoverable from a defendant under Ohio law unless "[t]he actions or omissions of that defendant demonstrate malice, aggravated or egregious fraud, oppression, or insult. . . ." O.R.C. § 2315.21(B)(1). See Aetna Cas. and Sur. Co. v. Leahey Constr. Co., 219 F.3d 519, 545 (6th Cir. 2000); Virostek v. Liberty Township Police Department/Trustees, 14 Fed. Appx. 493, 508 (6th Cir. 2001); Columbus Finance, Inc. v. Howard, 42 Ohio St.2d 178, 183 (1975) (holding that an award of punitive damages is available upon a finding of actual malice on the part of the wrongdoer).
The Supreme Court of Ohio has held that actual malice may be demonstrated by showing (1) that a party's misconduct is characterized by hatred, ill-will or a spirit of revenge, or (2) that the defendant has consciously disregarded the rights and safety of another person, subjecting that person to substantial harm. Preston v. Murty, 32 Ohio St.3d 334, 336 (1987).
The Court concludes that Avnet's wrongful collection of proceeds related to the Receivables was not done with actual malice. Fifth Third offers no evidence that Avnet did anything other than collect a debt, which it believed — albeit mistakenly — that it had secured by the Receivables Agreement. Accordingly, an award of punitive damages against Avent is not warranted.
IV. CONCLUSION
Based on the foregoing, the Court DENIES Avnet's Motion for Leave to File Amended Answer and Affirmative Defenses (Doc. # 36), DENIES Avnet's Motion for Leave to File Counterclaim (Doc. # 37), DENIES Avnet's Motion for Summary Judgment (Doc. # 24) and GRANTS Fifth Third's Motion for Summary Judgment (Doc. # 38).
Remaining for resolution is the issue of Fifth Third's damages. A status conference will be scheduled forthwith.
IT IS SO ORDERED.