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Summit Financial Resources L.P. v. Big Dog Enterprises Logistics

March 31, 2009

SUMMIT FINANCIAL RESOURCES L.P., PLAINTIFF,
v.
BIG DOG ENTERPRISES LOGISTICS, LLC, D/B/A FREIGHT HAULING LOGISTICS, THE HURSEY GROUP, LLC, AGED ASSETS, LLC, COMMERCIAL PROPERTY MANAGEMENT, LLC, HURSEY TECHNOLOGY, LLC, DAVID HURSEY, SUSAN HURSEY, AND PEERLESS-PREMIER APPLIANCE CO., DEFENDANTS.
PEERLESS PREMIER APPLIANCE CO., COUNTERCLAIM/INTERPLEADER PLAINTIFF,
v.
SUMMIT FINANCIAL RESOURCES L.P., COUNTERCLAIM/INTERPLEADER DEFENDANT.
PEERLESS PREMIER APPLIANCE CO., CROSS-CLAIM/INTERPLEADER PLAINTIFF,
v.
BIG DOG ENTERPRISES LOGISTICS, LLC, D/B/A FREIGHT HAULING LOGISTICS, DAVID HURSEY, THE HURSEY GROUP, LLC, AND CSX INTERMODAL, INC., ESTES EXPRESS LINES, OVERNIGHT TRANSPORT-UPS FREIGHT, LANDSTAR RANGER, AND SCHNEIDER NATIONAL CARRIERS, CROSS-CLAIM/INTERPLEADER DEFENDANTS.



The opinion of the court was delivered by: Michael J. Reagan United States District Judge

ORDER

REAGAN, District Judge

A. Introduction and Background

On March 15, 2007, Summit Financial Resources filed this action against Big Dog Enterprises Logistics, LLC, David Hursey, The Hursey Group, LLC, and Peerless-Premier Appliance Co. (Doc. 2). The background allegations are as follows. Big Dog did business as "Freight Hauling Logistics" and served as a freight broker, pairing shippers of goods with freight carriers. Essentially, Big Dog helped obtain carriers to transport goods for a particular shipper as needed. The shipper then tendered the goods to the carrier, along with the appropriate Bill of Lading. Upon completion of the work, the carrier submitted an invoice and the appropriate Bill of Lading to Big Dog, and Big Dog would in turn collect payment from the shipper. When the shipper submitted payment, Big Dog would take a commission and then remit payment to the carrier for their work. Peerless was one of the shippers that worked with Big Dog on a regular basis.

At some point, Big Dog found itself in need of additional cash flow. On October 31, 2006, Summit and Big Dog entered into a financing agreement, whereby Summit purchased Big Dog's accounts receivable at a reduced rate in exchange for working capital (Doc. 200-2, Exh. A). David Hursey and The Hursey Group guaranteed the performance of all obligations due from Big Dog under the agreement. Summit then sought to perfect its security interest on October 26, 2006 by filing a UCC Financing Statement with the Delaware Secretary of State (Doc. 199-2, Exh. A; Doc. 200-3, Exh. B). Therein, Summit identified the collateral, in part, as:

All accounts as defined in the Uniform Commercial Code, accounts receivable, . . . any rights to payment customarily or for accounting purposes classified as accounts receivable, and all rights to payment, proceeds or distributions under any contract of Debtor, presently existing or hereafter created, and all proceeds thereof (Doc. 200-3, Exh. B).

Big Dog then sent "Notices of Assignment" to its customers, informing them that it had assigned its accounts receivable to Summit and directing customers to make their payments to Summit. Unfortunately, Big Dog did not use the working capital to pay the carriers, and eventually defaulted on its loan with Summit. Thereafter, it was discovered that Big Dog had received payments from Peerless (and possibly other shippers), but failed to remit payment to the carriers. After learning of this, Peerless placed a "hold" on all payments it owed to Big Dog. According to the information in the record, Big Dog closed its doors in February 2007 and is no longer doing business.

In its complaint, Summit claimed that Big Dog breached the financing agreement and owes over $1 million of unpaid principal, and that Hursey and The Hursey Group are liable as guarantors. Additionally, Summit seeks recovery from Peerless of $436,603.06 owed to Big Dog for the provision of freight brokerage services. On March 6, 2008, Summit amended its complaint to name additional defendants, including First Bank, Aged Assets, and Hursey Entities (Doc. 217). Summit filed a second amended complaint on October 3, 2008 adding Susan Hursey as a defendant (Doc. 313).

David Hursey, The Hursey Group, and Big Dog (collectively referred to herein as "the Big Dog Parties") filed a cross-claim against Peerless, claiming that Big Dog should recover the $436,603.06 Peerless owes for freight brokerage services (Doc. 26). In their most recent answer to Summit's amended complaint, the Big Dog Parties have not altered their cross-claim against Peerless (Doc. 278).

Peerless admits that it incurred $414,980.56 in net charges for Big Dog's freight broker services between March 1, 2006 and February 28, 2007, but denies that it owes $436,603.06 (Doc. 24, ¶¶ 33 & 45). Fearing the prospect of having to pay both Summit and the various carriers, Peerless filed cross-claims and counterclaims for interpleader pursuant to FEDERAL RULE OF CIVIL PROCEDURE 22(Doc. 24). Peerless claims that it is an impartial stakeholder with no interest in the amount it owes, but that Summit and various carriers have competing claims to the stake. The stake consists only of those funds that Peerless owes Big Dog for freight brokerage services.*fn1 Peerless identified approximately thirty carriers that shipped goods to or from Peerless, as directed by Big Dog, none of which have been paid for their services Most of these carriers have been terminated from the action, either through default judgment (see Docs. 126 & 157) or else voluntary dismissal (see Docs. 105, 134, 197, 227, & 272). Only the following carriers remain as active parties to the interpleader action: CSX Intermodal, Inc., Estes Express Lines, Overnite Transport-UPS Freight, Landstar Ranger, and Schneider National Carriers. Each carrier has alleged a right to portions of the stake and filed counterclaims and cross-claims against Peerless and Big Dog for amounts owed for their services, whether included in the stake or not (Docs. 51, 78, 127, 146 & 239).*fn2

On June 20, 2007, Magistrate Judge Clifford J. Proud permitted Peerless to deposit $414,980.56, less the actual costs and expenses incurred for service of process (Doc. 76). Peerless then filed a bill of costs (Doc. 85) and deposited $409,980.56 with the Court (Doc. 98). This amount represents the stake in the interpleader action, even though Summit's underlying complaint and the Big Dog Parties's cross-claims allege that the total amount owed is $436,603.06. It is also worth noting that the individual carriers' claims to the stake, when aggregated, total $627,745.29.*fn3

On February 15, 2008, Summit filed a motion for summary judgment on the interpleader claims (Doc. 198). On March 31, 2008, CSX, Estes, Landstar, Overnite, and Schneider each filed cross-motions for summary judgment on the interpleader claims (Docs. 249, 255, 258, 263, & 282). Additionally, Schneider filed a motion for summary judgment on its counterclaims against Peerless (Doc. 250). Though all of the motions seeking summary judgment on the interpleader action were ripe as of May 2008, the Big Dog Parties neither sought summary judgment, nor did they file responsive briefs to the motions for summary judgment. Accordingly, it appears that the Big Dog Parties have abandoned any claim to the stake they may have previously asserted.*fn4

Having fully reviewed the parties' filings, the Court hereby GRANTS IN PART AND DENIES IN PART Summit's motion for summary judgment on the interpleader claims (Doc. 198), DENIES the motions for summary judgment on the interpleader claims filed by Schneider (Doc. 249), CSX (Doc. 255), Estes (Doc. 258), Landstar (Doc. 263), and Overnite (Doc. 282), and GRANTS Schneider's motion for summary judgment on its counterclaims against Peerless (Doc. 250).

B. Standards Governing Motions for Summary Judgment

Summary judgment is appropriate where there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. Breneisen v. Motorola, Inc., 512 F.3d 972 (7th Cir. 2008) (citing FED.R.CIV.P.56 (c), Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986), and Kreig v. Seybold, 481 F.3d 512, 516 (7th Cir. 2007)). Accord Levy v. Minnesota Life Ins. Co., 517 F.3d 519 (7th Cir. 2008).

In ruling on a summary judgment motion, this Court must view the evidence and all inferences reasonably drawn from the evidence in the light most favorable to the non-moving party. TAS Distributing Co., Inc. v. Cummins Engine Co., 491 F.3d 625, 630 (7th Cir. 2007); Reynolds v. Jamison, 488 F.3d 756, 764 (7th Cir. 2007).

The parties have filed cross-motions for summary judgment. The United States Court of Appeals for the Seventh Circuit has explained that when cross-motions for summary judgment are filed, "we look to the burden of proof that each party would bear on an issue of trial; we then require that party to go beyond the pleadings and affirmatively to establish a genuine issue of material fact." Diaz v. Prudential Ins. Co. of America, 499 F.3d 540, 643 (7th Cir. 2007) (quoting Santaella v. Metropolitan Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997)).

C. Analysis

The principal contention between the parties is whether or not the stake consists of "accounts receivable" in which Big Dog had rights. As discussed above, the stake includes those amounts Peerless would have undisputably paid to Big Dog for freight brokerage services performed by Big Dog, which include amounts for shipping services provided by the carriers. The carriers claim that, if Big Dog had ever received these amounts, Big Dog would have held them in trust for the carriers, retaining only its commissions. As a result, the carriers claim that Big Dog had no rights in these so-called "accounts receivable" whatsoever, and accordingly could not have pledged these amounts as collateral to Summit. According to the carriers, because Big Dog had no rights in the alleged collateral, neither does Summit.

Summit, on the other hand, claims that the funds were not to be held in trust by Big Dog, but instead, Big Dog paid all carriers from its own general funds. Summit claims that its perfected security interest in these "accounts receivable" gives Summit priority to the stake. Summit further claims that even if the funds were to be held in trust, Summit was a bona fide purchaser for value without notice of the trust. As such, Summit claims that it is entitled to the entirety of the stake.

As a preliminary matter, the Court notes that it appears uncontested that Summit has taken all steps necessary to perfect its security interest in Big Dog's accounts receivable. Under the Illinois Uniform Commercial Code, a security interest attaches when (1) the creditor gives value, (2) the debtor acquires rights in the collateral, (3) the creditor and debtor agree that the security interest shall attach to the collateral, and (4) the debtor signs a written security agreement that describes the collateral. 810 ILCS 5/9-203. A security interest in accounts receivable is perfected, and is therefore enforceable against third parties, when the financing statement has been filed and the security interest attaches. Chicago Dist. Council of Carpenters Pension Fund v. Tessio Const. Co., 2003 WL 21312664, *3 (N.D. Ill. June 4, 2003) (unpublished). "[A] security interest in after-acquired accounts receivable is perfected-assuming the appropriate UCC statement has already been filed-once the debtor completes the work and is entitled to collect payment for that work." Id. And once the security interest is perfected, the security interest has "priority over a conflicting unperfected security interest [and] . . . [c]onflicting perfected security interests . . . rank according to priority in time of filing or perfection." 810 ILCS 5/9-322(a).

It is obvious that Summit and Big Dog undertook the appropriate steps in perfecting Summit's security interest in Big Dog's accounts receivable. Summit agreed to purchase Big Dog's accounts receivable and did in fact pay Big Dog substantial consideration for these accounts. On October 26, 2006, the parties completed a financing statement (Doc. 200-2, Exh. A) and filed it with the Delaware Secretary of State, Big Dog's state of incorporation (Doc. 199-2, Exh. A; Doc. 200-3, Exh. B). Insofar as Big Dog acquired rights in any accounts receivable, Summit appears to have a perfected security interest.

1. The Portion of the Stake that Constitutes Commissions Owed to Big Dog by Peerless

Peerless has interpled funds that it claims are due and owing on the Big Dog accounts. Given that all parties agree that Peerless's payments to Big Dog included a small commission for each shipment (see Doc. 255-3, Exh. B, ΒΆΒΆ 14 & 16), it is obvious that at least a portion of the stake is comprised of commissions owed to Big Dog. There also appears to ...


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