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Highway Commercial Services, Inc v. Midwest Trailer Repair

May 16, 2011

HIGHWAY COMMERCIAL SERVICES, INC., PLAINTIFF,
v.
MIDWEST TRAILER REPAIR, INC., DEFENDANT.



The opinion of the court was delivered by: Magistrate Judge Michael T. Mason

MEMORANDUM OPINION AND ORDER

Michael T. Mason, United States Magistrate Judge.

This is an action for breach of contract and associated or alternative claims brought by plaintiff Highway Commercial Services, Inc. ("Highway Commercial") against defendant Midwest Trailer Repair, Inc. ("Midwest Trailer"). Highway Commercial's claims arise out of an alleged agreement for it to purchase certain semi-trailers owned by Midwest Trailer and subject to individual lease agreements between Midwest Trailer and FreightStar Landlines, Inc. ("FreightStar"), a third party. Highway Commercial contends that, upon purchase of those trailers, it would become the lessor of those trailers to FreightStar instead of Midwest Trailer. Highway Commercial argues Midwest Trailer agreed to re-title the trailers at Highway Commercial's direction, or otherwise had a legal duty to protect its interest in the trailers.

For its part, Midwest Trailer denies that it ever had any duty to re-title the trailers in Highway Commercial's name, or to list the first lien holder on the titles. After receiving the purchase price for the trailers, Midwest Trailer re-titled the trailers in the name of FreightStar. Thereafter, FreightStar pledged the trailers as collateral on a loan to third party Plaza Bank. Plaza Bank repossessed the trailers, sold some of them, and applied the sale proceeds to the unpaid balance due on its loan to FreightStar. Ultimately, FreightStar ceased doing business and its owner Michael Zitis filed a petition for bankruptcy.

This Court conducted and concluded a bench trial on November 17, 2010. The Court has considered the testimony of the witnesses who testified at the trial, the deposition excerpts of the witnesses who were not called to testify in person, the parties' trial exhibits, the stipulations made by the parties, and the parties' post-trial briefs [97, 99, 102, & 104]. The Court weighed the testimony of each witness and determined whether the testimony was truthful and accurate (in part, in whole, or not at all) and decided what weight, if any, to give to the testimony of each witness. In making this determination, we considered, among other things: the ability and opportunity of the witness to see, hear, or know the things about which the witness testified; the witness's memory; any interest, bias, or prejudice the witness may have; the manner of the witness while testifying; and the reasonableness of the witness's testimony in light of all of the evidence in the case. See Fed. Civ. Jury Instr. 7th Cir. § 1.13 (2009).

For the reasons stated below, the Court finds that Highway Commercial is entitled to prevail on its claims for breach of contract and breach of duty by bailee, finds that Highway Commercial is entitled to damages in the amount of $105,542.50, and denies Midwest Trailer's oral motion for a directed verdict. The following constitute the Court's findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.*fn1

I. FINDINGS OF FACT

Plaintiff Highway Commercial is an Ohio Corporation, with its principal place of business located in Columbus, Franklin County, Ohio. (Joint Stipulations ¶ 1.)*fn2

Highway Commercial engages in the business of leasing tractors and semi-trailers. (Id.) Highway Commercial is owned by Fyda Freightliner Columbus, Inc. ("Fyda"), a parent company that owns a total of five freightliner dealerships throughout Ohio and Pennsylvania. (Tr. 29.)

Defendant Midwest Trailer is an Illinois Corporation with its principal place of business located in Chicago, Cook County, Illinois. (Joint Stipulations ¶ 2.) Midwest Trailer is in the business of selling, repairing, and leasing semi-trailers. (Id.)

FreightStar was an interstate trucking company incorporated in the State of Illinois. (Joint Stipulations ¶ 3.) FreightStar no longer operates. (Id.)

Michael Zitis, a resident of Cook County, Illinois, owned and operated FreightStar. (Joint Stipulations ¶ 4.) Zitis filed a Chapter 7 Bankruptcy case in 2008 and received a discharge. (Id.)

At trial, Robert Tannenbaum, Midwest Trailer's President and majority owner, testified that Midwest Trailer began doing business with Zitis in early 2005. (Tr. 193.) Tannenbaum testified that Zitis wanted to buy trailers, but initially did not have the financing to do so, so he decided to lease trailers. (Id.) FreightStar originally leased each of the trailers at issue in this case from Midwest Trailer. (Joint Stipulations ¶ 5.) At all relevant times prior to December 9, 2005, all of the trailers at issue in this case were in the possession of Mike Zitis and FreightStar. (Joint Stipulations ¶ 6.) FreightStar fell behind in rental payments on the trailers rented from Midwest Trailer and still owes Midwest Trailer substantial sums of money. (Joint Stipulations ¶ 7.) Robert Tannenbaum testified that, during the relevant time period, when Midwest Trailer called Zitis for money, Zitis said he wanted to buy the trailers and was working on securing financing. (Tr. 193.) Tannenbaum testified that he was "okay with that" so long as Zitis actually went through with buying the trailers. (Id.)

At trial, Robert Tannenbaum testified that Zitis was working with Joshua Tannenbaum, Mr. Tannenbaum's son, who is also employed by, and is a 20% owner of, Midwest Trailer. (Tr. 197.) While his testimony is by no means clear on the issue, it also appears that Robert Tannenbaum was not personally aware of any of Midwest Trailer's dealings with Zitis or Highway Commercial in December 2005, as he stated: "I didn't even know about this in December of 2005 .... Mr. Zitis was working with Josh, okay, and, you know, what I testified to is what actually, you know, Josh told me." (Tr. 197-98; see also Tr. 210.) Neither party called Joshua Tannenbaum to testify at trial, although both submitted excerpts of his deposition for this Court's review. During his deposition, Joshua Tannenbaum stated that he negotiated the "sale" of the trailers to Zitis. (J. Tannenbaum Dep. 99.)

On or about September 30, 2005, Highway Commercial entered into a purported Master Vehicle Lease Agreement with Zitis, pursuant to the terms of which Highway Commercial agreed to lease certain trailers to Zitis, and Zitis agreed to lease certain trailers from Highway Commercial (the "Master Lease"). (Joint Stipulations ¶ 8; PX 1.) The trailers were identified in a schedule attached to the Master Lease and dated December 20, 2005. (Joint Stipulations ¶ 9.) The eight semi-trailers at issue in this lawsuit were listed on the December 20, 2005 lease schedule and bore the following vehicle identification numbers: 1GRAA06295T512037, 1GRAA06205T512038, 1DW1A53205B755456, 1DW1A53215S759144, 1GRAA06295T512040, 1GRAA06225T512039, 1GRAA06205T512041, and 1DW1A53235S759145. (Joint Stipulations ¶ 10.)

The Master Lease between Highway Commercial and Zitis was a so-called TRAC Lease, which is a tax-advantaged lease arrangement whereby the vehicles are owned by the lessor and leased by the lessee with a specified "buyout" at the end of the lease term. (Joint Stipulations ¶ 11.) At the end of the lease term, the lessee would be entitled to purchase the vehicles by payment of the "buyout" amount, upon which the lessor would provide title to the vehicle or vehicles to the lessee. (Id.) The TRAC leases between Highway Commercial and FreightStar call for a security deposit. (Id.)

Highway Commercial's President, Kenneth Browning, testified at trial that there are two benefits to using a TRAC lease. First, because of the tax benefit resulting from using such a lease, the equipment owner can charge the lessee a smaller payment under the lease. Second, because the owner has title to the equipment, if the lessee goes into bankruptcy, the owner can retrieve its equipment, which stays outside of the bankruptcy court's administration of assets. (Tr. 31-32.) At trial, Browning testified he explained the TRAC lease concept to Zitis on multiple occasions. (Tr. 35-36.) During his deposition, Zitis volunteered that, "in [his] opinion, [TRAC leases] really shouldn't exist," and that he "thought [his leases with Highway Commercial] were purchases." (Zitis Dep. 58, 42.)*fn3

Nicole Byrd (a/k/a Nikki Byrd) is employed by Highway Commercial as a credit manager. (Joint Stipulations ¶ 12.) In 2005 and 2006, she was an asset administrator employed by Highway Commercial with responsibility for administrative tasks and titles. (Id.) Sindia Varela was the Midwest Trailer employee designated to handle accounts receivable, which included administrative matters regarding sales and title matters for Midwest Trailer. (Joint Stipulations ¶ 13.)

At trial, Bryd testified that Browning told her about Highway Commercial's agreement with Zitis to finance the purchase of trailers for lease to Zitis. (Tr. 93.) She stated that in November or early December, 2005, she contacted Varela by telephone to inform her that Highway Commercial would be wiring money to Midwest Trailers for trailers that Highway Commercial was leasing to Zitis. (Tr. 94.) Byrd stated that during that call, she asked Varela for wiring instructions, copies of the titles, and the invoice, and where she (Byrd) could send Varela titling information. (Tr. 94-95.) As for the titling information, Byrd testified that Varela agreed Byrd could email her those instructions. (Tr. 99.)

On December 9, 2005, Varela faxed to Byrd wire transfer instructions, a bill of sale dated November 1, 2005 setting forth Midwest Trailer's price for each trailer listed, and copies of the trailer titles in question. (Joint Stipulations ¶ 14; see also PX 5.) The trailers listed in that bill of sale are the same ones listed on the December 20, 2005 schedule to Zitis' and Highway Commercial's Master Lease. (Joint Stipulations ¶ 10; seel also PX 5.) The facsimile's cover sheet states, under "Comments," "Re: Freight Star Mike Zitis." (Id.) The bill of sale listed a price per trailer of $19,950. (PX 5.) The bill of sale also included a charge of $920, for "Title and Registration FOR ALL TRAILERS ABOVE." (Id.) Finally, the bill of sale lists "FREIGHT STAR LANDLINES, INC. ATTN. MIKE ZITIS" under the "Bill to" heading. (Id.) Byrd testified at trial that she never attempted to have the name on the bill of sale changed from FreightStar to Highway Commercial, because to Highway Commercial, that invoice simply indicated not who the purchaser was, but who Highway Commercial's lessee was. (Tr. 151.)

After receiving that facsimile, Byrd emailed Varela that same day, December 9, 2005. (PX 7.) In her email, Byrd thanked Varela for the facsimile, and described how "[t]he titles should read," listing as "OWNER" "Highway Commercial Services, Inc.", as "1st LIENHOLDER" "Fyda, Inc.," and including the following address for both entities: "1250 Walcutt Road, Columbus, OH 43228." (Id.) Byrd's email also stated "We are set to wire $160,520.00 on 12/20/2005 per the wiring instructions you sent." (Id.)

At trial, Byrd testified that she sent her December 9 email two times, first to the address "cindia@midtrailer.com," and then to the address "Sindia@midtrailer.com." (Tr. 96-97; see also PXs 7, 6.) Byrd testified that, after the first transmission of the email was "bounced back" to Byrd as "undeliverable," she called Varela, who gave her the correct spelling of her email address. (Tr. 97-98.) Byrd also testified that the second transmission of her email did not come back to her as undeliverable. (Id.)

Additionally, Bryd testified that the normal procedure followed by Highway Commercial and the dealer/seller once Highway Commercial had paid the titling fees and the purchase price would be for the dealer to perfect the titles, that is, for Highway Commercial to be listed as the owner, and for Highway Commercial to receive those titles, either from the seller or the Secretary of State. (Tr. 101, 106.) Byrd stated that she expected to see Highway ...


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