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1st Source Bank v. Zerteck, Inc.

United States District Court, N.D. Indiana, South Bend Division

July 20, 2018

1st SOURCE BANK, Plaintiff,
ZERTECK, INC., d/b/a Boat-N-RV Warehouse, TILDEN RECREATIONAL VEHICLES, INC., d/b/a/ Boat-N-RV Superstore, RIDGELAND RECREATIONAL VEHICLES, INC., d/b/a Boat-N-RV Megastore, CROSSVILLE BNRV SALES, LLC, d/b/a Boat-N-RV Supercenter, GA BNRV SALES, LLC, d/b/a Factory Direct Marine & RV, FLORIDA BNRV SALES, LLC, d/b/a Factory Direct Marine & RV, and M&T BANK CORPORATION, Defendants.



         Plaintiff 1st Source Bank was a regular lender to Evergreen Recreational Vehicle LLC which manufactured RVs. Defendant BNRV is a consortium of six related boat and RV dealerships located in six states. Although each of the dealerships that make up BNRV has been sued individually in this case, we can treat them as one entity and simply refer to them together as BNRV for purposes of the present motion. Defendant M&T Bank was BNRV's “floor plan lender, ” regularly financing the purchase of inventory for the dealerships.

         In the waning days of Evergreen - it is now a defunct entity - it delivered 21 RVs to BNRV which accepted the vehicles and then promptly stiffed Evergreen on the bill. 1st Source Bank claims it has a “first priority blanket security interest” in all of Evergreen's assets, including its accounts receivables. So it is seeking the $808, 663.00 it says Evergreen is owed for the 21 RVs.

         Count I of the first amended complaint is 1st Source's claim of “account stated” against BNRV for the $808, 663.00. Count II is a breach of contract claim against BNRV. Count III is a claim of promissory estoppel against M&T Bank. Counts IV and V are both conversion claims - Count IV against BNRV and Count V against M&T Bank. In what the defendants first called “counterclaims” but now say are affirmative defenses, [1]BNRV asserts claims for offsets against any amounts owed to Evergreen or 1st Source. The claimed offsets include amounts relating to rebate plans BNRV say were in effect with Evergreen, as well as claims relating to warranty repairs and BNRV's out-of-pocket costs to purchase warranties to replace the manufacturer's warranty after Evergreen's closure.

         Now before me are fully briefed motions for summary judgment from all three sides - 1st Source, BNRV, and M&T Bank. Summary judgment can be granted only when there is “no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Dunn v. Menard, Inc., 880 F.3d 899, 905 (7th Cir. 2018). “When reviewing cross-motions for summary judgment, ‘all reasonable inferences are drawn in favor of the party against whom the motion at issue was made.'” Valenti v. Lawson, 889 F.3d 427, 429 (7th Cir. 2018).

         Undisputed Facts

         Evergreen, headquartered in Elkhart, Indiana, was a manufacturer of recreational vehicles until June 2016. [DE 55-1 at ¶4.] ¶ 2009, 1st Source and Evergreen executed a Loan and Security Agreement in which Evergreen granted 1st Source a “‘blanket' security interest” in all of Evergreen's assets. The blanket security interest is about as broad as one could imagine. It includes all accounts (“including rights to payment of money arising from the sale of property”), chattel paper, invoices, contracts, claims, documents of title, inventory, equipment, motor vehicles, and all other goods and personal property and interests in goods and personal property, “whether now owned or existing or hereafter acquired or arising.” [DE 55-3 at 1.] Evergreen regularly sold recreational vehicles to BNRV. [DE 55-1 at ¶7.] ] Derwood “Don” Littlefield is BNRV's sole owner and president. [DE 55-4 at 7.] In April and May of 2016, Littleton approved orders for 21 RVs from Evergreen. [DE 55-5 at 343-676; DE 30 at 10-11.][2] These 21 RVs were delivered to BNRV locations but have not been paid for. [DE 55-4 at 22.] The total invoice price of these vehicles is $808, 663 [DE 55-5 at 289-91, 307], and there is no dispute over these invoices. [DE 55-6 at 15, 17.] The vehicles were delivered with Certificates of Origin, none of which identified a lien or other assignment held by 1st Source. [DE 60 at 3; DE 64 at 2.] 1st Source does not have any financing statements showing a perfected security interest in any of those 21 RVs, effective as of the time of their delivery to BNRV. [DE 60 at 4; DE 64 at 2.]

         As of October 25, 2017, BNRV had sold 16 of the 21 RVs. [DE 55-6 at 26; DE 55-4 at 22-23.] Yet BNRV has failed to pay for the 21 RVs delivered by Evergreen. [DE 55-1 at ¶9; DE 55-4 at 22.] As of September 2, 2016, when this suit was filed, Evergreen's account with BNRV reflected $808, 663.00 owed. [Id. at ¶10.]

         On August 29, 2016, Evergreen executed an Assignment of Claims in favor of 1stSource, assigning to 1st Source all of Evergreen's claims against M&T Bank relating to BNRV's failure to pay for the 21 recreational vehicles. [DE 55-1 at ¶11; DE 55-7 at 1-2.]

         As noted above, M&T Bank is BNRV's floor plan lender. [DE 55-4 at 9.] This means that BNRV has a line of credit with M&T Bank of approximately $36 million that can be used to finance BNRV's purchase of inventory for its various retail locations. [DE 55-4 at 9; DE 55-5 at 22-24.] M&T has its own a blanket security interest in all BNRV inventory, furniture, fixtures, and receivables. [DE 55-5 at 39-40.]

         When BNRV wants to purchase an RV using the floor plan, the manufacturer sends BNRV an invoice, which is called a “confirmation.” [DE 55-4 at 10.] Don Littlefield reviews the confirmation to confirm the model of the RV, the price, and the location to which the vehicle is to be delivered. [Id.] Littlefield then emails the confirmation to M&T Bank to have it approved. [Id. at 11; DE 55-5 at 30-31.] Littlefield describes this as “sending them notice that I need the approval to floor plan the units.” [DE 55-4 at 12.] The next step is approval by M&T Bank, which is “a[n] e-mail from them saying that [BNRV] [has] enough money on the line that [BNRV] can purchase it.” [DE 55-4 at 12.] A copy of M&T Bank's approval is typically provided to the manufacturer as well as to BNRV. [Id.] Then the “units are shipped, ” meaning the new RVs along with their Certificates of Origin are delivered to the specified dealer location. [Id. at 13, 28.]

         Herschel Gornbein works for M&T Bank as a Relationship Manager and Vice President, in the group called Dealer Commercial Services (previously called Auto Floor Plan). [DE 55-5 at 13-14.] Gornbein testified that the bank tracks those approvals as orders by BNRV from the manufacturer. [DE 55-5 at 117-119.]

         In BNRV's course of dealing with Evergreen and M&T Bank, Littlefield understood that Evergreen's “normal conduct” was to ship vehicles to the indicated dealership once it received the approval from M&T Bank. [DE 55-4 at 28.] Littlefield is unaware of any further or additional correspondence affirming BNRV's agreement to purchase an RV or constituting BNRV's directive to deliver an RV to its dealer. [DE 55-4 at 33-34.]

         Once Littlefield receives notice from the dealership that a new floor plan RV has been delivered and inspected, Littlefield contacts the accounting office to initiate the payment process for the RV. [DE 55-4 at 15.] M&T Bank then pays the manufacturer and BNRV begins accruing and paying to M&T Bank monthly interest on the RV as it sits on BNRV's lot. [DE 55-4 at 19-20.] After the vehicle is sold and BNRV receives payment from the buyer, BNRV repays M&T Bank for the purchase price of the vehicle. [DE ...

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