GlobalTranz Enterprises, Inc. v. PNC Bank, N.A. ( 2020 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
GLOBALTRANZ ENTERPRISES, )
INC., )
) C.A. No. N19C-09-144 MAA
Plaintiff, )
)
v. )
)
PNC BANK, N.A., )
)
Defendant. )
)
Submitted: February 21, 2020
Decided: June 25, 2020
Upon Defendant PNC Bank, National Association's
Motion to Dismiss Plaintiff’s Complaint:
Granted
MEMORANDUM OPINION
Sabrina M. Hendershot, Esq. and Donna L. Culver, Esq., MORRIS NICHOLS
ARSHT & TUNNELL LLP, Wilmington, Delaware, Anthony J. Dutra, Esq. and
Neal L. Wolf, Esq., HANSON BRIDGETT LLP, San Francisco, California,
Attorneys for Plaintiff.
Jose F. Bibiloni, Esq., BLANK ROME LLP, Wilmington, Delaware, John E. Lucian,
Esq., BLANK ROME LLP, Philadelphia, Pennsylvania, Attorneys for Defendant.
Adams, J.
1
Pending before the Court is PNC Bank, N.A.’s (“PNC”) Motion to Dismiss
the Complaint. The Motion requires the Court to examine whether California law
allows unjust enrichment claims by unsecured creditors against secured creditors
under the particular circumstances presented here. For the reasons stated herein, the
Court finds that Plaintiff GlobalTranz, Inc. (“GlobalTranz”) has failed to state a
claim for unjust enrichment under California substantive law. The Court will,
therefore, grant PNC’s Motion to Dismiss.
Facts and Procedural Background
Unless otherwise stated, the Court accepts as true the following facts alleged
in the Complaint for the purpose of reviewing the Motion to Dismiss under Rule
12(b)(6).1 Plaintiff GlobalTranz is a freight brokerage company incorporated in
Delaware. Defendant PNC is also incorporated in Delaware. Kraco Enterprises,
LLC (“Kraco”), a now-defunct Illinois automobile accessory company
headquartered in California, was one of GlobalTranz’s customers from December
2015 until Kraco’s breakup in 2018. PNC was one of Kraco’s secured creditors
during the time GlobalTranz provided services to Kraco.
GlobalTranz contracted with various freight carriers to transport and deliver
Kraco’s products from Kraco’s facilities in California to distributors that purchased
1
See Bowden v. Pinnacle Rehabilitation and Health Center, 2015 WL 1733753, at
*1 (Del. Super. April 8, 2015); Stayton v. Clariant Corp., 10 A.3d 597, 601 (Del.
2010).
2
the products from Kraco. GlobalTranz paid the underlying freight carriers directly
and billed Kraco for these services. GlobalTranz provided Kraco about $800,000
in contracted services between January 1, 2018 and May 2, 2018. GlobalTranz
alleges that it has not been paid for these services.
GlobalTranz alleges that PNC was spearheading the corporate liquidation and
breakup of Kraco in early 2018 without GlobalTranz’s knowledge. GlobalTranz
further alleges that PNC received tens of millions of dollars in proceeds either by
diverting payments made to Kraco by distributors on shipments brokered by
GlobalTranz or by retaining the proceeds when Kraco’s assets were sold off,
depriving Kraco’s ability to pay for the services GlobalTranz performed during the
liquidation. These services allegedly were “essential” to the liquidation and
provided revenue from which PNC paid itself to GlobalTranz’s detriment.
From January 1, 2018 through May 2, 2018, PNC “knew or should have
known” that GlobalTranz was providing freight brokerage services to Kraco. PNC
also “knew or should have known” that Kraco’s values upon liquidation would be
higher if GlobalTranz provided those services, and even higher if Kraco did not pay
GlobalTranz for the services. PNC “acquiesced” in GlobalTranz’s provision of
those services to Kraco and/or “encouraged” Kraco to obtain services from
GlobalTranz, without disclosing the poor financial condition of Kraco. If PNC had
foreclosed on its security interest prior to or during the time that GlobalTranz was
3
providing services to Kraco, PNC would have had to incur these expenses itself.
GlobalTranz was the “unwitting conduit” by which PNC generated cash flow to pay
itself to GlobalTranz’s detriment.
GlobalTranz alleges that because PNC obtained the proceeds from Kraco’s
liquidation and breakup, PNC knowingly accepted the benefit of GlobalTranz’s
services and is obligated to pay for those services in order to “avoid injustice.”
According to GlobalTranz, an implied-in-law contract existed between PNC and
GlobalTranz, under which GlobalTranz performed all of its obligations. The
services GlobalTranz provided substantially benefitted PNC to GlobalTranz’s
detriment. GlobalTranz alleges that PNC breached the implied-in-law contract by
not paying GlobalTranz for its services. GlobalTranz alleges damages in the amount
equal to the value of the services provided to Kraco between January 1, 2018 and
May 2, 2018.
GlobalTranz filed the Complaint on September 16, 2019 against PNC Bank,
N.A. (“PNC”) alleging breach of an implied covenant and unjust enrichment. PNC
filed its Motion to Dismiss on October 30, 2019 pursuant to Delaware Superior Court
Civil Rule 12(b)(6) for failure to state a claim, arguing that an unsecured creditor
cannot assert a claim for unjust enrichment against a secured creditor. The Court
held oral argument on the pending Motion to Dismiss on February 21, 2020.
4
Analysis2
I. California substantive law applies to the present action.
The Court must now determine the appropriate choice of law.3 The first step
in Delaware’s conflict of law analysis is to determine whether there is an actual
conflict.4 In making this determination, “Delaware state courts answer a single and
simple query: does the application of the competing laws yield the same result?”5
PNC argues that the Court does not need to make a choice of law
determination in this case because there is no actual conflict between the unjust
enrichment elements under Delaware law and California law. The key issue here,
however, is the relationship between unjust enrichment and UCC Article 9.
2
Although not raised in briefing on the Motion to Dismiss, during oral argument,
the parties made arguments regarding whether this Court had subject matter
jurisdiction for GlobalTranz’s unjust enrichment claim. The Court finds that it has
subject matter jurisdiction for the claims made in this action because GlobalTranz is
seeking compensatory monetary damages only. Prospect Street Energy, LLC v.
Bhargava, 2016 WL 446202, at *8 (Del. Super. Jan. 27, 2016). See also Grace v.
Morgan, 2004 WL 26858, at *3 (Del. Super. Jan. 6, 2004) (holding that the Superior
Court has subject matter jurisdiction over unjust enrichment claims when a plaintiff
only seeks “money damages in order to be made whole”).
3
See Landis v. Science Management Corp., 1991 WL 19848, at *3 (Del. Ch. Feb.
15, 1991) (citing Hurst v. General Dynamics Corp., 583 A.2d 1334 (Del. Ch. 1990));
Pharmathenes, Inc. v. Siga Technologies, Inc., 2008 WL 151855, at *6 (Del. Ch.
Jan. 16, 2008) (citing Travelers Indem. Co. v. Lake, 594 A.2d 38, 47 (Del. 1991);
Nat’l Acceptance Co. of Cal. v. Mark S. Hurm., M.D., P.A., 1989 WL 70953, at *2
(Del. Super. June 16, 1989)). See Restatement (Second) of Conflicts of Laws §§ 6,
221.
4
Caballero v. Ford Motor Company, 2014 WL 2900959, at *2 (Del. Super. June 24,
2014).
5
Id.
5
California law provides certain exceptions from the general rule of its Article 9
priority scheme. GlobalTranz alleges that its claim against PNC falls under these
exceptions that allow an unsecured creditor to bring an unjust enrichment claim
against a secured creditor.
At oral argument, counsel for PNC suggested that “the reason there is a dearth
of [Delaware] case law that preempts the Uniform Commercial Code, it is because
the Uniform Commercial Code is a comprehensive statutory scheme that’s designed
to allow credit markets to operate smoothly without interference from claims of
junior or subordinate creditors like the plaintiff.”6 Delaware law, unlike California
law, does not provide a framework under which an unsecured creditor may pursue
an unjust enrichment claim against a secured creditor. The differences in how each
jurisdiction handles unjust enrichment claims under the circumstances presented
here is sufficient to result in different outcomes depending on which jurisdiction’s
substantive law applies. Therefore, the Court finds that an actual conflict exists and
will complete a conflict of law analysis.
Delaware courts apply the “most significant relationship” test in determining
which jurisdiction’s substantive law to apply. 7 The Restatement (Second) of
6
Tr. 10:20–11:4.
7
Landis, 1991 WL 19848, at *3 (citing Hurst, 583 A.2d 1334); Pharmathenes, 2008
WL 151855, at *6 (citing Travelers Indem. Co. v. Lake, 594 A.2d 38, 47 (Del. 1991);
Nat’l Acceptance Co, 1989 WL 70953, at *2). See Restatement (Second) of
Conflicts of Laws §§ 6, 221.
6
Conflicts of Laws § 221 sets forth the factors to consider in making this
determination in an unjust enrichment case:
(a) the place where a relationship between the parties was centered,
provided that the receipt of enrichment was substantially related
to the relationship,
(b) the place where the benefit or enrichment was received,
(c) the place where the act conferring the benefit or enrichment was
done,
(d) the domicil residence, nationality, place of incorporation and
place of business of the parties, and
(e) the place where a physical thing, such as land or chattel, which
was substantially related to the enrichment, was situated at the
time of the enrichment.8
The relationship between GlobalTranz and PNC stems from their dealings
with Kraco. This involved GlobalTranz’s provision of transportation of products
from Kraco facilities in California to distributors, which GlobalTranz alleges was
for PNC’s benefit because these are services PNC would have had to arrange and
pay for itself in order to complete the liquidation. The first factor weighs in favor of
applying California law because California is the “place where the relationship
between [PNC and GlobalTranz] was centered.” The second and third factors also
weigh in favor of applying California law for the same reasons. The place “where
the act conferring the benefit or enrichment” was California, where GlobalTranz
provided its transportation services. The benefit was also received in California,
8
Restatement (Second) of Conflicts of Laws § 221.
7
where the products were transported from Kraco facilities and where PNC liquidated
Kraco.
The only factor that does not weigh in favor of applying California substantive
law is the fourth factor. Kraco is not a party to this action and the fact that it was
headquartered in California has no bearing on the analysis of this factor.
GlobalTranz and PNC are both incorporated in Delaware. GlobalTranz’s principal
place of business is in Arizona. PNC’s principal place of business is in
Pennsylvania. This factor weighs most in favor of applying Delaware substantive
law.
The fifth factor, “the place where a physical thing […] was situated at the time
of the enrichment,” weighs in favor of applying California law. As discussed,
GlobalTranz alleges that the unjust enrichment occurred when it provided
transportation services for Kraco products from Kraco’s California facilities. The
“physical thing[s]” in this case are the automobile accessory products GlobalTranz
was transporting, which were located in California at the time the services were
provided, which is when GlobalTranz alleges the enrichment occurred.
In consideration of the factors under the Restatement (Second) Conflicts of
Law § 221, the Court will apply California substantive law to this matter.
8
II. GlobalTranz fails to state a claim for unjust enrichment under California
substantive law.
A. Delaware Superior Court Civil Rule 12(b)(6)
On a motion to dismiss under Delaware Superior Court Civil Rule 12(b)(6),
the Court “will accept all well-pleaded factual allegations in the complaint as true,
and will accept even vague allegations as ‘well-pleaded’ if they provide defendants
notice of a claim.”9 The Court “will draw all reasonable inferences in favor of the
plaintiff” and will deny the motion “unless the plaintiff could not recover under any
reasonably conceivable set of circumstances susceptible of proof.”10
The Court, however, is only required to accept “those reasonable inferences
that logically flow from the face of the complaint” and not “every strained
interpretation of the allegations proposed by the plaintiff.”11 The Court also will not
accept as true conclusory statements unsupported by specific factual allegations.12
B. Unjust Enrichment Under California Law
The elements of unjust enrichment under California law are the “receipt of a
benefit and unjust retention of the benefit at the expense of another.”13 The benefit
9
Central Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings, LLC, 27 A.3d 531,
536 (Del. 2011).
10
Id.
11
In re General Motors (Hughes) Shareholder Litig., 897 A.2d 162, 168 (Del. 2006)
(internal citations omitted).
12
Id.
13
Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc., 29 Cal. App. 5th 230,
238 (2018) (citing Lectrodryer v. Seoulbank, 77 Cal. App. 4th 723, 726 (2000)).
9
“may take any form, direct or indirect. It may consist of services as well as property.
A saved expenditure or a discharged obligation is no less beneficial to the recipient
than a direct transfer.”14
PNC argues that any benefit it derived from GlobalTranz’s services to Kraco
was not “unjust” because PNC was a secured creditor of Kraco under California’s
version of UCC Article 9. GlobalTranz alleges that its claim falls under the
exceptions under California law allowing for an unsecured creditor to pursue an
unjust enrichment claim against a secured creditor.
The exceptions under California’s UCC Article 9 priority scheme are quite
narrow. The Supreme Court of California has not yet ruled on the issue of whether
California permits unjust enrichment claims by unsecured creditors against secured
creditors. The California Court of Appeal, however, has recognized unjust
enrichment claims brought by unsecured creditors against secured creditors since the
late 1980’s when the court decided Producers Cotton Oil Co. v. Amstar Corp.15
Although there appears to be some confusion and disagreement as to whether in
California a court may recognize a claim for unjust enrichment as a separate cause
of action, see Nordberg v. Trilegiant Corp., 445 F.Supp.1082, 1100 (N.D. Cal.
2006), SewChez Int’l Ltd. v. CIT Group/Commercial Services, Inc., 2007 WL
9753114, at *7 (C.D. Cal. Sept. 20, 2007), defendant PNC makes no attempt to
challenge the existence of such a claim, but rather challenges its applicability to the
facts of this case.
14
Professional Tax Appeal, 29 Cal. App. 5th at 238 (quoting Restatement (Third)
Restitution and Unjust Enrichment, § 1, comm. d, p. 7).
15
197 Cal. App. 3d 638, 242 Cal. Rptr. 914 (1988).
10
In order to overcome California’s Article 9 priority scheme, a plaintiff must
show “something more” than gain to the secured creditor.16 This “something more”
only occurs under “unusual circumstances.”17 Plaintiff is required to show these
unusual circumstances are present because of either: (1) certain conduct by the
secured creditor in relation to the transaction; or (2) the nature of the unsecured
creditor’s contribution to the collateral, such as the preservation of perishable food
products.18 A review of the applicable case law interpreting these limited exceptions
is helpful to put GlobalTranz’s claim in context.
In Producers Cotton, the California Court of Appeal held that “when a party
possessing a security interest in a crop and its proceeds has knowledge of and
acquiesces in expenditures made which are necessary to the development of the
crop, and ultimately benefits from the expenditures, a party who, through mistake,
pays such costs without first obtaining subordination, is entitled to recover.” 19 The
main issue in the present case is the application of Producers Cotton and its progeny
to the facts alleged in the Complaint. PNC argues that the holding in Producers
Cotton is limited to agricultural contexts involving perishable crops. GlobalTranz
16
Knox v. Phoenix Leasing, Inc., 29 Cal. App. 4th 1357, 1365, 35 Cal. Rptr. 2d 141
(1994).
17
Knox, 29 Cal. App. 4th at 1359.
18
Id. at 1365.
19
Producers Cotton, 197 Cal. App. 3d at 660.
11
argues that California law does not specify such a limitation and that the present case
is not distinguishable from Producers Cotton on that point.
Soon after the decision in Producers Cotton, the Supreme Court of Colorado
in Ninth District Production Credit Ass’n v. Ed Duggan, Inc.20 addressed the issue
of “whether a creditor that holds a perfected security interest in collateral can be held
liable to an unsecured creditor based on a theory of unjust enrichment for benefits
that enhance the value of the collateral.”21 Duggan also involved the agriculture
business, where Ed Duggan, Inc., an unsecured creditor of a failing cattle feedlot
business, sued Ninth District Production Credit Association, a creditor with a
security interest in the proceeds of the feedlot’s accounts receivable, for
compensation for corn delivered to the feedlot business.22
The Duggan court surveyed case law from throughout the country, including
Producers Cotton, and found that, with regard to the applicability of unjust
enrichment in security interest cases, “this question cannot be answered
categorically.”23 The court noted a common thread in the cases it reviewed in which
the unjust enrichment claims were unsuccessful. “In each, the secured creditor had
no more than general knowledge that an unsecured creditor was supplying goods to
20
821 P.2d 788 (Colo. 1991).
21
Id. at 793.
22
Id. at 790.
23
Id.
12
the debtor.”24 “There were no facts to indicate that the secured creditor initiated or
encouraged the transaction by which the unsecured creditor enhanced the value of
the secured collateral when the unsecured creditor supplied goods or services to the
debtor.”25
Importantly, the Duggan court recognized that the central point of distinction
was “the extent to which the secured creditor was involved in the transaction by
which the unsecured creditor supplied goods or services that enhanced the value of
the secured collateral.”26 When a secured creditor does not itself initiate or
encourage the transaction creating the unsecured obligation giving rise to the unjust
enrichment claim, such a claim “cannot be supported.”27 The Duggan court held
that there was sufficient evidence regarding the secured creditor’s “active role in
creating a perception that the corn would be paid for, its failure to inform the parties
otherwise, and the need for the corn to feed the cattle in order to produce accounts
receivable subject to [its] security interest.”28
24
Id.
25
Id. at 796
26
Id. at 797.
27
Id. at 797. Subsequent cases indicate that a plaintiff is not required to allege
wrongdoing in order to show that a defendant initiated or encouraged the transaction.
See Frontier Station, Inc. v. Kloiber Real Estate Holdings, LLC, 2019 WL 4643683
(D. Colo. Aug. 12, 2019); Bluebonnet Warehouse Co-op v. Bankers Trust Co., 89
F.3d 292 (6th Cir. 1996).
28
Duggan, 821 P.2d at 798.
13
In Knox v. Phoenix Leasing Inc.,29 the California Court of Appeal reaffirmed
the availability of unjust enrichment claims against secured creditors under certain
limited circumstances. In Knox, the seller of wine barrels brought an action for
restitution against the buyer’s secured creditor. Although the Knox court
acknowledged the availability of a remedy of unjust enrichment, the court noted that
“[r]ecovery is clearly the exception, not the norm, and is subject to stern
limitations.”30
The Knox court began its analysis by noting that because Article 9 establishes
a comprehensive scheme to afford “maximum protection to the secured creditor who
has followed its provisions,” a secured creditor “which has complied with all
relevant code requirements to perfect its security interest, should therefore start with
something like a presumption in its favor.”31 The court recognized that “victory for
a secured creditor is not an immutable law of nature;” however, “something more”
than mere gain to the secured creditor “is required to displace the creditor’s favored
position.”32 This “something more” will only occur under “unusual circumstances”
and “is either conduct by the secured creditor or the nature of the unsecured
29
Knox, 29 Cal. App. 4th at 1357.
30
Id. at 1361.
31
Id. at 1364.
32
Id. at 1365. In other words, “Simply pointing to the benefit realized by the secured
creditor will not suffice.” Id. at 1360, 1365.
14
creditor’s contribution to the collateral.”33 Under the reasoning in Knox, the Court
should look to whether the secured creditor had an “active hand” in promoting the
transaction in question.34
The Knox court also recognized the unusual circumstances regarding
collateral that is perishable and why those circumstances could support a claim for
unjust enrichment against a secured creditor.35 “When an unsecured creditor
provides goods or services that are necessary to preserve the collateral, this is an
expense the secured creditor would ordinarily incur as part of the duty to use
‘reasonable care in the custody and preservation of collateral in his possession.’”36
In such a case – like in Producers Cotton and Duggan – “the unsecured status of the
creditor appears less important than the fact that the secured creditor directly benefits
from expenditures the creditor is spared having to make on its own behalf.”37 On
the other hand, “[m]atters become less clear when the unsecured creditor’s
expenditures are not essential but merely useful, in the sense that the collateral
available for liquidation is being increased.”38
33
Id. at 1365.
34
Id.
35
Id. at 1366.
36
Id.
37
Id.
38
Id.
15
Taking all of this into account and finding that Phoenix’s conduct did not
amount to fraud, the court looked to other allegations to see if they could fit within
the unjust enrichment framework.39 The court noted that the contract for wine
barrels was between Knox and the failed business (Domaine), the contract made no
reference to Phoenix and it was executed prior to the Domaine-Phoenix relationship.
The wine barrels were ordered by Domaine, shipped to Domaine and Knox initially
looked to Domaine for payment. Moreover, the fact that Knox paid for the first
shipment with a check from Phoenix did not establish that Phoenix encouraged the
deal.
The court further found that the barrels provided by Knox “were not necessary
to preserve the collateral covered by Phoenix’s security interest in Domaine’s ‘after
acquired’ property. The mere fact that the secured collateral was enhanced by the
addition of the barrels [did] not support liability in these circumstances.”40 The
court, therefore, found that the plaintiff did not state a claim for unjust enrichment.
As the court held, while common sense would ordinarily dictate that because “Knox
provided barrels; Phoenix ended up with the barrels[,] Phoenix should therefore pay
Knox for their value […] Article 9…compels a different conclusion.”41 “Phoenix
39
Id. at 1367.
40
Id. at 1368.
41
Id.
16
complied with statutory provisions intended to immunize secured creditors from
such claims in all but the rarest of cases.”42
The United States District Courts for the Eastern District and Central District
of California have also addressed the interaction between unjust enrichment and the
Article 9 priority scheme in Starlite Development v. Textron43 and SewChez Int’l
Ltd. v. CIT Group/Commercial Services, Inc.,44 respectively. Although both cases
are unpublished and are not binding precedent on California substantive law, they
are persuasive authority and inform the Court’s analysis in the present case.45
In SewChez, the United States District Court for the Central District of
California held that, while California law acknowledges “the possibility of claims
for unjust enrichment against a secured creditor by an unsecured creditor when the
unsecured creditor ‘provides goods or services that are necessary to preserve the
42
Id. See also Atascadero Factory Outlets, Inc. v. Augustini & Wheeler LLP, 83
Cal. App. 4th 717, 721, 99 Cal.Rptr.2d 911(2000) (affirming the narrow application
of unjust enrichment to the UCC priority scheme, and that it only applies in
“exceptional situations” and “[w]here a secured creditor does not itself initiate or
encourage the transaction that creates the unsecured obligation giving rise to the
unjust enrichment claim, retention of any benefit realized by the secured creditor
without compensating the supplier is not unjust.”) (quoting Duggan, 821 P.2d at
797).
43
2008 WL 2705395 (E. D. Cal. July 8, 2008).
44
2007 WL 9753114 (C. D. Cal. Sept. 20, 2007).
45
Under California law, “[w]hile unpublished opinions from the court of appeal or
superior court appellate division may not be cited or relied upon, unpublished federal
cases ‘are citable as persuasive, although not precedential, authority.’” Martinez v.
California Pizza Kitchen, 30 Cal. App. Supp. 5th 14, 20 (2018) (citing Pacific Shore
Funding v. Lozo (2006) 138 Cal. App. 4th 1342, 1352).
17
collateral,” this was inapplicable to the case before the court.46 The plaintiff, a
Taiwanese manufacturer of swimwear, sold swimwear and related items to a
company named Beach Patrol, Inc. on an open book account basis.47 By July 2004,
Beach Patrol owed SewChez nearly six million dollars and SewChez, therefore,
insisted that all future shipments of goods to Beach Patrol be paid by letter of credit.48
The defendant, CIT Group/Commercial Services, Inc., Beach Patrol’s lender,
obtained letters of credit for Beach Patrol from co-defendant JPMorgan Chase Bank,
N.A.49 Chase and CIT initially paid SewChez when SewChez presented late or
discrepant documents, but then subsequently refused to waive discrepancies in
documents ultimately submitted in connection with three letters of credit.50 In total,
SewChez was denied payment on nearly two million dollars of goods shipped to
Beach Patrol.51 SewChez brought claims for, among other things, unjust
enrichment.52
The court found that “plaintiff’s shipment of goods [did not] in any way
preserve[] CIT’s secured interest in Beach Patrol’s inventory. Beach Patrol’s
46
SewChez, 2007 WL 9753114, at *8 (C.D. Cal. Sept. 20, 2007) (citing Knox, 29
Cal. App. 4th at 722).
47
Id. at *1.
48
Id.
49
Id.
50
Id.
51
Id.
52
Id. at *7.
18
inventory was not perishable in the manner of foodstuffs, for instance. Hence,
Plaintiff’s actions were in no way necessary to prevent the expiration of Beach
Patrol’s inventory. Instead, Plaintiff’s shipments merely augmented the inventory
of goods already held by Beach Patrol.”53 Although not discussed in the SewChez
court’s analysis, it is important to note that the plaintiff also did not present any facts
indicating conduct by the defendant that would bring the circumstances of the case
under the reasoning in Knox.54
In Starlite, the United States District Court for the Eastern District of
California found that the unsecured-creditor plaintiff, Starlite Development, which
sold calendars to Turner Company, sufficiently stated a claim for unjust
enrichment.55 Turner Company eventually stopped paying for the calendars it had
already ordered.56 Turner Company was nearly insolvent and Starlite discovered
that Textron was Turner Company’s primary lender.57 The plaintiff alleged that
Textron closely monitored the finances and business operations of Turner Company
beginning in January 2006 when Textron placed an agent on site at Turner
53
Id. See also Weststeyn Dairy 2 v. Eades Commodities Co., 280 F. Supp. 2d 1044,
1088 (E.D. Cal. 2003) (“Plaintiffs, as unsecured creditors, did not provide goods or
services that were necessary to preserve the collateral,” and therefore could “not
show equities that override [the secured creditor’s] claim of priority as a perfected
secured creditor under the UCC priority scheme.”).
54
See SewChez, 2007 WL 9753114, at *7–8.
55
Starlite, 2008 WL 2705395 at *31.
56
Id. at *1.
57
Id.
19
Company’s offices.58 The plaintiff also alleged that the defendants engaged in fraud
and misrepresentation, including representing falsely to Starlite that Textron and
Turner Company intended to repay Starlite for the calendars Turner Company
ordered and for making pre-shipping payments to induce Starlite to fulfill orders
Textron and Turner Company never intended to pay in full.59
After a review of Producers Cotton, Duggan and Knox, the court concluded,
without much analysis, that a factual issue existed regarding whether Starlite
provided any goods or services necessary to preserve collateral or whether Textron
engaged any of the conduct alleged, other than to “resort to remedies permitted by
the UCC and this Court.”60 While the Starlite court did not provide much reasoning
in its decision, the facts set forth illustrate some aspects of the circumstances
contemplated by the other Producers Cotton progeny cases.
Based on the case law interpreting Producers Cotton, GlobalTranz has failed
to state a claim for unjust enrichment under California law. GlobalTranz’s main
argument in opposition to the Motion to Dismiss is that because this case is at the
early pleading stage, it should be entitled to discovery on its unjust enrichment claim.
Although this case is at the early pleading stage and Delaware’s Rule 12(b)(6)
58
Id. at *3.
59
Id. at *3, 30.
60
Id. at *31.
20
provides a low threshold, the Court is not required to accept conclusory allegations
such as those contained in the Complaint here.
No matter how much discovery is afforded to GlobalTranz, it will not change
the fact that GlobalTranz began providing freight broker services to Kraco in or
around December 2015 – well before PNC’s alleged “spearheading” of the breakup
of Kraco in 2018.61 GlobalTranz therefore cannot allege that PNC in any way
initiated the transaction.62 In another attempt to fit within the narrow framework of
an unjust enrichment claim, GlobalTranz alleges that in early 2018, when PNC
allegedly began to “spearhead[] and facilitate[] the corporate liquidation” of Kraco,
Kraco stopped paying GlobalTranz.63 GlobalTranz also alleges that PNC
“acquiesced in GlobalTranz’s provision of those services to Kraco and/or
encouraged Kraco to obtain those services from GlobalTranz.” These allegations
are conclusory and unsupported by facts.64 The Court is not required to accept such
allegations as true on a motion to dismiss and the Court declines GlobalTranz’s
invitation to do so here.
Allegations of PNC’s “mere acquiescence” to the actions of GlobalTranz and
the purported enhancement to the collateral value of Kraco by GlobalTranz’s freight
61
Compl. ¶ 7.
62
See Knox, 29 Cal. App. 4th at 1365-66.
63
Compl. ¶¶ 9-11.
64
See, e.g., In re General Motors (Hughes) Shareholder Litig., 897 A.2d at 168.
21
broker services are not sufficient to support a claim for unjust enrichment under
California law.65 “Acquiescence liability, because it would upend [A]rticle 9’s
interlocking notice-filing and priority provisions, cannot be accepted.”66 “Basing
unjust enrichment liability on acquiescence would turn the filing system on its head,
destroying existing creditors’ reliance on that system and substituting a prospective
creditor’s duty to check with a new duty to warn and disclaim imposed on existing
creditors.”67
Finally, GlobalTranz did not provide goods or services that were necessary to
preserve the collateral. The situation here, where GlobalTranz provided freight
brokerage services to Kraco for many years prior to PNC’s involvement, is most
closely related to the circumstances in Knox and SewChez. The freight brokerage
services were not necessary to preserve the collateral covered by PNC’s security
interest and the “mere fact that the secured collateral was enhanced” by these
services “does not support liability under these circumstances.”68 As in SewChez,
Kraco’s inventory “was not perishable in the manner of foodstuffs,” and “[i]nstead,
Plaintiff’s [freight brokerage services] merely augmented the inventory of goods
already held by” Kraco.69
65
Knox, 29 Cal. App. 4th at 1366.
66
Id. at 1367.
67
Id.
68
Id. at 1368.
69
SewChez, 2007 WL 9753114, at *8.
22
A secured creditor who has satisfied the statutory requirements for protecting
its interest is entitled to a rebuttable preference for payment against an unsecured
creditor.70 This preference is reinforced where an unsecured creditor has various
non-statutory protections and fails to use them.71 “As courts and commentators have
noted, the unsecured creditor could have (1) demanded cash payment on delivery,
(2) perfected a purchase money security interest, (3) checked with the appropriate
governmental office to determine if the debtor had already granted a security interest
posing a possible threat to repayment, or (4) obtained a secured creditor’s agreement
to subordinate its priority.”72 GlobalTranz had several options to ensure payment
for the services it provided to Kraco and, apparently, failed to take advantage of
these options.
GlobalTranz provides nothing more than conclusory statements in language
mirroring the standards set forth in the Producers Cotton progeny cases. Without
providing any factual support, Plaintiff cannot meet Delaware’s pleading threshold
under Rule 12(b)(6). Essentially, the most the Court can glean from Plaintiff’s
factual allegations is that PNC knew about the transactions between GlobalTranz
and Kraco. This is not sufficient, under the reasoning of any of the cases discussed
above, to state a claim for unjust enrichment against Defendant. Plaintiff’s services
70
Knox, 29 Cal. App. 4th at 1364.
71
Id.
72
Id.
23
were not necessary to preserve the automobile accessory products involved in its
transaction with Kraco. Plaintiff did not allege any involvement by Defendant in its
transaction with Kraco, or any conduct at all, beyond what is permitted and expected
under Article 9. No facts alleged in the Complaint support a finding of fraud,
misrepresentation, initiation, encouragement, or any other conduct by PNC that
could give way to the “unusual circumstances” required in order for an unsecured
creditor to state a claim for unjust enrichment against a secured creditor.
CONCLUSION
For the foregoing reasons, PNC’s Motion to Dismiss is GRANTED. IT IS
SO ORDERED.
24