United States District Court, D. Minnesota
REPORT AND RECOMMENDATION
Honorable Leo I. Brisbois United States Magistrate Judge
matter comes before the undersigned United States Magistrate
Judge upon Defendant First Bank and Trust's Motion for
Summary Judgment, [Docket No. 30]; Defendant Kinetic Leasing,
Inc.'s Motion for Summary Judgment, [Docket No. 43]; and
upon referral from the Honorable Chief Judge John R. Tunheim.
(Order of Reference [Docket No. 68]). A hearing was held on
April 9, 2018, after which the motions were taken under
advisement. [Docket No. 78].
reasons set forth below, the Court recommends that Defendant
First Bank and Trust's Motion for Summary Judgment,
[Docket No. 30], be GRANTED in part and DENIED in
part, and Defendant Kinetic Leasing, Inc.'s
Motion for Summary Judgment, [Docket No. 43], be
2006, First Bank & Trust (hereafter
“FB&T”) began a lending relationship with
Concrete Contractors, Inc. (hereafter “CCI”), a
South Dakota entity. FB&T extended loans to CCI, and CCI
executed a Commercial Security Agreement dated February 9,
2006, which granted First Bank & Trust a security
interest in all of CCI's machinery, vehicles, and other
equipment to secure “all present and future
debts.” (Tetzlaff Aff., [Docket No. 32], at ¶ 3,
FB&T Answer, [Docket No. 4], at Ex. A). This February 9,
2006, security agreement provided that CCI would “not
sell, offer to sell, license, lease, or otherwise transfer or
encumber the Property without [First Bank & Trust's]
prior written consent.” (FB&T Answer, [Docket No.
4], at Ex. A). The security agreement further provided that
upon any default FB&T was entitled to repossess the
collateral to dispose of it to satisfy any secured debt.
(Id.). FB&T perfected its security interest in
CCI's equipment and other property on February 9, 2006,
by filing a UCC financing statement with the South Dakota
Secretary of State's Officer, and it thereafter continued
to renew this South Dakota filing. (Id. at Ex. B).
January 30, 2009, CCI executed a Guaranty in which CCI
personally guaranteed all debts and other obligations of a
related entity, Syntech, Inc., and this Guaranty provided
that it was secured by the February 9, 2006, Security
Agreement. (Tetzlaff Aff., [Docket No. 32], at Ex. A).
Pursuant to the Guaranty, CCI guaranteed “all present
and future debts of” Syntech Inc. (Id.).
defaulted on its obligations to FB&T in 2010. (Tetzlaff
Aff., [Docket No. 32], at ¶ 6). And, CCI has refused to
pay any of the indebtedness owed by Syntech to FB&T.
(Id. at ¶ 8).
October 1, 2015, CCI sold various pieces of construction
equipment to Plaintiff H&S Contracting. (Compl.,
[Docket No. 1], at ¶ 7). The following day, on October
2, 2015, as part of the same transaction and allegedly as a
means to finance the acquisition of the equipment, H&S
Contracting sold all of the equipment to Defendant Kinetic
Leasing, Inc., (hereafter “Kinetic”) which then
leased all of the equipment back to H&S Contracting.
(Id. at ¶ 9). As part of the lease
consideration, Plaintiff Tracy Hazelton (the sole owner of
H&S Contracting) was required to and did personally
guarantee the payments due under the Kinetic lease.
(Id. at ¶ 12). The equipment was physically
transferred from CCI in South Dakota to H&S Contracting
in Minnesota, and at least by October 6, 2015, H&S
Contracting accepted delivery of the Equipment. (Zimmerli
Aff, [Docket No. 33], at Ex. B at 1, Ex. D).
1, 2016, Plaintiff H&S Contracting notified Defendant
Kinetic that it no longer needed the equipment, and H&S
Contracting “proposed to sell the equipment and pay off
the lease.” (Compl., [Docket No. 1], at ¶ 13).
Defendant Kinetic then authorized H&S Contracting to act
as its agent in the sale of the Equipment. Plaintiff H&S
Contracting contracted with Iron Planet to arrange a sale of
one item of equipment, a KPI Crusher, and on or about May 24,
2016, Iron Planet subsequently sold the KPI Crusher for a
sale price of $220, 000.00. (Id. at ¶ 15).
Pursuant to the agreement between Plaintiff H&S
Contracting and Defendant Kinetic, a portion of the sales
proceeds were paid to Defendant Kinetic to reduce the balance
due from Plaintiff H&S Contracting on the Kinetic lease,
and a portion of the proceeds were paid to Plaintiff H&S
September 2016, Plaintiff H&S Contracting contracted with
Ritchie Brothers Auctioneers to sell the remaining Equipment.
(Id. at ¶ 16). Plaintiff H&S Contracting
and Defendant Kinetic entered into an agreement whereby
Plaintiff H&S would be the seller of the Equipment, and
upon the sale, the proceeds would remit to Defendant Kinetic
to be applied again against sums owed by H&S Contracting
under the Kinetic lease. (Id. at ¶ 17). The
auction was scheduled to take place on September 16, 2016.
(Id. at ¶ 18).
on September 15, 2016, Plaintiff H&S Contracting was
informed that Defendant FB&T claimed a security interest
in the Equipment. (Id. at ¶ 19). Specifically,
on September 15, 2016, outside counsel for Ritchie Brothers
Auctioneers provided that Ritchie Brothers had been contacted
by attorney Kristina M. Schaefer on behalf of FB&T
regarding a demand for the proceeds of the sale of the
Equipment. (Kinetic Ans., [Docket No. 4], Ex. C).
consequence of FB&T's claim, Ritchie Brothers, in
communications with FB&T and Kinetic Leasing, noted that
since a demand had been made, it needed “to insure that
it [could] provide free and clear title to its buyer
at” the auction or it could not proceed with the sale.
(Id.). Ritchie Brothers indicated that it would
proceed with the sale if “both [FB&T] and Kinetic
agree and authorize [Ritchie Brothers] to conduct the auction
and further agree that the equipment sold at the auction will
be free of their respective liens. Both [FB&T] and
Kinetic's liens will attach to the net sales proceeds in
their present priority, whatever that priority may turn out
to be determined, either by settlement or by court
order.” (Id.). Ritchie Brothers' counsel
further provided that “by copy of this email to Ms.
Schaefer, I would request that both [FB&T] and Kinetic
inform me by return email if they are in agreement with this
procedure which will allow RBA to conduct the auction as
September 15, 2016, Kristina M. Schaefer, counsel for
FB&T responded to Ritchie Brothers' counsel's
email providing that FB&T “agrees that the auction
can proceed based on the terms outlined
herein---specifically, that the net proceeds received at the
auction for the five items sold will be held until mutual
instructions from [FB&T] and Kinetic or court order
awarding the funds.” (Id.). Included in that
email was a copy of the email Ritchie Brothers' counsel
had sent to Kinetic. (See, Id.).
September 15, 2016, Al Hintz, President of Kinetic Leasing,
responded to Ritchie Brothers' counsel's email. Mr.
Hintz wrote as follows:
While we have not had time to consult with our legal counsel
yet, I am in agreement with the same terms that Kristina
Schaefer had stated as to [FB&T]. Kinetic Leasing, Inc.
agrees that the auction can proceed based on the terms
outlines herein - specifically, that the net proceeds
received at the auction for the five sold items will be held
until mutual instruction from [FB&T] and Kinetic or court
order awarding the funds.
did not inform Plaintiff H&S Contracting of the agreement
to continue with the sale and withhold the funds.
(Id.). The sale proceeded and the funds were
November 7, 2016, Kinetic's counsel at the time sent a
letter to FB&T's counsel before the commencement of
the present action regarding the September 15, 2016, emails
between the parties. (Letter [Docket No. 49-1]).
Kinetic's counsel wrote that it was his understanding
that FB&T's position was “the wording in
Policar's [Ritchie Brothers'] email” was
“tantamount to an agreement between the parties that
[FB&T's] lien has priority over Kinetic's and
that this language tolls any obligations for [FB&T] to do
anything else required by the U.C.C. to perfect its
lien.” (Id.). Kinetic's counsel countered
that it never had such an understanding because at the time
the agreement was entered into it “did not know who had
the superior lien and it was under the impression that the
statues governing the U.C.C. would decide the prevailing
party.” (Id.). Kinetic's counsel further
provided in part that
[l]ikewise, Kinetic did not agree to toll any U.C.C.
provisions to allow FB&T to perfect its lien in
Minnesota. In fact, one could surmise Mr. Policar's
statement meant the exact opposite, in that FB&T was
bound to maintain its status as only being perfected in South
Dakota (“in their present priority . . .”) and
was barred from filing anything during the one year period
allowed by the U.C.C. to re-perfect in Minnesota. Although, I
think Kinetic's understanding is a more reasonable way to
interpret Mr. Policar's writing, to wit, the U.C.C. will
determine the outcome and FB&T was not precluded from
doing whatever was needed to perfect in other states.
basis of the above facts, Plaintiff H&S Contracting
alleged a Breach of Contract claim, as well as, a claim of
Interference with Contractual Relationships against Defendant
Kinetic Leasing. (Compl., [Docket No. 1], at ¶¶
26-34). Plaintiffs also sought declaratory judgment finding
that Defendant FB&T has no claim to the proceeds of the
Equipment sale, “and that Kinetic has a claim to the
proceeds provided that plaintiffs be appropriately credited
in whole against the lease between H&S [Contracting] and
Kinetic [Leasing], reducing the amount due under the
[Kinetic] lease, and thereby reducing the amount of
Hazelton's liability under his personal guarantee of the
lease.” (Id. at ¶¶ 35-44, Prayer for
February 27, 2017, Defendant FB&T answered the present
Complaint, and it raised crossclaims against Defendant
Kinetic, as well as, counterclaims against Plaintiff H&S
Contracting. [Docket No. 4]. Defendant FB&T seeks
declaratory judgments against Plaintiff H&S Contracting
and Defendant Kinetic declaring the respective rights of the
parties in the proceeds from the sale of the Equipment at
issue. (Id. at ¶¶ 29-43). Defendant
FB&T also raises separate counterclaims of conversion
against Plaintiff H&S Contracting and similar crossclaims
against Defendant Kinetic. (Id. at ¶¶
44-55). Defendant FB&T does not raise any counterclaims
against Plaintiff Hazelton directly.
March 1, 2017, Defendant Kinetic answered the present
Complaint raising its own crossclaims against Defendant
FB&T and counterclaims against Plaintiff H&S
Contracting. [Docket No. 6]. Defendant Kinetic raises a
crossclaim against Defendant FB&T seeking declaratory
judgment that Defendant FB&T has no claim to the
equipment or the proceeds of the sale of the Equipment at
issue. (Id. at ¶ 76). Defendant Kinetic also
raises a counterclaim for Breach of Warranty Title against
Plaintiff H&S Contracting. (Id. at ¶¶
82-85). Defendant Kinetic does not raise any counterclaims
against Plaintiff Hazelton directly.
the claims raised by Plaintiff H&S Contracting, as well
as, all of the crossclaims and counterclaims raised by
Defendants Kinetic and FB&T arise out of the same facts,
i.e., the sale of the equipment at issue and who is entitled
to the proceeds from that sale. The parties do not dispute
October 9, 2017, Defendant FB&T filed its Motion for
Summary Judgment. [Docket No. 30]. Plaintiff H&S
Contracting, through counsel, responded to Defendant
FB&T's motion. [Docket No. 42].
November 10, 2017, Defendant Kinetic filed its own Motion for
Summary Judgment. [Docket No. 43]. Plaintiff H&S
Contracting did not responded to Defendant Kinetic's
Motion for Summary Judgment, and Plaintiff's time to
respond has long lapsed.
December 8, 2017, Plaintiff Tracy Hazelton filed an affidavit
verifying that he had commenced a personal Chapter 7
bankruptcy. (Hazelton Aff. [Docket No. 51]). After
Plaintiffs' counsel moved to withdraw, Plaintiff Hazleton
acknowledged his support of counsel's withdrawal,
indicated that he wished to proceed pro se, and acknowledged
that Plaintiff H&S Contracting could not appear in court
unless represented by an attorney. (Id.). Plaintiff
Hazelton further indicated that he would not appear at the
hearing on Defendants' Motions for Summary Judgment; he
purported to join Defendant Kinetic's opposition to
Defendant FB&T's motion for summary judgment; and he
expressly stated that he breached no duty or warranty of
title to Defendant Kinetic. (Id.).
February 2, 2018, this Court allowed Plaintiffs' counsel
to withdraw as counsel of record without substitution. (Order
[Docket No. 67]). Plaintiff Hazleton is now proceeding pro
se, and there has not been any appearance by substitute
counsel made on behalf of Plaintiff H&S Contracting.
February 28, 2018, Chief Judge Tunheim referred the present
Motions for Summary Judgment, [Docket Nos. 30, 43], to the
undersigned for Report and Recommendation. (Order [Docket No.
STANDARD OF REVIEW
56(a) of the Federal Rules of Civil Procedure provides that
“[t]he court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of
law.” A disputed fact is “material” if it
might affect the outcome of the case, and a factual dispute
is “genuine” 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); see also, Get Away Club, Inc.
v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992).
moving party bears the burden of offering sufficient
admissible evidence to establish that there are no genuine
issues of material fact and that the movant is entitled to
judgment as a matter of law. Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986). When deciding a
motion for summary judgment, a court views the evidence
before it in the light most favorable to the nonmoving party
and all reasonable inferences that may be drawn from the
underlying facts in the record must be drawn in the favor of
the nonmoving party. Ludwig v. Anderson, 54 F.3d
465, 470 (8th Cir. 1995); Mirax Chem. Prods. Corp. v.
First Interstate Commercial Corp., 950 F.2d 566, 569
(8th Cir. 1991). However, the “facts must be viewed in
the light most favorable to the nonmoving party only if there
is a ‘genuine' dispute as to those facts.”
Scott v. Harris, 550 U.S. 372, 380 (2007).
se litigants are not excused from failing to comply with
substantive and procedural law.” Burgs v.
Sissel, 745 F.2d 526, 528 (8th Cir. 1984). The claims of
a pro se plaintiff cannot survive a motion for summary
judgment unless the plaintiff has set forth specific
admissible facts demonstrating the existence of a genuine
issue for trial. See, Quam v. Minnehaha Cty.
Jail, 821 F.2d 522, 522 (8th Cir. 1987).
Motions for Summary Judgment. [Docket Nos. 30, 43].
FB&T's Motion for Summary Judgment, [Docket No. 30],
asks the Court to enter judgment in favor of FB&T on all
declaratory judgment claims; “declaring that
FB&T's claim to the proceeds from the September 16,
2016, sale of the Equipment . . . is prior and superior to
any claim of H&S contracting, Inc., Tracy A. Hazleton,
and Kinetic Leasing, Inc.”; ordering that the proceeds
from the September 16, 2016, sale of the Equipment be
immediately distributed to FB&T; and “[e]ntering
judgment in favor of FB&T and against H&S
Contracting, Inc., jointly and severally, in the amount of
$550, 000.00 for conversion of the
Kinetic's Motion for Summary Judgment, [Docket No. 43],
asks the Court to enter “judgement in favor of Kinetic
on all declaratory judgment claims and declaring that
Kinetic's claim to the proceeds from the May 24, 2016,
sale and September 16, 2016, sale of the Equipment is a [sic]
superior to the claims of H&S Contracting, Inc.
(‘H&S') and [FB&T]”;
“[o]rdering that the proceeds from the September 16,
2016, sale of the Equipment . . . be immediately distributed
to Kinetic”; entering judgment “in favor of
Kinetic on its claim for breach of warranty of title against
H&S”; and “[o]rdering that H&S defend
Kinetic in the above-captioned matter and pay for all of
Kinetic's reasonable attorney's fees and costs
incurred in defending itself in this action.”
Proceeds of September 16, 2016, Richie Brothers'
undisputed that at the time CCI sold the Equipment to
Plaintiff H&S Contracting, Defendant FB&T had a
perfected security interest in the Equipment in South Dakota
where the Equipment was physically located before it was
sold. (Tetzlaff Aff., [Docket No. 32], at ¶ 3 & Ex.
A; FB&T Answer, [Docket No. 4], at Ex. A). This perfected
security interest survived the disposition of the Equipment
from CCI to Plaintiff H&S Contracting, and it survived
the lease back transaction between Plaintiff H&S
Contracting and Defendant Kinetic. See, Minn. Stat.
H&S Contracting and Defendant Kinetic, however, argue
that FB&T's once-perfected security interest in the
Equipment has been retroactively subverted pursuant to the
requirements of Minnesota Statute § 336.9-316. They
reason that although a security interest perfected in one
jurisdiction (South Dakota) remains perfected for one year
after a transfer of collateral to a person that becomes a
debtor (H&S Contracting) and is located in another
jurisdiction (Minnesota), FB&T's security interest in
the Equipment became “unperfected and is deemed never
to have been perfected as against a purchaser of the
collateral for value” because FB&T failed to
perfect its security ...