Great American Insurance Company v. Nextday Network Hardware Corp. et al
Filing
13
MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 12/23/2014. (jf2s, Deputy Clerk)
UNITED STATES lJISTRICT COURT
DISTRICT OF MARYLAND
GREAT AMERICAN INSURANCE
COMPANY, as subrogee for Veelren
Corpora/ion,
Plaintiff,
v.
Civil Action No. TDC-14-1451
NEXTDA Y NETWORK HARDWARE
CORP., DONALD BANYONG, and
JOHN/JANE DOES 1 through 10,
Defendants.
MEMORANDUM
OJ'INION
This case arose after Defendant Nextday Network Hardware Corp. ("Nextday") bought
hundreds of thousands of dollars' worth of information technology
("IT") equipment from an
individual who stole the equipment from his employer, Vectren Corporation ("Vectren").
Plaintiff Great American Insurance Company ("Great American"), Vectren's insurer, filed suit
against Nextday; the president of Nextday, Donald Banyong; and ten unidentified
employees
who participated in the sale (collectively.
"Defendants").
The Complaint
claims for conversion, aiding and abetting conversion, and civil conspiracy.
Defendants' Motion to Dismiss for Failure to State a Claim. ECF NO.7.
disposition, and no hearing is necessary to resolve the issues.
2014). For the reasons that follow, the Motion is DENIED.
Nextday
asserts
Presently pending is
The Motion is ripe for
See Local Rule 106.5 (D. Md.
BACKGROUND
The following facts are described as alleged in the Complaint.
Brian Crowe was an Associate Network and Telecommunications
ECF NO.1.
Christopher
Analyst at Vcctren.
In
November 2012. Vectren discovered that Crowe had been stealing new and slightly used IT
equipment from Vectren data centers and other locations. The fair market value of the stolen IT
equipment totaled $919,338.05.
Crowe then sold the stolen IT equipment through online auction
website cBay.com to Nextday for $228,609.15.
Great American alleges that Banyong and ten
unidentified Nextday employees participated in purchasing the equipment from Crowe, including
setting the purchase price and providing the shipment information.
Crowe was eventually arrested by the Evansville Police Department ("EPD") in Indiana
and charged with two counts of theft. He later pleaded guilty to the charges. In March 2013, the
EPD informed Nextday that the IT equipment it purchased from Crowe was stolen. Despite the
EPD's attempts to make arrangements for the equipment's return to Vectren. Banyong resisted
and told the EPD that he planned to sell the remaining equipment he bought from Crowe. Great
American paid Vectren for the loss and, on April 30, 2014, filed suit against Defendants.
Defendants now move to dismiss.
DISCUSSION
I.
Legal Standards
To defeat a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), the
complaint must allege enough facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556
U.S. 662. 678 (2009). A claim is plausible when the facts pled "allow(] the Court to draw the
reasonable
inference that the defendant is liable for the misconduct alleged."
Id.
Legal
conclusions or conclusory statements do not suffice. Id. The Court must examine the complaint
2
as a whole, consider the factual allegations in the complaint as true, and construe the factual
allegations in the light most favorable to the plaintiff.
Albright v. Oliver, 510 U.S. 266,268
(1994); Lambeth v. Bd ofComm'rs of Davidson Cnty., 407 FJd 266, 268 (4th Cir. 2005).
The parties have attached multiple exhibits to their memoranda briefing the Motion,
including email correspondence, website printouts, and an affidavit from Banyong.
Typically,
when deciding a Rule 12(b)(6) motion, the court considers only the complaint and any attached
documents "integral to the complaint."
Sec'y ofSlalefor
Defence v. Trimble Navigalion LId.,
484 F.3d 700, 705 (4tb Cir. 2007). Rule l2(d) requires courts to treat such a motion as a Rule 56
motion for summary judgment
excluded.
where matters outside the pleadings are considered and not
Fed. R. Civ. P. 12(d). Because the attached exhibits do not adequately address the
merits of the claims presented, and the opportunity for sufficient discovery has not yet been
afforded in this case, the Court excludes all attached exhibits from consideration and construes
the Motion as a motion to dismiss under Rule 12(b)(6) for failure to state a claim.
This case is governed by Maryland law. As the forum state, Maryland's choice of law
rules apply. See Klaxon Co. v. Stenlor Elec. Mfg. Ca., 313 U.S. 487, 496 (1941); Raw!'s Auto
Auction Sales. Inc. v. Dick Herriman Ford, Inc., 690 F.2d 422, 426 (4th Cir. 1982). Maryland
follows the lex loci delicti principle in assessing choice of law. Lab. Corp. of Am. v. Hood, 911
A.2d 841, 845 (Md. 2006). Under this principle, in tort actions where the acts occurred in more
than one state, Maryland courts "apply the law of the State where the injury - the last event
required to constitute the tort - occurred."
~ 2-4.
Consequently,
Id.
Defendants are located in Maryland.
CompI.
Defendants bought the stolen IT equipment from Maryland, had it
delivered to Maryland, and then sold it from Maryland to other buyers. See Defs.' Mem. Supp.
Mot. Dismiss at 7-8, ECF NO.7. Because Maryland is where the last act necessary to complete
3
Defendants' alleged conversion occurred, Maryland law applies in this case.1 See First Union
Nat'/ Bank v. N. Y. Life Ins. & Annuity Corp., 152 F. Supp. 2d 850, 854 (D. Md. 2001).
II.
Conversion
Great American sufficiently states a plausible claim for conversion by alleging that
Defendants purchased goods that Crowe had stolen from Vectren, then sold them to other buyers.
Under Maryland law, conversion involves any distinct act of dominion or control '''exerted
by
one person over the personal property of another in denial of his right or inconsistent with it.'"
Allied Inv. Corp. v. Jasen, 731 A.2d 957, 963 (Md, 1999) (quoting Interstate Ins. Co. v. Logan,
109 A,2d 904, 907 (Md. 1954)). In Inmi-Etli v. Aluisi, 492 A.2d 917 (Md. Ct. Spec. App. 1985),
the Maryland Court of Special Appeals found Pohanka OldsmobiJe-GMC,
Inc. ("Pohanka")
liable for conversion where Pohanka had purchased a car from an individual who had taken
possession of the car without the owner's authorization.
Id. at 918-19, 923. Particularly where
Great American has alleged that Nextday sold the equipment it purchased from Crowe after it
had been notified by the police that the property was stolen, Compl.
15, it has successfully
pleaded a cause of action for conversion.
Defendants argue that the entrustment provision of the Commercial Law Article of the
Maryland Code, which adopts a provision of the Uniform Commercial Code ("UCC"), precludes
any conversion claim. This provision provides that "[a]ny entrusting of possession of goods to a
merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to
Defendants analyze this matter under Maryland law but identify Ohio and Indiana as additional
states with equities in the case. See Defs.' Mem. Supp. Mot. Dismiss at 7-8. They
acknowledge, however, that because all three states adopted the Uniform Commercial Code
provision at issue in this case, the "decision should be the same regardless of this Court's choiceof-law determination." Jd. at 8. Although Great American does not concede that Maryland law
applies, it acknowledges that the relevant Maryland law does not conflict with the laws of those
other jurisdictions. See Pl.'s Mem. opp. Defs.' Mot. Dismiss at 7 n.l, ECF NO.8.
I
4
a buyer in ordinary course of business."
Md. Code Ann., Com. Law ~ 2-403(2) (West 2014).
The entrustment provision is meant to safeguard unsuspecting buyers who purchase goods from
merchants in good faith. See Lakes Gas Ca. v. Clark Oil Trading Co., 875 F. Supp. 2d 1289,
1304-05 (D. Kan. 2012); 2 William D. Hawkland ef al., Uniform Commercial Code Series ~ 2403:4 (2014). Thus, jf a party entrusts its goods to a "merchant," a "buyer in the ordinary course
of business" who purchases those goods from the merchant cannot be liable for conversion even
if the entrusting party later disputes whether the merchant had authority to make the sale. See
Robison v. Gerber Prods. Co., 765 F.2d 431, 433 (4th Cir. 1985) (applying the identical UCC
provision under South Carolina law).
For the entrustment provision to apply, (1) there must be an entrustment of goods; (2) that
entrustment must be to a "merchant who deals in goods of that kind"; and (3) the transfer must
be to a buyer in the ordinary course of business who purchases in good faith, without knowledge
that the sale violates ownership rights.
ld.
Here, Defendants argue that the entrustment
provision applies because Crowe entrusted the stolen IT equipment to Nextday, Nextday is a
merchant who deals in goods of that kind, and Nextday was a buyer in the ordinary course of
business.
Defs.' Mem. Supp. Mot. Dismiss at 11-13.
three fundamental
deficiencies.
First, the entrustment
This argument, however, suiTers from
provision inherently
requires three
separate parties - an owner, a merchant, and a buyer - as it only applies when a rightful owner
attempts to sue a buyer after the buyer purchases goods from a merchant.
Nextday cannot he
both the merchant and the buyer in this scenario.
Second, the entrustment provision leaves the merchant potentially liable for conversion.
See 2 William D. Hawkland et aI., Uniform Commercial Code Series ~ 2.403:4 (noting that,
although the entrustment provision protects the buyer from suit, the owner "will have rights
5
against the merchant who sold the goods for conversion or other common law remedies as
appropriate").
Thus, if the provision applies here and Nextday is the merchant, as Nextday
claims, then the entrustment provision would not protect Nextday from suit.
Instead, the
provision would protect only the subsequent buyers to whom Nextday sold the stolen IT
equipment.
Third, the entrustment provision does not apply where the "entrusting" party stole the
goods. At its core, the entrustment provision works by giving the merchant "power to transfer all
rights of the entruster to a buyer in ordinary course of business." See Md. Code Ann., Com. Law
S 2-403(2).
In /nmi-Etti, the court explained that only a person with "voidable" title has the
power to entrust goods under this provision. [d. at 920 (citing Md. Code Ann., Com. Law ~ 2403(1) ("A person with voidable title has power to transfer a good title to a good faith purchaser
for value.")).
"Voidable" title is obtained where the owner voluntarily transfers the goods. /d. at
923. If the goods are stolen, only "void" title is obtained, and the thief cannot pass along good
title to a good faith purchaser.
/d. at 921, 923. Where, as here, the "entrusting" party, Crowe,
had stolen the equipment, he had only void title and therefore had no rights in the goods to
transfer to the merchant, who then could not lawfully transfer any rights to the buyer. See /nmiEtti, 492 A.2d at 923 ("If the goods are stolen otherwise obtained against the will of the owner,
only void title can result."); 2 William D. Hawkland et a!., Uniform Commercial Code Series
S
2-403:4 ("[I]f the entruster has no rights, such as when the entruster is a thief, the buyer in
ordinary course of business also gets no rights.").
The facts of /nmi-Elti
illustrate the inapplicability
of the entrustment
provision to
Nextday. There, the plaintifThad allowed an acquaintance, David Butler, to receive her new car;
Butler then convinced the Motor Vehicle Administration to issue him a certificate of title in his
6
name and sold the car without her authorization to Pohanka, a car dealer, which in tum sold it to
a third-party customer.
Inmi-Etti, 492 A.2d at 918-19.
The court held that ~ 2-403, which
includes the entrustment provision, did not apply because Butler had void title when he sold the
car to Pohanka, and that as a result, Pohanka had "obtained no title, and its sale of the vehicle
constituted a conversion.,,2 ld. at 923. The court rejected Pohanka's claim that it was not liable
because Butler had presented a "duly issued certificate of title in his name," such that Pohanka
was a "good faith purchaser for value." ld. Rather, under the court's conclusion, the entrustment
provision cannot apply "where the seller had no title at all." ld. at 924.
Notably, the lnmi-Etti court reached that conclusion even though it was unclear whether
Butler had stolen the car. See id. ("[T]he record is not sufficient for us to decide whether Butler
actually stole the [plaintiff's] vehicle.").
Here, where Great American expressly alleges that
Crowe stole the IT equipment, Compl. ~ 9, the facts more strongly indicate that Crowe obtained
void title and could not convey good title to Nextday as the merchant.
Even then, as discussed
above, the entrustment provision would protect only the buyers of the goods from Nextday, not
Nextday itself.
Even if Nextday were viewed as the "buyer in the ordinary course of business," the
entrustment provision still would not apply. Under that analysis, Vectren would be the owner;
Crowe, the merchant; and Nextday, the buyer. The provision would not apply because Vectren
did not entrust the [T equipment to Crowe. Robison, 765 F.2d at 433. "Entrusting" under the
provision includes "any delivery and any acquiescence in retention of possession regardless of
any condition expressed between the parties to the delivery or acquiescence and regardless of
2 As to the entrustment provision specifically, the court added that the provision did not apply
because "there was no evidence that Butler was a 'merchant who deals in goods of that kind' (Le.
automobiles)." ld. at 921.
7
whether the procurement of the entrusting or the possessor's disposition of the goods have been
such as to be larcenous under the criminal law."
"Delivery,"
Md. Code Ann., Com. Law
in tum, means "voluntary transfer of possession."
9
~ 1-201(b)(15).
2-403(3).
So for the
entrustment provision to apply, the transfer of possession of goods from the owner to the
merchant must be voluntary. Here, because Crowe stole the IT equipment from Vcctren, CampI.
9, the transfer of possession was not voluntary, so there was no entrustment. See lnmi-Elti, 492
A.2d at 923.
Furthermore, there is no basis to find that Crowe was a "merchant who deals in goods of
that kind."
Robison, 765 F.2d at 433. Great American alleges that Crowe was an Associate
Network and Telecommunications
Analyst at Vectren.
Compl.'
8. Although the Complaint
does not contain allegations describing Crowe's job responsibilities in detail, there is nothing to
indicate that a telecommunications
analyst is a legitimate merchant dealing in the purchase and
sale of new and slightly used IT equipment.
Because the entrustment provision does not apply,
Great American has sufficiently alleged a conversion claim against Defendants.
Ill.
Aiding and Abetting Conversion
Great American adequately states a claim for aiding and abetting conversion.
A person
can be held liable for a tort "'if he, by any means (words, signs, or motions) encouraged, incited,
aided or abetted the act of the direct perpetrator of the tort." Duke v. Feldman, 226 A.2d 345,
347 (Md. 1967). There must be both a direct perpetrator of the tort and an underlying tortious
activity. Alleco, Inc. v. Harry & Jeanelle Weinberg Found., Inc., 665 A.2d 1038, 1049-50 (Md.
1995). In this case, these requirements are met because there is no dispute that Crowe stole the
IT equipment from Vectren, which constitutes the tort of conversion.
8
Defendants argue that no underlying tortious activity exists because they purchased the
IT equipment lawfully after Crowe had already converted it. By providing an outlet through
which Crowe could dispose of the stolen goods, however, Nextday could be found to have aided
and abetted the conversion.
Cf United Stales v. Armel/a, 191 F.3d 448, 1999 WL 717262, at '5
(4th Cir. 1999) (rejecting an argument that "one cannot aid and abet a completed" offense and
finding that the defendant aided and abetted a criminal fraud scheme by serving as an outlet for
selling illegally modified goods). Defendants also argue that they did not know the equipment
was stolen until after they had sold it all. At this stage, however, Great American alleges that
Defendants were notified by the EPD in March 2013 that the equipment was stolen, yet persisted
in selling the remaining equipment.
Compl.
14-15.
Great American also alleges that
Defendants had indicators that the equipment was stolen because Crowe was selling an unusually
large volume of IT equipment at far below market value.
Id
30-31.
'{be alleged facts
therefore sufficiently support the conclusion that, by buying and selling the stolen equipment,
Defendants knowingly aided Crowe in committing conversion.
Because the facts alleged must
be construed as true for a motion to dismiss, the Court concludes
that Great American
sufficiently states a claim for aiding and abetting conversion.
IV.
Civil Conspiracy
Great American has also sufficiently alleged a claim of civil conspiracy.
Civil conspiracy
requires (I) a confederation of two or more persons by agreement or understanding; (2) some
unlawful or tortious act done in furtherance of the conspiracy or use of unlawful or tortious
means to accomplish an act not itself illegal; and (3) actual legal damage resulting to the
plaintiff." Lloydv. Gen Molors Corp., 916 A.2d 257, 284 (Md. 2007).
9
Defendants argue that Great American fails to state a civil conspiracy claim because
nothing in the Complaint suggests an agreement or understanding between the parties. Proof of
civil conspiracy, however, can be in the fonn of circumstantial evidence. Daugherty
\I.
Kessler,
286 A.2d 95, 10 I (Md. 1972). A civil conspiracy can be established "by inferences drawn from
the nature of the acts complained of, the individual and collective interests of the alleged
conspirators,
the situation and relation of the parties, their motives and all the surrounding
circumstances preceding and attending the culmination of the common design." ld.
As such, the facts alleged sufficiently support an inference that Defendants bought and
sold goods from Crowe with a common understanding that their actions would facilitate the
unlawful conversion of property, and that Vectren was thereby hanned.
Defendants purchased a
large volume of IT equipment at a price four times lower than fair market value, from an
individual seller with no ostensible background in the procurement or sale of that type of
equipment.
CompI. ~
12.21.30-31,34.
Under these circumstances,
one could infer that
Nextday was part of a conspiracy by acting as a "fence" to dispose of goods stolen by Crowe.
Cf United Slales v. Blackman, 746 F.3d 137, 144 (4th Cir. 2014) (finding sufficient evidence to
support a criminal conspiracy conviction based on defendant's role as a "fence" who sold stolen
goods). In particular, the allegation that Nextday persisted in trying to sell the equipment even
after it was notified by the police that the property was stolen, Compl.
15, 22, provides
significant support for this claim. Great American has thus pleaded facts sufficient to establish
that Defendants were part ofa civil conspiracy with Crowe to convert Vectren's property.
10
CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss for Failure to State a Claim,
ECF No.7,
is DENIED. A separate Order follows.
Date: December 23, 2014
THEODORE D. C
United States Distri
IJ
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?