Crestmark Bank v. Electrolux Home Products, Inc.

Filing 57

MEMORANDUM OPINION and ORDER Denying Defendant's 35 Motion for Summary Judgment and Granting in Part and Denying in Part Plaintiff's 36 Motion for Summary Judgment - Signed by District Judge Judith E. Levy. (FMos)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Crestmark Bank,
Plaintiff,

Case No. 14-cv-11595
Hon. Judith E. Levy
Mag. Judge David R. Grand

v.
Electrolux Home Products, Inc.,
Defendant.
________________________________/

ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT [35] AND GRANTING IN PART
AND DENYING IN PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [36]
This matter comes before the Court on cross motions for summary
judgment regarding a contract dispute between plaintiff, Crestmark
Bank, and defendant, Electrolux Home Products, Inc., and their rights
to tools and molding equipment, finished component parts intended for
purchase by defendant, and raw materials. This property was located
at the facilities of Tarheel Plastics, LLC (“Tarheel”), a manufacturersupplier for defendant and debtor to plaintiff, that had ceased business
operations in early October 2013. Plaintiff asserts that that defendant
1

breached the parties’ agreement, while defendant argues that the
agreement lacked proper consideration, and, in any event, the terms
that were not impossible were fully performed.
At stake is $332,000.00 in an escrow account funded by defendant
pursuant to the Accommodation Agreement. Defendant has brought
counterclaims

for

tortious

interference

with

contract,

tortious

interference with business relations, unfair and deceptive trade
practices under North Carolina law, unjust enrichment, conversion, and
declaratory relief that Electrolux is entitled to offset the costs of the
resins it purchased on Tarheel’s behalf. (Answer and Counterclaims,
Dkt. 18.)
I.

BACKGROUND
A. Electrolux and Tarheel
Tarheel, located in North Carolina, manufactured injection-

molded plastic parts for assembly into appliances made by Electrolux
beginning in 2008, and continuing until it ceased operations on October
2, 2013. (Rakes Aff., Def. Mot. Ex. 1, Dkt. 38-2 at 1; Lund Dep., Def.
Mot. Ex. 6, Dkt. 38-7 at 11.)

Suppliers like Tarheel bid for

2

manufacturing projects with Electrolux through a web portal, into
which a quote is submitted regarding price, quantity, delivery, and
other specifications for a specific project. (Rakes Aff., Dkt. 38-2 at 1-2.)
If Electrolux found that quote acceptable, it posted a purchase order,
along with terms of sale, for the manufacturer-supplier to accept
through the web portal. (Id. at 2.) The terms of such an agreement
provided, in part, “Set-off: Buyer [Electrolux] shall be entitled to set off
any amount owing at the time from Seller to Buyer or any of its
affiliated companies against any amount payable at any time by Buyer
or any of its affiliated companies to Seller.” (Terms and Conditions of
Sale, Def. Mot. Ex. 2, Dkt. 38-3 at 2.)

Tarheel ordered the raw

materials, called resins, used to manufacture the parts from Electrolux,
and “then from time to time Electrolux offset the costs of the resins
ordered by Tarheel against Tarheel’s open manufacturing invoices.”
(Rakes Decl., Dkt. 38-2 at 2.)
A UCC Financing Statement, filed with the North Carolina
Secretary of State on December 28, 2011, recorded the bailment of, and
security interest in, specific tools owned by Electrolux and placed into
the possession of Tarheel. (Def. Mot., Ex. 4.) A Tooling Agreement,
3

executed on February 8, 2013, between Tarheel and Electrolux
describes a different list of tools from that in the 2011 UCC Financing
Statement, but similarly makes it clear that Electrolux maintained the
ownership of the equipment provided to Tarheel for the manufacture of
parts Electrolux would then purchase. (Tooling Agreement, Def. Mem.,
Ex. 3, Dkt. 38-4.)

Tarheel shared this understanding that the

equipment and molds belonged to Electrolux during the entire course of
the relationship between the two companies. (Scott Dep., Def. Suppl.
Mem., Ex. A, Dkt. 55-2 at 4.)

The tooling agreement required

Electrolux to have “plainly marked” its equipment and barred Tarheel
from tampering or removing these markers. (Tooling Agreement, Def.
Mem., Ex. 3, Dkt. 38-4 at 1.) Tarheel promised to “not allow the Tooling
to become encumbered in any way as a result of any act or omission of
Seller [Tarheel].” (Id. at 2.) The agreement also indicates that, even if
a court determined that Electrolux had not retained ownership of the
tooling, Tarheel “hereby agrees to be deemed to have granted Buyer a
security interest giving Buyer all the rights of a secured creditor as to
the Tooling under the Uniform Commercial Code as in effect in that
jurisdiction.” (Id.)
4

The relationship between Electrolux and Tarheel was based on a
just-in-time manufacturing supply, meaning that there would have
been very little time available for Electrolux to change suppliers if one
manufacturer ceased operations. (Stones Dep., Def. Mem. Ex. 9, Dkt.
38-10 at 7.)

Electrolux projects represented ninety-five percent of

Tarheel’s business. (Lund Dep., Pl. Mem. Ex. 5, Dkt. 36-2 at 37; but see
Scott Dep., Def. Suppl. Mem., Ex. A, Dkt 55-2 at 9 (estimating that
Electrolux accounted for 90% of Tarheel’s business).)
Electrolux provides documentation that, when Tarheel ceased
operations in early October, Tarheel owed Electrolux $240,450.00 in
resin debits, as well as another $211,506.00 in “inventory at Tarheel,”
and that Electrolux owed Tarheel $264,901.60 in open invoices for
component parts received between June and October of 2013. (Rakes
Aff., Def. Mem., Ex. 1 at 8.) A Tarheel minority partner testified that
“hundreds of thousands of pounds” of resin filling three storage silos
was onsite at Tarheel at the time it ceased operations, although he did
not state a value for this material. (Scott Dep., Def. Suppl. Mem., Ex.
A, Dkt. 55-2 at 9.)

5

B. Crestmark and Tarheel
Crestmark was Tarheel’s primary lender, holding a line of credit
with Tarheel for approximately $1,200,000.00. The earliest evidence of
this relationship is a promissory note and security agreement dated
November 27, 2012. (Pl. Mem., Ex. 1, Dkt. 36-2 at 1-2; Lund Dep., Pl.
Mem. Ex. 5, Dkt. 36-2 at 36-37.) In consideration for the loan, Tarheel
grant[ed] to Crestmark a security interest in all of its assets,
now existing or hereafter arising, wherever located included
All Accounts, Goods, Inventory, Equipment, . . . books and
records and supporting obligations for any of the foregoing,
and all Proceeds of the foregoing (the “Collateral”), to secure
repayment of the Obligations (“Security Interest”).
(Pl. Mem., Ex. 2, Dkt. 36-2 at 6 (emphasis added).) Three individuals,
Joseph Nelson, Daniel Scott, and Craig Ward personally guaranteed the
loans.

(Pl. Mem., Ex. 3 at 28-29.)

Crestmark recorded its security

interest on November 5, 2012. (UCC Financing Statement, Def. Mot. to
Stay, Ex. C, Dkt. 3-3 at 2 (describing the collateral as “[a]ll assets of the
Debtor now owned or hereafter acquired and wherever located”).)
The security agreement included the representation that Tarheel
“is the owner of all the Collateral and there are no other liens or claims
against the Collateral, except the Security Interest of Crestmark or as
6

shown on the Schedule,” and that “[t]he Inventory and Equipment are
and shall remain free from all liens, claims, encumbrances, and security
interests (except as held by Crestmark, and except as identified on the
Schedule).” (Pl. Mem. Ex. 2, Dkt. 36-2 at 8-9.) The agreement excluded
from inventory anything that was “subject to any license or other such
agreement that limits, conditions, or restricts [Tarheel’s] or Crestmark’s
right to sell or otherwise dispose of such Inventory.” (Id. at 20.) The
evidence does not show that a list of Electrolux tooling was appended or
otherwise exempted from this lien.
The

Crestmark-Tarheel

acknowledgment

by

Crestmark

relationship
of

the

also

included

resins-purchasing

offset

program—that “[Tarheel] from time to time got these small invoices
from Electrolux that would offset against the receivables and it had
been fairly small by comparison.” (Lund Dep., Pl. Mem., Ex. 5, Dkt. 36-2
at 38.) However, Crestmark understood the offset program to be “a
fairly small number,” and there had been “very few adjustments” in the
roughly year and a half in which Crestmark managed the credit line
with Tarheel. (Id. at 39.)
On September 30, 2013, Crestmark officials traveled to the
7

Tarheel facility in North Carolina to audit its books and determine if
Tarheel should continue or cease operations. (Lund Dep., Pl. Mem. Ex.
5, Dkt. 36-2 at 32-34.) The records documenting the raw-material offset
program with Electrolux were missing, apparently taken by the
majority owner, Mr. Nelson, when he suddenly left the company. (Id. at
35; see also Scott Dep., Def. Suppl. Mem., Ex. A, Dkt. 55-2 at 9-11
(testifying that Mr. Nelson left Tarheel on September 13, 2013, after
the minority partners discovered that he had falsified payroll-tax
information and kept information about the offset program with
Electrolux off the company’s books).) The minority owners of Tarheel,
Mr. Scott and Mr. Ward, represented to Crestmark that they were not
knowledgeable about the offset program. (Id. at 38.)
The analysis prepared on October 1, 2013 by Crestmark with the
minority owners demonstrated that Tarheel could not continue
operations.

(Id. at 42-43.)

The Statement of Accounts prepared by

Crestmark and dated October 16, 2013 demonstrates that Electroluxrelated companies had past-due balances of $1,109,006.67. (Pl. Mem.
Ex. 6, Dkt. 36-2.)1

1

Plaintiff, in its brief, states this amount as $1,110,006.67, but the

8

A cash-flow projection and analysis created between September 30
and October 1, 2013 demonstrated to Crestmark that Tarheel had a
negative cash flow that would continue to grow through the Fall of
2013, and led Crestmark to cease its lending of operating funds and
terminate Tarheels operations on October 2, 2013.

(Lund Decl., Pl.

Suppl. Mem., Ex. 2, Dkt. 56-1 at 23.) There is significant disagreement
between the parties regarding the meaning of this cash-flow analysis:
Electrolux asserts that this analysis supports its contention that
Tarheel owed it money at the time it ceased operations, while
Crestmark asserts that it has no relevance to the current dispute and
merely modeled cash-flow through the Fall of 2013 to help the lender
decide if operations should be terminated. (Compare Def. Suppl. Mem.,
Dkt. 55 at 4-5; Pl. Suppl. Mem., Dkt. 56 at 4-7.)2
C. Crestmark and Electrolux
Electrolux provided a letter to Crestmark dated March 1, 2013
documentation provided does not support this assertion.
See totals at 71
($794,779.48), 73 ($209,825.06), 74 ($102,381.20), 75 ($2,020.93).
The parties also dispute the format in which this document was provided to
plaintiff. (Def. Suppl. Mem., Dkt. 55 at 5-8; Pl. Suppl. Mem. at 13-15.) The marked
disagreement between the parties regarding the interpretation of this document
creates a genuine issue of material fact, which cannot be resolved under Rule 56
motions.
2

9

notifying the lender of its secured interest in tooling located at Tarheel.
(Def. Mem. Ex. 5, Dkt. 38-6.) No list of tools is attached to this exhibit.
(Id.)

Soon after, by letter dated March 11, 2013, an Electrolux

purchasing agent released any security interest the company held in
Tarheel’s accounts receivable or inventory.

(Electrolux Letter, Pl.

Mem., Ex. 4, Dkt. 36-2 at 30.)
Between October 1 and October 3, 2013, Crestmark official Lund
spoke with an Electrolux official regarding tools and parts ready for
shipment (“component parts”) at Tarheel. (Lund Dep., Pl. Mem. Ex. 5,
Dkt. 36-2 at 48.) Crestmark conditioned Electrolux’s ability to remove
the tools and molds from Tarheel on having “ma[d]e arrangements to
settle out all accounts receivables.” (Id.)
Q: So you informed them—it’s Crestmark’s position that you
informed Electrolux that they could pick up their tooling and
molds?
A: If we came to an agreement with settling out our account,
yes.
(Id.) An Electrolux employee onsite at Tarheel between October 1 and
4, 2013 explained that they were barred from gaining access to the tools
and equipment. (Stones Dep., Def. Mem., Ex. 9, Dkt. 38-10 at 8.) One
10

of the Tarheel minority partners confirmed that Crestmark would not
allow finished product or tooling to leave the Tarheel plant, that
Electrolux communicated its urgent need for the product and molds,
and that he had explained Electrolux’s urgent need for the molds to
Crestmark. (Scott Dep., Def. Suppl. Mem., Ex. A, Dkt. 55-2 at 7-8.)
The evidence provided does not clarify whether Crestmark was
either fully informed or had notice regarding which equipment at the
Tarheel plant was the property of Electrolux. Crestmark engaged in its
promissory note and security agreement with Tarheel after Electrolux
filed its 2011 security interest in a subset of the tooling at Tarheel.
This UCC financing statement filed by Electrolux in 2011 appears to
itemize the same parts as the first page of Schedule 4.B of the
Accommodation Agreement.

These facts establish that Crestmark

entered the loan agreement with notice of Electrolux’s priority security
interest in the subset of equipment and molds itemized in the 2011
UCC filing. (Compare Def. Mem., Ex. 3, Dkt. 38-4 at 5-6; Pl. Mem., Ex.
23, Dkt. 36-3 at 97.)

The Tooling Agreement executed on February 8,

2013 between Electrolux and Tarheel appears to cover the same tools
that are itemized on the second and third pages of Schedule 4.B of the
11

Accommodation Agreement. (Compare Def. Mem., Ex. 3, Dkt. 38-4 at 56; Pl. Mem., Ex. 23, Dkt. 36-3 at 98-99.) However, the record does not
clarify whether Crestmark or Electrolux had the priority secured
interest in this subset of tools. There is no UCC filing regarding this
subset; nor is there an explanation of how this arrangement was
allowed in light of Crestmark’s all-asset lien, which included afteracquired equipment.

The record does not show that Crestmark had

information about which tools at Tarheel belonged to Electrolux or that
it had documentation from Electrolux regarding its accounting of the
invoices and resin offset program with Tarheel.3
To resolve the standoff over access to the finished component
parts, tools and molds, Tarheel, Crestmark, and Electrolux executed an
Accommodation Agreement on October 4, 2013. (Def. Mem., Ex. 11,
Dkt. 38-12.) On October 1, 2013, Electrolux’s counsel, David Conaway,
contacted Crestmark’s counsel, Thomas Coughlin, indicating a desire to
speak “first thing” to discuss tooling owned by Electrolux and in

Plaintiff frames this as a situation in which Electrolux did not produce this
information, (see Knudsen Dep., Pl. Mem., Ex. 7, Dkt. 36-2 at 78-79), while
defendant frames this as a situation in which Crestmark refused invitations to visit
Electrolux’s headquarters and review the records there. (Lund Dep., Def. Mem., Ex.
6, Dkt. 38-7 at 17.)
3

12

Tarheel’s possession.

(Pl. Mem., Ex. 8, Dkt. 36-2 at 83.)

Coughlin

recounts that Conaway asked about recovery of inventory and tooling at
Tarheel, as well as whether Crestmark would consider funding further
production, and the attorneys discussed an accommodation agreement.
(Coughlin Dep., Pl. Mem., Ex. 9, Dkt. 36-2 at 87-88.) Crestmark was
aware that Conaway stressed Electrolux’s urgency in this matter. (Id.
at 89.)
The record demonstrates that Conaway and Coughlin proceeded to
negotiate the Accommodation Agreement through multiple iterations
between October 2 and October 4, 2013, with acceptable terms reached
on Friday, October 4, 2013.

(Pl. Mem., Ex. 11-22, Dkt. 36-2, 36-3.)

Electrolux provides a letter dated October 3 stating that Crestmark
demanded the monetary terms for the $100,000.00 payment and
$332,000.00 escrow funds that morning, along with additional terms for
Electrolux to fund Tarheel’s continuing operations.

(Oct. 3, 2013

Conaway Letter to Coughlin, Def. Mem., Ex. 10, Dkt. 38-11 at 2-3.)
Conaway clearly announced in this letter Electrolux’s extreme
dissatisfaction with these terms and its urgent need to recover its
tooling.

(Id.)

In the course of these rapid negotiations, Electrolux
13

suggested modified monetary terms in an email from Conaway to
Coughlin later in the day on October 3, offering “$100,000 immediately
upon loading the on hand parts and tooling on Electrolux designated
trucks (tomorrow morning). . . [and] Electrolux will also wire tomorrow
morning $332,000 into escrow, pending a good faith and best efforts
reconciliation by the parties of the amounts owed by Electrolux to
Tarheel on outstanding invoices.” (Pl. Mem., Ex. 13, Dkt. 36-3 at 11.)
More red lining of the agreement ensued before a final version was
executed on the afternoon of October 4, 2013. (Id. at Ex. 22-23, Dkt. 363.)
As

part

of

the

Accommodation

Agreement,

Crestmark

relinquished any interest in Electrolux’s tooling; in turn, Electrolux
relinquished any interest in “any inventory or equipment other than”
the tooling it owned.

(Pl. Mem., Ex. 23, Dkt. 36-3 at 92.)

The

Agreement further established that 1) Electrolux would immediately
pay Crestmark $100,000.00, in exchange for the finished parts that had
not yet been shipped to Electrolux, and without any resin setoff; 2)
Electrolux would wire to Crestmark’s counsel $332,000.00, to be held in
escrow pending a reconciliation with five days of the outstanding
14

invoices owed to Tarheel; 3) upon Crestmark’s receipt of these two
payments, Electrolux would have the right to take immediate
possession of its tooling; and 4) the only allowed setoffs for resins would
be “the verifiable, actual cost of plastic resins or other raw materials
paid for by Customer and delivered to Supplier and ultimately used by
Supplier to produce that individual Component Part [shipped or to be
shipped to Electrolux].” (Id. at 91-92.) Electrolux also had the option to
take possession of resins and raw materials that it had supplied to
Tarheel and then issue a credit in Tarheel’s favor. (Id. at 91.)
The Accommodation Agreement provides that it is governed by
Michigan law and that jurisdiction “will be proper in federal district
court or in state court in Oakland County [Michigan].” (Id. at 93.) A
three-page list of itemized tools belonging to Electrolux was attached to
the agreement.

(Id. at 97-98.)

Coughlin emailed Conaway late on

Friday, October 4, 2013 to confirm that the wires had been received and
Electrolux was free to take possession of the finished component parts
and its tooling from the Tarheel facility. (Pl. Mem., Ex. 24, Dkt. 36-3 at
100.) He indicated that Electrolux was also free to take raw materials,
subject to further reconciliation, but would need someone from Tarheel
15

or Crestmark present to monitor the quantity taken. (Id.)
By Thursday of the following week, October 10, 2013, Electrolux
had been able to remove all of its tooling and molds from the Tarheel
facility. (Knudsen Dep., Pl. Mem., Ex. 7, Dkt. 36-2 at 80-81.) Neither
party asserts that Electrolux was forced to suspend its operations or
incur any fines due to the shut-down of the Tarheel operation. (Id. at
82; Stones Dep., Pl. Mem., Ex. 25, Dkt. 36-3 at 106.)
On October 10, 2013,4 Electrolux provided Tarheel with the
documentation reconciling open invoices and resin credits. (Pl. Mem.,
Ex. 26, Dkt. 36-4; Def. Mem., Ex. 12, Dkt. 38-13.)

Crestmark had

allowed Electrolux an extra day to provide the reconciliation.
(Matheson Dep., Def. Mem., Ex. 7, Dkt. 38-8 at 10.)

The parties

disagree on the validity and meaning of these documents. Electrolux
claims that the reconciliation documented that Tarheel owed Electrolux
$156,976.86 after the resins had been offset from open invoices. (Def.
Mem., Ex. 12, Dkt 38-13 at 2.)5

By contrast, Crestmark found this

Plaintiff states this was on October 10, 2013 (Pl. Mem., Dkt. 36 at 21), while
defendant states this was on October 11, 2013. (Def. Mem., Dkt.35 at 17.) An email
from Conaway to Coughlin dated October 10, 2013 resolves this discrepancy. (Pl.
Mem., Ex. 26, Dkt. 36-4 at 1: Def. Mem., Ex. 12, Dkt. 38-13 at 1.)
4

Electrolux further asserts that by June of 2015, this net amount owed to
Electrolux was $158,754.40. (Rakes Aff., Def. Mem., Ex. 1, Dkt. 38-2 at 3.)
5

16

initial reconciliation unacceptable because it documented all resins
delivered, rather than the resin actually used to manufacture parts, it
featured no signatures, and it had handwritten amounts on it, which
made it unreliable. (Lund Dep., Pl. Mem., Ex. 5, Dkt. 36-2 at 53.) It is
undisputed that this first reconciliation documented all resins shipped
to Tarheel, rather than a calculation of the resin actually used in
finished parts. (Rakes Dep., Pl. Mem., Ex. 34, Dkt. 36-8 at 4-5.)
On November 14, 2013, Coughlin provided Conaway with a
detailed explanation of how the first reconciliation failed to satisfy the
terms of the Accommodation Agreement and allow for resolution of the
$332,000.00 in the escrow account, stressing that only the resins
actually used to mold parts that were sold to Electrolux could be applied
as an offset to the open invoices.

(Pl. Mem., Ex. 27, Dkt. 36-6.)

Coughlin explained that, based on what it had been able to learn from
Tarheel, as well as information from Electrolux, it estimated the cost of
raw materials to be between 62% and 66% of the invoice amount. (Id.
at 2; but see Scott Dep., Def. Suppl. Mem., Ex. A, Dkt. 55-2 at 6 (“60
percent of your total cost i[s] typically resin.”).)

Coughlin sought

Electrolux’s consent to release the escrow funds to Crestmark, based on
17

the documentation Crestmark provided that the $1,109.760.006 in open
invoices would yield $709,760.00 in allowed setoffs under the terms of
the Accommodation Agreement, and result in Electrolux owing
$399,246.00, with $332,000.00 already held in the escrow account. (Id.)
Conaway responded on December 6, 2013, to indicate that
Electrolux was preparing additional information. (Pl. Mem., Ex. 29,
Dkt. 36-6 at 28.) On January 7, 2014, with no additional information
forthcoming, Coughlin renewed his demand for consent to release the
escrow funds. (Pl. Mem., Ex. 31, Dkt. 36-6.)
On January 21, 2014, Electrolux provided a second reconciliation,
which it described as demonstrating $240,540.00 in resins used in parts
listed in the open invoices, and explained the formula it used to
calculate that amount. (Def. Mem., Dkt. 35 at 18; Ex.1, Dkt. 38-2 at 45.)

Electrolux asserts that the only way to calculate the amount of

resins actually used, rather than deriving an estimate, would have been
to observe the actual production of each part. (Def. Mem., Dkt. 36 at
18.) Electrolux also identified open invoices with Tarheel in the amount
of $264,901.60. (Id.; Ex. 1, Dkt. 38-2 at 2.) Crestmark asserts that this

6

See note 1¸ supra.

18

second reconciliation was also unacceptable, because in some cases the
resin debits were larger than the value of the outstanding invoices,
which would not comport with the understanding that the value of the
resins used in manufactured parts could not exceed the value of the
manufactured parts. (Pl. Mem., Dkt. 36 at 24.)
Crestmark

initiated

this

lawsuit

seeking

release

of

the

$332,000.00 escrow funds after it rejected this second reconciliation.
(Id. at 25.)
II.

The Current Motions
A. Defendant’s Motion
Defendant Electrolux seeks summary judgment dismissing

Crestmark’s breach-of-contract claim, arguing that the Accommodation
Agreement fails for lack of consideration. It further argues that the
definition of “allowed set offs” in the Accommodation Agreement was
impossible to satisfy, but that it otherwise complied with the terms and
conditions of that agreement. (Def. Mem., Dkt. 36 at 20.)
Defendant asserts that in exchange for wiring $100,000.00 to
plaintiff, funding the $332,000.00 escrow account, and providing an

19

accounting and reconciliation for all open invoices and resins used, as
well as forgoing its rights regarding the raw materials it had supplied
to Tarheel, it was allowed to take possession of its own tooling and the
parts already manufactured but not yet shipped.

(Id. at 20-21.)

Defendant asserts that plaintiff had no legal right to the tooling
because it was at Tarheel under a bailment agreement and defendant’s
first-priority rights to those tools were secured by a UCC financing
statement. (Id. at 23.) As for the component parts, defendant argues
that these were products purchased in the ordinary course of business
between Electrolux and Tarheel and already subject to the agreement
between these entities. (Id. at 25-26.) The right to take possession of
the tooling and the component parts was not consideration, defendant
asserts, because it already had this right, and “additional obligations
are unenforceable” when they are taken on without additional
consideration. (Id. at 25) (quoting Yerkovich v. AAA, 610 N.W.2d 542,
546 (Mich. 2000).)
In what the Court understands to be an alternative argument,
defendant also asserts that the requirement in the Accommodation
Agreement to account for the resin “actually” used in the component
20

parts was impossible to fulfill, and that both defendant and plaintiff
understood that this was impracticable.

(Id. at 28-29.)

Defendant

explains that a promise is not binding on the parties when they both
knew at the time they made the agreement that performance was
impossible. (Id. (citing Rogers Plaza, Inc. v. SS Kresge Co., 32 Mich.
App. 724, 742-43 (1971).)

Defendant argues that it has otherwise

performed the terms of the Accommodation Agreement, has provided
documentation demonstrating that it is owed $158,754.40 after taking
an offset for the resins against its open invoices with Tarheel, and owes
nothing to plaintiff. (Id. at 31.)
Plaintiff opposes, asserting that the Accommodation Agreement
was negotiated between two sophisticated parties represented by
prominent counsel, and that, as a result of this negotiated agreement,
defendant received, without delay, the tooling and inventory free of
plaintiff’s lien. (Pl. Mem. in Oppos. at 8.) Plaintiff also argues that
defendant is in breach of the Accommodation Agreement because its
first reconciliation attempted to take setoffs for all raw materials,
rather than only the resins used in manufactured component parts. (Id.
at 12-13.)

It also found the January reconciliation unacceptable in
21

meeting the specifications of the Accommodation Agreement by again
asserting setoffs for resins not used to manufacture the component
parts. (Id. at 15-16.)
Plaintiff cites Michigan caselaw for the rule that courts should
uphold parties’ freedom to contract, “avoiding technical or constrained
constructions,” and that even the slightest consideration will bind a
contract.

(Id. at 19-20 (quoting Appalachian Railcar Servs., Inc. v.

Boatright Enterprises, Inc., 602 F. Supp. 2d 829, 867 (W.D. Mich.
2008)).7 Therefore, plaintiff, argues, plaintiff released its rights to the
tooling and component parts in exchange for defendant’s performance,
and defendant failed to perform the reconciliation as required. (Id. at
20-21.)
As for defendant’s argument that it was a buyer of the component
parts in the ordinary course of business and therefore had a superior
interest in the component parts, plaintiff argues against this
proposition, because a purchaser in the ordinary course of business
must give new value for the goods and actually take delivery and title

Plaintiff cites Coates v. Bastian Bros., Inc., 276 Mich. App. 498 (2007) for
this proposition, and Appalachian Railcar Servs., Inc. cites to Coates; however, this
quotation is not found in Coates.
7

22

from the seller, and defendant did not give new value. (Id. at 24-25
(citing In re H.S.A. II, Inc., 271 B.R. 534, 540 (E.D. Mich. 2002); GMAC
Business Credit, LLC v. Ford Motor Co., 100 F. App’x 404, 406 (6th Cir.
2004).)
The component parts were at the Tarheel facility, and when
plaintiff declared Tarheel to be in default and asserted its lien on
October 1, 2013, there was no contract between plaintiff and defendant;
therefore, plaintiff asserts, it had no duty to defendant regarding the
component parts. (Id. at 25-26.) Plaintiff also contends that it had an
interest in the tooling at Tarheel, because Michigan law recognizes “the
equitable right of a borrower to offset amounts due and owing” between
two entities, (Id. at 26 (citing Walker v. Farmers Ins. Exch., 226 Mich.
App. 75, 79 (1997)), and no fact-finder or court of law had resolved the
two competing interests in the tooling. (Id. at 28.) Finally, plaintiff
asserts that the doctrine of impossibility does not apply to defendant’s
situation, in which an exact number was not required, and Electrulux
did not provide even an estimate of the correct offset amount. (Id. at
30-31.)
Defendant replies that plaintiff had no valid interest in the
23

tooling, because a security interest attaches to a debtor’s rights in a
particular asset, not the asset itself, and Tarheel never had any rights
in defendant’s tooling. (Def. Reply, Dkt. 43 at 2-4.) Defendant also
reiterates that it had an existing agreement with Tarheel to ship the
manufactured component parts; therefore, plaintiff’s agreement to
release them was not consideration. (Id. at 5.) Defendant also asserts
that plaintiff misinterprets the caselaw regarding a buyer in the
ordinary course of business, and that defendant held at least
constructive possession of the component parts already manufactured
but not yet shipped. (Id. at 6.)
B. Plaintiff’s Motion
Plaintiff moves for summary judgment granting it full rights to
the $332,000.00 escrow account on the grounds that the Accommodation
Agreement was a valid, enforceable contract that defendant breached.
Plaintiff argues that rescission based on a failure of consideration must
be for a “complete and total” failure, and in this matter, plaintiff’s
release of its lien over the component parts is at least partial
consideration under the Accommodation Agreement. (Pl. Mem., Dkt. 36
at 30-31 (citing Adell Broadcasting Corp. v. Apex Media Sales, Inc., 269
24

Mich. App. 6, 12 (2005).)

Plaintiff further asserts that defendant

breached this valid contract by failing to provide a reconciliation that
complied with the terms for what counted as allowable resin offsets
under the Accommodation Agreement. (Id. at 32.) 8
As for defendant’s counterclaims, plaintiff argues that defendant
has not satisfied its burdens to demonstrate the elements for these
claims.

It states that there are no facts to support an intentional

wrongful act as required to establish tortious interference with contract
or with business relationships. (Id. at 35-39.) Plaintiff also argues that
the North Carolina Unfair and Deceptive Trade Practices Act
(“UDTPA”), N.C. Gen. Stat. § 75-1.1, does not apply in this situation,
and even if it did, defendant cannot demonstrate an “egregious or
aggravating circumstance” or actions “in or affecting commerce” to meet
the elements of this law.

(Id. at 40-43 (citing UDTPA, Carcano v.

JBSS, LLC, 684 S.E.2d 41, 50 (N.C. Ct. App. 2009).) As for unjust
enrichment and conversion, plaintiff argues that the $100,000.00 wired
by defendant was in exchange for the release of plaintiff’s lien on the

Plaintiff also asserts that defendant breached by missing the October 9,
2013 deadline for providing the reconciliation; however, defendant provides
evidence that a one-day extension was allowed. See discussion supra, p. 13.
8

25

component parts; therefore, there has been no conferral of a benefit or
conversion of any property.

(Id. at 44.)

Finally, plaintiff moves to

disregard defendant’s affirmative defense of fraud and duress.

The

Accommodation Agreement was negotiated by sophisticated parties,
plaintiff argues; therefore, defendant was not forced into unreasonable
terms against its will. (Id. at 45.)
Defendant opposes, arguing that the Accommodation Agreement
lacks consideration and therefore is not enforceable. (Def. Oppos., Dkt
41 at 15.)

Defendant asserts that the terms of the existing offset

relationship with Tarheel entitled it to receive the finished component
parts without first tendering payment.

(Id. at 16-18.)

Defendant

further argues that it complied with all the terms of the Accommodation
Agreement that were not impossible (id. at 19-21), and that genuine
issues of material fact prevent a finding of summary judgment
regarding its counterclaims.

(Id. at 22-33.)

Specifically, defendant

asserts that plaintiff’s refusal to release the tooling—in which it had no
interest—until the monies were wired was an intentional wrongful act.
(Id. at 23.)

Similarly, defendant asserts that plaintiff’s refusal to

release the component parts to defendant until monies were paid may
26

satisfy the criterion of an intentional act constituting tortious
interference with the business relationship between defendant and
Tarheel. (Id. at 26.)
Plaintiff counters that it had a fully perfected and superior
interest in the component parts, and that releasing this right was
consideration for Electrolux’s payments.

(Pl. Reply, Dkt. 44 at 5.)

Plaintiff also asserts that its all-asset security interest attached to all of
Tarheel’s assets, and that its equitable right of setoff against
Electrolux’s unpaid invoices was rightfully applied to the Electrolux
tooling. (Id. at 7 (citing Walker, 226 Mich. App. at 79.) As for the
counterclaim based on the UDTPA, plaintiff argues that defendant has
not made its showing that the UDTPA applies to this matter. (Id. at 89.)

It also asserts that defendant’s arguments regarding duress

misapply caselaw. (Id. at 11 (citing Enzymes of Am. Inc. v. Deloitte,
Haskins & Sells, 207 Mich. App. 28, 35 (1994).)
III.

LEGAL STANDARDS
Summary judgment is proper where “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.” Fed. R. Civ. P. 56(a). The Court may
27

not grant summary judgment if “the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.”

Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
If the moving party bears the burden of persuasion at trial, “his
showing must be sufficient for the court to hold that no reasonable trier
of fact could find other than for the moving party.” Calderone v. United
States, 799 F.2d 254, 259 (6th Cir. 1986)(quotation omitted). When the
non-moving party would bear the burden of persuasion at trial, the
moving party can meet its burden under Rule 56 in one to two ways:
“[f]irst, the moving party may submit affirmative evidence that negates
an essential element of the nonmoving party's claim. Second, the
moving party may demonstrate to the Court that the nonmoving party's
evidence is insufficient to establish an essential element of the
nonmoving party's claim.” Celotex Corp. v. Catrett, 477 U.S. 317, 331
(1986). The reasoning behind this rests on the understanding that if
the “nonmoving party cannot muster sufficient evidence to make out its
claim, a trial would be useless and the moving party is entitled to
summary judgment as a matter of law.” Id. (citing Anderson, 477 U.S.
at 249).
28

When reviewing cross-motions for summary judgment, courts
“must evaluate each motion on its own merits and view all facts and
inferences in the light most favorable to the nonmoving party.”
Appoloni v. United States, 450 F.3d 185, 189 (6th Cir. 2006) (quoting
Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir. 2003)).
It is not necessarily the case that judgment must be entered for one side
or the other. Id. (citing Parks v. LaFace Records, 329 F.3d 437, 444 (6th
Cir. 2003)); B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 592
(6th Cir. 2001). “Both parties, as movants, rely on inferences favorable
to their own positions in seeking to obtain summary judgment,” but in
evaluating each motion, courts must still “tak[e] care in each instance to
draw all reasonable inferences against the party whose motion is under
consideration,” because “the standards upon which the court evaluates
the motions for summary judgment do not change simply because the
parties present cross-motions.” Taft Broad. Co. v. United States, 929
F.2d 240, 247-48 (6th Cir. 1991) (internal citations omitted).

29

IV.

ANALYSIS
A. Evaluation of Property Rights
There are three categories of property that were held at the

Tarheel plant in early October 2013, which are at the center of the
parties’

dispute

over

the

enforceability

of

the

Accommodation

Agreement: the finished component parts not yet shipped to Electrolux,
the resins not yet used to manufacture parts, and the tooling owned by
Electrolux and used by Tarheel to manufacture parts.

These three

types of property receive distinct treatment under the terms of the
Accommodation Agreement, and they are also subject to distinct legal
analyses.
The Accommodation Agreement, which both parties rely on in
their motions, defined the $100,000.00 payment as the “Finished Goods
Payment” and indicated that it was “in full satisfaction of all obligations
to [Crestmark] and [Tarheel] with respect to such Finished Component
Parts only.” (Accommodation Agreement, Def. Mem., Ex. 11, Dkt. 38-12
at 1-2.)

The $332,000.00 escrow payment is defined as an “Interim

Accounts Payment” subject to later reconciliation and potential offset
against resins used in the manufacture of those parts. (Id. at 2.) The
30

resins and raw materials for which Electrolux had already taken an
offset could be reclaimed by Electrolux, in exchange for a credit in favor
of Tarheel. (Id.) Finally, the Accommodation Agreement allowed for
the release to Electrolux of its tooling, which was itemized in Schedule
4.B, once the “Finished Goods Payment” and the “Interim Accounts
Payment” had been made.
1. Finished Component Parts
The parties’ rights to the finished component parts hinges on
whether defendant was a buyer in the ordinary course of business.
Under Michigan law, “a buyer in ordinary course of business . . . takes
free of a security interest created by the buyer's seller, even if the
security interest is perfected and the buyer knows of its existence.
M.C.L. § 440.9320(1). To be a “buyer in the ordinary course of business”
one must participate in a sale that “comports with the usual or
customary practices in the kind of business in which the seller is
engaged or with the seller's own usual or customary practices.” M.C.L.
§ 440.1201(2)(i). Additionally,
A buyer in ordinary course of business may buy for cash, by
exchange of other property, or on secured or unsecured
31

credit, and may acquire goods or documents of title under a
preexisting contract for sale. Only a buyer that takes
possession of the goods or has a right to recover the goods
from the seller under article 2 may be a buyer in ordinary
course of business. The term does not include a person that
acquires goods in a transfer in bulk or as security for or in
total or partial satisfaction of a money debt.
Id. (emphasis added). A buyer-in-ordinary-course relationship can be
found in a situation like this one, where the buyer purchases and
supplies the raw materials to the manufacturer and then offsets the
costs of those raw materials from the cost of the finished product it
purchases from the manufacturer.

Sensient Flavors, L.L.C. v.

Crossroads Deb, L.L.C., No. 2009-027342, 2013 WL 5857604, at *6
(Mich. Ct. App. Oct. 31, 2013). The determination relies on whether the
arrangement comported with the manufacturer’s “own usual or
customary practices.” Id. (citing M.C.L. § 440.1201(9) [§ 440.1201(2)(i)
since 2013]).
The Michigan statute also requires that a buyer in ordinary
course has taken possession of the goods or has a right to recover them.
M.C.L. § 440.1201(2)(i). In some circumstances, courts have found it
unnecessary for the buyer to have taken possession to nonetheless be
granted this exception to the priority of the secured interest.
32

For

instance, if the industry custom is for the buyer not to have taken
immediate possession of a product, the lack of physical possession may
be irrelevant to the decision of whether it was a buyer in ordinary
course of business. Ace Equip. Sales, Inc. v. H.O. Penn Mach. Co., 871
A.2d 402, 406 (2005) (equipment dealer was buyer in ordinary course of
heavy construction equipment not yet in its physical possession,
because the industry custom was to take possession at the time it had a
purchaser lined up) (citing Chrysler Credit Corp. v. Sharp, 288 N.Y.S.2d
525, 534 (Sup. Ct. 1968) (purchaser of a car out of dealer inventory with
a valid contract and consideration given, but who had not yet taken
title, was nonetheless buyer in ordinary course of business); Fin. Am.
Commercial Corp. v. Econo Coach, Inc., 454 N.E.2d 1127, 1130-31 (Ill.
App. Ct. 1983) (whether transaction conforms with business custom is
the “critical factor” for determination of buyer in ordinary course, not
the actual delivery); Holstein v. Greenwich Yacht Sales, Inc., 404 A.2d
842, 844 (R.I. 1979) (identification of the time in a sales contract was
sufficient to create the buyer’s possessory rights)). And the “right to
recover” is a term of art from the U.C.C. that applies when the seller
repudiates the sales contract and maintains possession of the goods
33

despite a down payment having been made. Hockensmith v. Fifth Third
Bank, No. 1:11-CV-173, 2012 WL 5969654, at *9 (S.D. Ohio Nov. 29,
2012) (discussing a similar provision in Ohio law). In such a case, the
buyer has the right to replevin of the goods because of the seller’s
breach. Id.
In Sensient, the manufacturer, a company that manufactured
products from cherries, received 99 percent of its cherries, as well as
colorings and flavorings, from its primary customer, Sensient. Id. at *4.
The manufacturer and buyer reconciled their accounts, off-setting the
costs of the cherries and other raw materials against the invoices for
finished product, on a weekly basis. Id. When the manufacturer ceased
operations and defaulted on its loan, the lender attempted to apply its
perfected security interest to the proceeds from the sale of finished
products already in Sensient’s possession at the time of the default. Id.
at *2-3.

The Michigan Court of Appeals upheld the trial court’s

determination that Sensient was a buyer in ordinary course of business
who was rightly entitled to the finished product free of the lender’s
security interest, because these were goods already purchased by, and
delivered to, Sensient.

Id. at *5.

The court further reasoned that
34

Sensient was the buyer in ordinary course because the transactions in
question, including the offsets for raw materials, were conducted
consistently with the manufacturer’s “own usual or customary
practices.” Id. at *6.
In this matter, it is undisputed that the finished component parts
were at Tarheel and not already in the physical possession of
Electrolux. It is also not disputed that Tarheel and Electrolux had a
customary business practice that involved Tarheel receiving raw
materials paid for by Electrolux and then offsetting the value of those
materials from the invoices for the finished component parts purchased
by Electrolux. There is discussion of online purchase orders governing
specific manufacturing projects assumed by Tarheel for Electrolux, but
no evidence documents the specific component parts in question or any
advanced payments or commitments Electrolux may have made that
might suffice to establish its possessory interest or right of recovery in
those specific component parts, as required to be a buyer in ordinary
course of business.
In short, Sensient is distinguishable, since there the buyer already
had possession of the finished product, which is not the case here. As a
35

matter of law, the Court finds that plaintiff’s secured interest in all of
Tarheel’s assets included the finished component parts intended for sale
to Electrolux, and defendant does not qualify for the buyer-in-ordinarycourse exception to that interest.
2. Resins and Raw Materials
The rights to the resins and other raw materials purchased by
Electrolux and stored at Tarheel for use in its manufacturing turn on
the extent of Tarheel’s rights over the resins in its inventory at the time
it ceased operations.

Article 9 of the UCC, encoded in Michigan as

M.C.L. § 440.9101 et seq., governs secured lending, and with an allasset security interest such as plaintiff’s, the debtor’s inventory is
considered an asset subject to that lien.

Inventory includes “raw

materials, work in process, or materials used or consumed in a
business.” M.C.L. § 440.9102(1)(uu).
There are three requirements for a security interest to attach to
collateral: (1) the debtor signed a security agreement describing the
collateral, (2) value has been given, and (3) the debtor has “rights in the
collateral.”

Litwiller Mach. & Mfg., Inc. v. NBD Alpena Bank, 184

Mich. App. 369, 373 (1990) (quoting M.C.L. 440.9204(1)). For the debtor
36

to have sufficient “rights in the collateral,” the interest must be more
“than naked possession.” Id. at 375 (quoting with approval Booth Co. v.
Tiara Furniture, Inc., 564 P.2d 210, 214 (Okla. 1977)).

A debtor’s

having “the right to incorporate the materials into a product for sale, to
use the materials and to sell the finished product” to the buyer who
provided the materials is sufficient to attach a lender’s security interest
in the debtor’s assets. Id.
In Littwiller Mach. & Mfg., Inc., the court found that preformed
steel parts provided by the purchaser to the manufacturer for assembly
into products for the purchaser were part of the manufacturer’s
inventory and subject to the perfected security interest of the lender.
Id. at 373-74. The court reasoned that the lien included inventory, and
raw materials used in manufacturing are part of that inventory if the
manufacturer had the right to transform them into a product for sale.
Id. And in GMAC Business Credit, L.L.C. v. Ford Motor Co., the Sixth
Circuit relied on this Litwiller Mach. & Mfg., Inc. holding to support its
reasoning that transforming raw materials into manufactured products
was more than the “naked possession” found in a bailment, and
therefore the debtor had sufficient rights to collateralize the raw steel
37

supplied by Ford to the debtor for manufacture into products Ford
would then purchase. 100 F. App’x 404, 408-09 (6th Cir. 2004). The
manufacturer’s ability to use the steel supplied by Ford to create “a
wholly new product” was a right in that steel substantial enough for it
to be collateral secured by the lender. Id.
A buyer-lender of materials used in the manufacture of the items
it subsequently purchases from the manufacture can “easily protect
itself from after-acquired property creditors of its contractor by filing a
[UCC] Article Nine purchase money security interest in the goods
supplied to it by the contractor, as well as those purchased or otherwise
identified in the contract by the contractor.” Litwiller Mach. & Mfg.,
Inc., 184 Mich. App. at 377 (quoting with approval Kinetics Technology
International Corp. v. Fourth National Bank of Tulsa, 705 F.2d 396,
399-400 (10th Cir. 1983)).9
The above caselaw dictates the outcome here, where Tarheel had
the right to create a wholly new product from the resins purchased and
supplied to Tarheel.

In the absence of a purchase-money security

A purchase-money security interest enables a party that supplies goods to
another party, or that provides financing for the acquisition of those goods, to obtain
a priority interest above other secured lenders in those goods. M.C.L. § 440.9103.
9

38

interest—a tool that likely would have protected Electrolux’s interest in
the raw materials from Crestmark’s all-asset lien—Electrolux has no
legal basis on which to assert any rights over raw materials in Tarheel’s
inventory at the time it ceased operations.
3. Tooling and Molds
Both parties agree that tooling and molds owned by Electrolux
were at the Tarheel plant to be used in the manufacture of component
parts for Electrolux. However, the undisputed facts in the record do not
clearly establish the rights of each party regarding all of this property.
Defendant recorded its secured bailment of some of its tooling on
December 28, 2011, which is prior to November 5, 2012, when
Crestmark first perfected its lien.

However, the Tooling Agreement

provided by defendant was signed on February 8, 2013, after Crestmark
perfected its security interest, and itemizes a different list of tools from
the 2011 UCC statement.

And defendant’s March 1, 2013 letter to

plaintiff advising it of the bailment of tools at Tarheel does not append
any list of tools—whether from the 2011 list or the 2013 list. While it
appears that the combination of tooling itemized between the 2011 UCC
filing and the 2013 Tooling Agreement accounts for the entirety of what
39

is itemized on Schedule 4.B of the Accommodation Agreement—see
discussion supra, pages 11-12— at the time Crestmark secured its loan
with Tarheel, it only had notice of the tooling on the 2011 UCC
statement.

This subgroup of itemized tools was indisputably the

property of defendant at the time Tarheel ceased operations, and at no
time did plaintiff have any rights to this equipment.
As for the rights of the parties regarding the tools itemized in the
February 2013 Tooling Agreement and on the second and third pages of
Schedule 4.B. of the Accommodation Agreement, the determination of
the parties’ rights depends on the terms of the security agreement
between plaintiff and Tarheel, as well as the Tooling Agreement
between defendant and Tarheel.

The security agreement between

plaintiff and Tarheel banned any other liens, claims or security
interests in Tarheel’s inventory and equipment. See discussion supra,
page 7. However, the 2013 Tooling Agreement, entered into after the
security agreement, established a bailment of tools that could not
become otherwise encumbered by Tarheel, required clear labeling of the
tools in the agreement, and established that Tarheel could assert no

40

rights over the tooling.

See discussion supra, page 4.10

These two

obligations entered into by Tarheel are in clear conflict with each other
regarding the tools itemized in the 2013 Tooling Agreement, and the
record lacks evidence to determine what, if any, exceptions or
understandings between the three parties may have allowed the 2013
Tooling Agreement to be executed despite these conflicts.
Seeing as neither party addressed through evidence or argument
the conflicting security interests in this specific subset of tooling
supplied by defendant, the Court has no basis to determine the rights in
this equipment.
B. Defendant’s Motion
Defendant primarily asserts that the Accommodation Agreement

The elements of a “bailment” under Michigan law require that one person
deliver personal property “to another in trust for a specific purpose, with a contract,
express or implied, that the trust shall be faithfully executed and the property
returned or duly accounted for when the special purpose is accomplished.” In re
H.S.H. II Inc., No. 02-cv-70297, 2002 WL 32819769, at *3 (E.D. Mich. Sept. 30,
2002) aff'd sub nom. GMAC Bus. Credit, L.L.C. v. Ford Motor Co., 100 F. App'x 404
(6th Cir. 2004) (quoting In re Zwagerman, 115 B.R. 540, 547 (W.D. Mich. 1990). An
indicium of a “true bailment” can be the bailor’s assumption of the responsibility for
cost and maintenance of the property under bailment. Id. Here, even in the
absence of the express contract—that is, the 2013 Tooling Agreement—defendant’s
provision of its equipment to Tarheel for the sole purpose of manufacturing parts for
sale to defendant would constitute a bailment. See GMAC Bus. Credit, L.L.C., 100
F. App’x at 407-09.
10

41

is unenforceable because it lacked consideration by plaintiff in exchange
for the performance by defendant—that is, plaintiff gave up no rights in
exchange for the funds defendant paid and other performance. Here,
the burden falls to defendant to prove a failure of consideration. Adell
Broadcasting, 269 Mich.App. at 12.

But the record establishes that

plaintiff had rights through its all-asset lien to the component parts,
and it released its rights in exchange for payment and a reconciliation
of accounts achieved through a negotiation between two sophisticated
parties.

See section IV.A.1, supra.

Plaintiff was under no legal

obligation to turn over the finished component parts to defendant;
therefore, the Accommodation Agreement was based on a new promise
and not plaintiff’s preexisting duty. See Yerkovich, 461 Mich. at 740-41.
Even isolating the issue of which party held a priority right to the
equipment defendant provided to Tarheel, defendant cannot prevail on
its motion based on a lack of consideration for the Accommodation
Agreement. As explained in section IV.A.3, supra, defendant’s rights to
the 2011 tooling is unassailable, but the record does not illuminate
beyond a triable issue of fact whether defendant held a priority interest
over plaintiff in the tooling itemized in the 2013 Tooling Agreement.
42

Considering the very high bar to demonstrate that a contract between
two sophisticated parties lacked consideration, defendant cannot
establish that plaintiff had no rights to any of the tooling at Tarheel
and

therefore

received

defendant’s

performance

without

any

consideration. See B.A. Const. & Mgmt., Inc. v. Knight Enter., Inc., 365
F. App'x 638, 645 (6th Cir. 2010) (citing Harris, 329 Mich. 136, 45
N.W.2d at 9); see also Kessler, 1995 WL 871156 at *4 (quoting Rose, 40
Mich. App. at 235-36).
Defendant’s alternative argument, that it performed fully on the
Accommodation Agreement, other than the reconciliation, which was
impossible, is also unavailing.
[T] the essence of the modern defense of impossibility is that
the promised performance was at the making of the contract,
or thereafter became, impracticable owing to some extreme
or unreasonable difficulty, expense, injury, or loss involved,
rather than that it is scientifically or actually impossible. . . .
The important question is whether an unanticipated
circumstance has made performance of the promise vitally
different from what should reasonably have been within the
contemplation of both parties when they entered into the
contract.
Nathan v. Brownstone Plastics, LLC, 511 B.R. 863, 866-67 (E.D. Mich.
2014) (quoting Bissell v. L. W.Edison Co., 9 Mich.App. 276, 156 N.W.2d
43

623, 626–27 (Mich. Ct. App. Dec. 8, 1967)). It may very well have been
impracticable for either party to calculate the exact amount of resin
actually used to make the component parts; however, defendant has not
provided sufficient uncontroverted evidence that this was the only
measure or accounting for the resin that would have been acceptable
performance under the Accommodation Agreement. Both parties have
provided evidence to establish that resins constituted between sixty
percent and sixty-six percent of the value in the component parts. See
discussion supra, page 18. Indeed, plaintiff offered to resolve the entire
dispute by accepting an estimate in that range to determine the total
allowable resin offset. See discussion supra, page 18-19. Defendant has
not demonstrated that impossibility excuses its failure to provide a
reconciliation of resin offsets with the invoices for finished component
parts, as required by the Accommodation Agreement.
Defendant does not address its counterclaims in its motion;
therefore, the Court does not consider these counterclaims with regard
to defendant’s motion.
C. Plaintiff’s Motion
First, the Court finds that the Accommodation Agreement is a
44

valid, enforceable contract, negotiated between two sophisticated
parties for adequate consideration. For the Court to find the contract
unenforceable,

defendant

had

the

burden

to

prove

that

the

Accommodation Agreement lacked consideration. Adell Broadcasting,
269 Mich. App. at 12.

But plaintiff has negated this assertion by

demonstrating that its all-asset lien extended to the finished component
parts, and that relinquishing its rights in this property is sufficient to
constitute valid consideration for the entirety of the Accommodation
Agreement. See Barden Detroit Casino, L.L.C. v. City of Detroit, 59 F.
Supp. 2d 641, 669 (E.D. Mich. 1999) aff’d 230 F.3d 848 (6th Cir. 2000)
(“It is only when the record establishes that the consideration given was
so grossly inadequate as to shock the conscience that courts will
intervene.”) (internal quotation omitted).
The contract is also valid despite defendant’s contention that
fraud and duress render it otherwise. Michigan law requires an illegal
or unlawful act be asserted in the pleadings to establish duress.
Whirlpool Corp. v. Grigoleit Co., 713 F.3d 316, 324 (6th Cir. 2013)
(citing cases). “The question as to what constitutes duress is a matter of
law, but whether duress exists in a particular case is a question of fact.”
45

Norton v. Michigan State Highway Dep't, 315 Mich. 313, 319-20 (1946).
Duress exists when this unlawful act induces a party “to make a
contract or perform some act under circumstances which deprive him of
the exercise of free will.” Id. at 320 (internal citations omitted). Duress
may also arise
in imposition, oppression, under influence, or the taking of
undue advantage of the business or financial stress or
extreme necessities or weakness of another; the theory
under which relief is granted being that the party profiting
thereby has received money, property or other advantage,
which in equity and good conscience he ought not to be
permitted to retain.
Id. (internal citation omitted). Assuming for the sake of argument that
plaintiff committed an unlawful act—even though there is no such
showing11—the facts, construed in the light most favorable to
defendant, would still need to show that such an illegal act deprived
defendant of its free will or otherwise created a severe inequity that the
Court must correct. Defendant is a sophisticated entity represented by
counsel from the initial stage of negotiation, and it was fully capable of
asserting its rights regarding the tooling at Tarheel over which it had a

See discussion in section IV.C.2.c, infra, dismissing the counterclaim of
violation of North Carolina’s Unfair and Deceptive Practices Act.
11

46

priority interest.

See, e.g. Hungerman v. McCord Gasket Corp., 189

Mich. App. 675, 677, 473 N.W.2d 720, 721 (1991) (finding no duress
where plaintiff employee was represented by counsel when signing a
release of rights against employer). There is no evidence, for instance,
that defendant provided plaintiff with an itemized list of equipment in
which it held the priority interest and was entitled to immediate
possession. And plaintiff has provided sufficient evidence that neither
fraud nor misrepresentation were present in the negotiations of the
Accommodation Agreement.
In short, the Accommodation Agreement is a valid, enforceable
contract.
1. Breach of Contract
“A party asserting a breach of contract must establish by a
preponderance of the evidence that (1) there was a contract (2) which
the other party breached (3) thereby resulting in damages to the party
claiming breach.” Miller-Davis Co. v. Ahrens Const., Inc., 495 Mich.
161, 178, 848 N.W.2d 95, 104, reh'g denied, 495 Mich. 998, 845 N.W.2d
742 (2014) (citing Stevenson v. Brotherhoods Mut. Benefit, 312 Mich. 81,
90-91 (1945)). Plaintiff establishes beyond a triable fact that the plain
47

language of the Accommodation Agreement required defendant to
reconcile only the value of resins it provided that were used in finished
component parts. Both parties agree that the reconciliation provided in
October 2015 failed to adhere to the terms of the Accommodation
Agreement. See discussion supra, pages 16-17. And, while the parties
disagree on the value of the allowable resin offsets and, apparently, the
value of the component parts received by Electrolux on open invoices, it
is not disputed that resins would constitute at least sixty percent of the
component parts.
The Court finds that defendant breached the Accommodation
Agreement by failing to provide a reconciliation of resin offsets against
open invoices; however, the significant discrepancies between the
exhibits create a triable issue of fact regarding the amount of plaintiff’s
damages. The most the Court is able to determine is that defendant
may not offset resins it provided to Tarheel for two reasons: first, the
raw materials in inventory at the time Tarheel ceased operation are, as
a matter of law, subject to the rights of plaintiff’s all-asset lien, and
second, the plain language of the Accommodation Agreement prohibits
defendant from offsetting the resins not used in finished component
48

parts.

Therefore, given that only the resins used in the component

parts may be offset against the invoices, it is not possible, as defendant
asserts, that plaintiff owes defendant. Rather, it must be the case that
defendant owes plaintiff on the open invoices, even after resins are
offset, albeit the amount owed cannot be discerned from the parties’
motion papers.
2. Defendant’s Counterclaims
Plaintiff seeks dismissal of defendant’s counterclaims as well. For
the reasons provided below, the Court finds that summary judgment is
warranted in favor of plaintiff with regard to all but one of defendant’s
counterclaims.
a. Tortious Interference with Contract
Tortious interference with a contract requires “(1) the existence of
a contract, (2) a breach of the contract, and (3) an unjustified instigation
of the breach by the defendant.” Health Call of Detroit v. Atrium Home
& Health Care Servs., Inc., 268 Mich. App. 83, 89-90 (2005). Under
Michigan law,12 the third element of this involves a showing of “a per se

12

The Accommodation Agreement is governed by Michigan law; therefore the

49

wrongful act or committed a lawful act with malice and without
justification for the purpose of invading the contractual rights or
business relationship of another.” Urban Associates, Inc. v. Standex
Elecs., Inc., 216 F. App'x 495, 514 (6th Cir. 2007) (internal quotations
omitted). “A per se wrongful act is one that is ‘inherently wrongful or an
act that can never be justified under any circumstances.’” Id. (quoting
Prysak v. R.L. Polk Co., 193 Mich. App. 1, 13 (1992)). And when a
party’s actions are “motivated by legitimate business reasons,” a court
will not find the improper motive necessary for tortious interference
with contract. Id. (citing Prysak, 193 Mich. App. at 13).
Here, plaintiff demonstrates, and defendant does not dispute, that
in addressing Tarheel’s default, it lacked documentation regarding the
resin offset program with defendant and the tooling purportedly
belonging to defendant. Plaintiff also shows, and defendant does not
dispute,

that

defendant

initiated

negotiations

accommodation to allow for return of its property.

regarding

an

And the law

supports plaintiff’s claims regarding its rights to the finished
component parts and raw materials at the plant, even though there are

claim for tortious interference with contract is governed by Michigan law.

50

unresolved rights to a portion of the tooling at Tarheel.

Defendant

attempts to paint a picture in which Crestmark used the two Tarheel
minority owners’ personal guarantees on the loan to pressure them into
preventing Electrolux from gaining access to the component parts and
tooling in the immediate aftermath of the plant shutdown. (Def. Oppos.
Mem., Dkt. 41 at 10.)

However, even taking this assertion at face

value, such pressure—reminding the defaulted parties of their personal
guarantees on an outstanding loan amount of over $1,000,000.00 and
seeking their cooperation in maximizing the value of the remaining
collateral on that loan—is not a wrongful act.
There is no reasonable way to view these facts as supporting a
finding that plaintiff’s steps to resolve and secure the collateral, even if
in doing so it was aware of defendant’s dire urgency, was an inherently
wrongful act that can never be justified under any circumstances.
b. Tortious Interference with Business Relations
To establish tortious interference with business relations,
defendant must show: “(1) the existence of a valid business relationship
or expectancy that is not necessarily predicated on an enforceable
contract, (2) knowledge of the relationship or expectancy on the part of
51

the defendant interferer, (3) an intentional interference by the
defendant inducing or causing a breach or termination of the
relationship or expectancy, and (4) resulting damage to the party whose
relationship or expectancy was disrupted.” Health Call of Detroit, 268
Mich. App. at 89-90 (internal citations omitted); Wausau Underwriters
Ins. Co. v. Vulcan Dev., Inc., 323 F.3d 396, 404 (6th Cir. 2003). Here,
too, the third element requires “that the interference was either (1) a
per se wrongful act or (2) a lawful act done ‘with malice and unjustified
in law for the purpose of invading the contractual rights or business
relationship of another.’” Wausau Underwriters Ins., 323 F.3d at 404
(quoting Clark v. West Shore Hospital, 16 F. App’x 421, 430 (6th Cir.
2001)).

And courts will not find tortious interference with business

relationships “[w]here the defendant’s actions were motivated by
legitimate business reasons.” Id. (quoting BPS Clinical Labs. v. Blue
Cross and Blue Shield of Mich., 217 Mich. App. 687, 699 (1996)).
For the same reasons that applied to the prior counterclaim,
defendant has failed to raise a material fact to show that business
reasons did not motivate plaintiff’s actions to assert its rights in the
collateral for the defaulted Tarheel loan; therefore, plaintiff was not
52

engaging either in unlawful action or lawful acts for an unjustified
purpose.

Summary judgment for plaintiff is warranted on this

counterclaim.
c. Unfair and Deceptive Trade Practices
The North Carolina Unfair and Deceptive Trade Practices Act
(“UDTPA”), N.C. Gen Stat. § 75-1.1, primarily seeks to protect
consumers, but a business may assert a claim under the UDTPA
against another business. Food Lion, Inc. v. Capital Cities/ABC, Inc.,
194 F.3d 505, 519-20 (4th Cir. 1999) (citing North Carolina Supreme
Court cases ). A prima facie case under the UDTPA requires a showing
that “(1) the defendant committed an unfair or deceptive trade practice;
(2) the action in question was in or affecting commerce; and (3) the act
proximately caused injury to the plaintiff.”

Gilbert v. Residential

Funding LLC, 678 F.3d 271, 280 (4th Cir. 2012) (citing Spartan Leasing
v. Pollard, 400 S.E.2d 476, 482 (N.C. Ct. App. 1991)).
“An act is unfair when it is unethical or unscrupulous, and it is
deceptive if it tends to deceive.”

Id. (citing Marshall v. Miller, 276

S.E.2d 397, 403 (N.C. 1981)). Whether conduct is “unfair or deceptive”
is a question of law, and the UDTPA will only apply when a showing of
53

“some type of egregious or aggravating circumstances” has been made.
Dalton v. Camp, 548 S.E.2d 704, 711 (N.C. 2001) (emphasis in original,
internal quotations omitted). While there is no precise definition for
“unfair,” the hallmark of an unfair practice is “conduct which amounts
to an inequitable assertion of [a party’s] power or position.” Carcano v.
JBSS, LLC, 684 S.E.2d 41, 50 (N.C. Ct. App. 2009) (citing McInerney v.
Pinehurst Area Realty, Inc., 590 S.E.2d 313, 316–17 (N.C. Ct. App.
2004)). “The ‘relevant gauge’ of an act’s unfairness or deception is ‘[t]he
effect of the actor’s conduct on the marketplace.’” Id. (quoting Ken–Mar
Finance v. Harvey, 368 S.E.2d 646, 648, disc. review denied, 373 S.E.2d
545 (N.C. 1988) (alteration in original)). For instance, in Carcano, the
court found that inviting investment in a fictional company did not
violate the UDTPA, reasoning that “[t]hese are actions which are
capital raising ventures among sophisticated business entrepreneurs,”
and in any event, there was no impact on the market or inequitable
assertion of power. Id. at 173.
As explained in section IV.C.2.a supra, plaintiff has shown that its
actions during the days immediately prior to and after Tarheel
defaulted on its loan were motivated by a need to secure the collateral
54

at Tarheel. Plaintiff had a priority secured interest in the inventory,
including raw materials and after-acquired equipment, at Tarheel’s
facility.

Asserting ones priority over collateral may be unpalatable to

the less secured party, but it is legitimate conduct and not inequitable.
Moreover, there are no claims that any market impact resulted from
plaintiff’s actions.
Even isolating the subset of the tooling secured in 2011 over which
defendant had a priority right, plaintiff has made a sufficient showing
that its actions were not so “egregious” or “aggravating” to trigger a
violation of the UDTPA. The record does not show that in defendant’s
communications with plaintiff it provided documentation of its
equipment to clarify its priority right in the face of plaintiff’s blanket
assertions regarding all of Tarheel’s assets. While plaintiff’s knowing
refusal to release equipment to the priority secured party might very
well constitute egregious conduct in some situations, it is not the case
here, where plaintiff held a secured interest in after-acquired
equipment, and there may have been legitimate confusion over the
rights to the equipment acquired after the loan commenced. Therefore,
its refusal to release that equipment in the absence of any clarity
55

regarding which equipment was subject to defendant’s preferred status
cannot be construed as egregious. Furthermore, even if there had been
an unfair or deceptive act by plaintiff, the record does not document
that Electrolux suffered any injury as a result of being forced to wait
until after the Accommodation Agreement was executed to remove its
tooling from the Tarheel facility.
Crestmark has succeeded in demonstrating that Electrolux cannot
meet its burden to establish a violation of the UDTPA; therefore,
summary judgment in favor of plaintiff/counter-defendant is warranted.
d. Unjust Enrichment
Defendant/counter-plaintiff’s assertion of unjust enrichment is
also unavailing. Unjust enrichment is an equitable doctrine “by which
‘the law sometimes indulges in the fiction of a quasi or constructive
contract, with an implied obligation to pay for benefits received’ to
ensure that ‘exact justice’ is obtained.” Kammer Asphalt Paving Co. v.
E. China Twp. Sch., 443 Mich. 176, 185-86 (1993) (quoting Detroit v.
Highland Park, 326 Mich. 78, 100 (1949)). Courts will not apply the
doctrine “when an express contract already addresses the pertinent
subject matter.” Liggett Rest. Grp., Inc. v. City of Pontiac, 260 Mich.
56

App. 127, 137-38 (2003) (citing Barber v. SMH (US), Inc., 202 Mich.
App. 366, 375 (1993)).
Here, the Accommodation Agreement is an enforceable contract
between the two parties addressing the rights to the inventory and
tooling at Tarheel. See discussion supra, section IV.C.1. The Court can
not employ the doctrine of unjust enrichment in a matter covered by an
express contract between the two parties, and summary judgment for
plaintiff/counter-defendant is granted.
e. Conversion
The one counterclaim for which summary judgment will not be
entered for plaintiff/counter-defendant is the charge of conversion.
Michigan law defines conversion “as ‘any distinct act of domain
wrongfully exerted over another’s personal property in denial or
inconsistent with the rights therein.’” Hunt v. Hadden, No. 14-10713,
2015 WL 3473680, at *5 (E.D. Mich. June 2, 2015) (quoting Dep’t of
Agriculture v. Appletree Mktg., L.L.C., 485 Mich. 1, 13-14 (2010)).
Conversion may occur under Michigan law “when a party properly in
possession of property uses it in an improper way, for an improper
purpose, or by delivering it without authorization to a third party.” Id.
57

at *5 (quoting Appletree Mktg., L.L.C., 485 Mich. at 15).

While

conversion is an intentional tort, “the tort can be committed unwittingly
if unaware of the plaintiff’s outstanding property interest.” In re Pixley,
456 B.R. 770, 787-88 (Bankr. E.D. Mich. 2011) (emphasis in original)
(quoting Foremost Ins. Co. v. Allstate Ins. Co., 439 Mich. 378, 391
(1992)).
Here, Electrolux has provided evidence of its priority secured
interest in the subset of tooling itemized on the 2011 financing
statement, and Crestmark has not provided evidence that its refusal to
immediately release that subset of tooling was based on a proper right
to exercise such domain. Since intentionality is not a requirement to
establish conversion, it is of no relevance whether Crestmark actually
knew of Electrolux’s priority interest in this subset of the tooling; after
all, it entered its 2012 security agreement with notice of the filed
interest in that tooling. It is not clear what, if any, damages inure to
defendant/counter-plaintiff on this claim, and none is specified in its
pleading; nonetheless, this matter presents a triable issue of fact. See
Even-Heat Co. v. Wade Elec. Products Co., 336 Mich. 564, 572 (1953)
(Conversion may be found in cases where “there may be a deprivation
58

which is only partial or temporary, and where the property of the
plaintiff remains in or is restored to him,” and in such cases damages
are “commonly less” than the whole value of the property.).
V.

CONCLUSION
For the reasons stated above, defendant’s motion for summary

judge (Dkt. 35) is DENIED, and plaintiff’s motion for summary
judgment (Dkt. 36) is GRANTED in part and DENIED in part.
Plaintiff’s motion is hereby GRANTED with regard to the breach-ofcontract claim (although the issue of damages remains for trial) and the
counter-claims

for

tortious

interference

with

contract,

tortious

interference with business relationships, violation of the UTDPA, and
unjust enrichment. Plaintiff’s motion is hereby DENIED with regard to
the counter-claim for conversion, but only for the subset of Electrolux
tooling with a 2011 perfected security interest.
It is hereby ORDERED that the parties submit in their joint final
pretrial order the evidence that will be used to address the remaining
triable issues identified herein. It is further ORDERED that, by no
later than February 23, 2016, the parties may submit new motions in
limine, if needed, consistent with this order, or inform the Court
59

regarding the status of their motions already submitted.

The

scheduling ordered entered on December 9, 2015 otherwise remains in
effect.
IT IS SO ORDERED.

Dated:

January 7, 2016
Ann Arbor, Michigan

s/ Judith E. Levy
Judith E. Levy
United States District Judge

CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was served
upon counsel of record and any unrepresented parties via the Court’s
ECF System to their respective email or First Class U.S. mail addresses
disclosed on the Notice of Electronic Filing on January 7, 2016.
s/Felicia M. Moses
FELICIA M. MOSES
Case Manager

60