AutoZone Parts, Inc. v. Red Hot International, LLC, et al.

Filing 43

ORDER granting 40 Motion for Summary Judgment. Signed by Judge Samuel H. Mays, Jr on 06/27/2017. (Mays, Samuel)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION

AUTOZONE PARTS, INC.,

)
)
)
)
)
)
)
)
)
)
)
)
)

Plaintiff,
v.
RED HOT INTERNATIONAL, LLC,
MIDLAND
AMERICAN
CAPITAL
CORPORATION,
RHI
GLOBAL,
LLC,
DAVID
BRANCH,
and
MICHEAL BROWN,
Defendants.

No. 2:15-cv-2706-SHM-tmp

ORDER

Before the Court is the Motion for Summary Judgment (the
“Summary-Judgment Motion”) filed by Defendant Midland American
Capital Corp. (“Midland”) on October 26, 2016.

(ECF No. 40.)

No party has filed a response to the Summary-Judgment Motion,
and the deadline for doing so has passed.

L.R. 7.2(a)(2).

For the reasons stated below, the Summary-Judgment Motion
is GRANTED.
I.

HISTORY
On October 28, 2015, Plaintiff AutoZone Parts, Inc. (“Auto-

Zone”)

filed

Complaint”).
five

a

Complaint

for

(ECF No. 1.)

defendants:

Midland;

Interpleader

(the

“Interpleader

The Interpleader Complaint names
Red

Hot

International,

LLC

(“Red

Hot”); RHI Global, LLC (“RHI”); David Branch (“Branch”); and Michael Brown (“Brown”). 1

(Id. ¶¶ 2–6.)

The Interpleader Complaint alleges the following:

In April

2014, AutoZone entered into an agreement (the “Vendor Agreement”) to purchase lighters from Red Hot.
Hot began selling lighters to AutoZone.
(discussing invoices).)

(Id. ¶¶ 10, 27.)

Red

(Cf. id. ¶¶ 24, 27

In a letter to AutoZone dated February

9, 2015, Red Hot represented that, as of October 1, 2014, it had
“assign[ed]

its

performance

obligations

under

the

April

2014

Vendor Agreement to [RHI] and that all purchase orders should be
directed to [RHI] and not [Red Hot].”

(Id. ¶ 14.)

In March 2015, Midland filed suit against AutoZone in New
York state court.
land

Complaint”)

(See id. ex. E.)

(Id. ¶ 18.)
is

attached

Midland’s complaint (the “Midto

the

Interpleader

Complaint.

The Midland Complaint alleged that, in March

2014, Midland and Red Hot had entered into a Factoring and Supply Agreement (“FSA”). 2

(Midland Compl. ¶ 3.)

Under the FSA,

1

Brown’s first name is spelled “Micheal” in the caption of the
Interpleader Complaint.
In a later filing, AutoZone explains,
“This is how Mr. Brown’s name is spelled in materials appearing
on the Florida Secretary of State’s website relating to [RHI].
It is a typographical error.”
(Pl.’s Mot. to Dismiss Def. Micheal Brown Without Prejudice, ECF No. 28 (“Mot. to Dismiss
Brown”).)
This Order corrects the error where doing so would
not alter the caption or the title of a document.

2

One authority describes the practice of “factoring” as follows:
“[F]actoring” in modern commercial practice
is understood to refer to the purchase of
2

“Midland purchased certain accounts receivable of [Red Hot], and
became the irrevocable assignee of Red Hot’s accounts receivable.”

(Id.)

The Midland Complaint alleged that, “[b]y virtue

of its failure to pay pursuant to the terms of [certain invoices
dated

between

October

2014

and

December

2014],

AutoZone

has

breached its contract with Red Hot to make payment, and Midland
is the assignee of those contractual rights.”
invoices totaled $72,824.00.
Compl. ¶ 19.)

(Id. ¶ 11.)

The

(Id. ¶ 12; see also Interpleader

Midland and AutoZone reached a settlement ad-

dressing the invoices in October 2015.

(Interpleader Compl.

¶ 24.)
In the Interpleader Complaint, AutoZone admits that, notwithstanding the settlement, it still owes payment for distinct
invoices “pertain[ing] to goods . . . ordered between November
2014 and March 2015.”

(Id. ¶¶ 27, 30; see also id. exs. J, K

accounts receivable from a business by a
“factor” who thereby assumes the risk of
loss in return for some agreed discount.
Indeed, the factor has emerged primarily as
a financier, often a finance company or similar institution, which provides its clients
(usually manufacturers or other suppliers of
goods) with needed working capital and other
financial assistance by purchasing their accounts receivable.
Thus, a “factor” buys
accounts receivable at a discount, the factor’s seller obtains immediate operating
cash, and the factor profits when the face
value of the account is collected.
32 Am. Jur. 2d Factors and Commission Merchants § 2 (2017).

3

(schedule of invoices and copies of invoices).)
total $111,101.76.

(See, e.g., id. ¶ 27.)

Those invoices
AutoZone alleges

that it has received “conflicting demands” for payment “from
various persons purporting to represent the interests of [Red
Hot] and/or [RHI].”
demands).)

(Id. ¶ 20; see also id. ¶¶ 21–23 (detailing

AutoZone alleges that it “is unable to assess the

validity of the competing claims made by the Defendants in this
matter.” 3

(Id. ¶ 26.)

AutoZone sought to interplead $111,101.76

(the “Disputed Funds”) so that the Court could resolve Defendants’ interests in the Funds.

(Id. ¶¶ 28, 34.)

On the day it filed the Interpleader Complaint, AutoZone
filed a Motion for Leave to Deposit Funds in the Court’s Registry (the “Deposit Motion”).
ed on October 29, 2015.

(ECF No. 4.)

The motion was grant-

(Order Granting Mot. for Leave to De-

posit Funds in Ct.’s Registry, ECF No. 13.)

On or about Novem-

ber 17, 2015, AutoZone sent the Clerk’s Office a check for the
amount of the Disputed Funds.

(Not. of Deposit of Funds in

Ct.’s Registry, ECF No. 15 (“Deposit Notice”).)

3

The Interpleader Complaint does not explain why Branch or Brown
might have claims to the Disputed Funds.
An email attached to
the Interpleader Complaint suggests that Branch owns Red Hot.
(Interpleader Compl. ex. H.) The Interpleader Complaint alleges
that Brown is RHI’s registered agent. (Id. ¶ 4.) A letter attached to the Interpleader Complaint purports to be from an attorney “represent[ing] the interests of [Brown] and [RHI].” (Id.
ex. F.)

4

On December 21, 2015, Branch filed a document titled “Objection to [AutoZone’s] Complaint for Interpleader” (the “Branch
Objection”).

(ECF No. 20.)

Branch argues that “[t]he defend-

ants in this matter are all victims of an orchestrated fraud by
AutoZone.”

(Id. ¶ 1.)

The Objection does not assert that

Branch is entitled to any portion of the Disputed Funds.

(See

generally id. ¶¶ 1–3.)
On February 11, 2016, AutoZone filed a motion to dismiss
Brown from the action.

(Mot. to Dismiss Brown.)

granted later that day.

The motion was

(Order Granting Mot. to Dismiss Def.

Micheal Brown Without Prejudice, ECF No. 29.)
The same day, Midland answered the Interpleader Complaint
(the “Midland Answer”).
ECF No. 30.)

(Def.’s Answer to Interpleader Compl.,

After answering the allegations of the Complaint,

Midland asked, inter alia, that the Court “enter an order dismissing [AutoZone] from the action,” and that the Court “determine that the Disputed Funds constitute ‘Collateral’ of Red Hot,
to which Midland has a first priority security interest pursuant
to the [FSA] . . . and therefore, Midland is entitled to all of
the Disputed Funds . . . .”

(Id. at 3.)

On June 14, 2016, AutoZone filed a Motion for Discharge,
Relief from Liability, and Permanent Injunction (the “Discharge
Motion”).

(ECF No. 35.)

The Discharge Motion sought an order

“(1) discharging AutoZone from this statutory interpleader ac-

5

tion; (2) relieving AutoZone from any liability as to the [Disputed Funds], and (3) enjoining all further actions with respect
to the disputed funds.”

(Id. at 1.)

On June 15, 2016, the

Court entered an order granting the Discharge Motion (the “Discharge Order”).

(Order Granting Mot. for Discharge, Relief from

Liability, and Permanent Inj., ECF No. 36.)

That order stated

that “AutoZone is hereby discharged from this statutory interpleader action; AutoZone is relieved from any liability as to
the disputed funds that have been deposited into the Court’s
registry; and any further actions with respect to the disputed
funds are permanently enjoined.”

(Id. at 1.)

On the same day the Court entered the Discharge Order, Midland filed a motion seeking the entry of defaults against Red
Hot and RHI.

(Def. Midland Am. Capital Corp.’s Mot. for Entry

of Defaults Against Defs. Red Hot Int’l, LLC and RHI Global,
LLC, ECF No. 37.)

Midland stated that, although Red Hot and RHI

had been served with process, neither had responded to the Interpleader Complaint.

(Id. at 1.)

On August 8, 2016, the Clerk

of Court docketed an Entry of Default as to Red Hot and RHI.
(Entry of Default, ECF No. 39.)
On October 26, 2016, Midland filed the Summary-Judgment Motion.

Midland argues that it “is the only Defendant who has as-

serted a claim to the Disputed Funds,” and that “it is entitled

6

to recover the Disputed Funds.”

(Id. ¶ 4.)

No party has re-

sponded to the Summary-Judgment Motion.
II.

JURISDICTION
In the Interpleader Complaint, AutoZone alleges that the

Court has original jurisdiction over this action pursuant to the
federal interpleader statute, 28 U.S.C. § 1335.

Section 1335(a)

establishes certain jurisdictional requirements:
The district courts shall have original jurisdiction of any civil action of interpleader or in the nature of interpleader
filed by any . . . corporation . . . having
in his or its custody or possession money or
property of the value of $500 or more . . .
if (1) [t]wo or more adverse claimants, of
diverse citizenship as defined in [§ 1332(a)
or (d)] of this title, are claiming or may
claim to be entitled to such money or property . . . ; and if (2) the plaintiff has
deposited such money or property . . . into
the registry of the court, there to abide
the judgment of the court . . . .
The requirements of § 1335(a) are met here.

First, Auto-

Zone filed this action having in its possession $111,101.76.
(Interpleader Compl. ¶¶ 27–28.)
Second, the § 1335(a) diversity requirement is met.

As a

threshold matter, when AutoZone filed the action, multiple adverse claimants “claim[ed] . . . to be entitled” to the Disputed
Funds.

(See, e.g., id. ¶¶ 20–23.)

“Statutory interpleader re-

quires only minimal diversity, or diverse citizenship between at
least two adverse claimants.”

UBS Fin. Servs., Inc. v. Kaufman,

7

No. 3:15-CV-00887-CRS, 2016 WL 3199535, at *3 (W.D. Ky. June 8,
2016) (citing State Farm Fire & Cas. Co. v. Tashire, 386 U.S.
523, 530 (1967)).

Because the test is diversity among adverse

claimants, AutoZone’s citizenship is not at issue.

In statuto-

ry-interpleader actions, courts do not consider the “disinterested

stakeholder’s

citizenship.”

Id.

(citing

cases).

“[I]nterpleader jurisdiction is determined at the time suit is
filed and subsequent events do not divest the court of jurisdiction once properly acquired.”

Walker v. Pritzker, 705 F.2d 942,

944 (7th Cir. 1983); see also Auto Parts Mfg. Mississippi, Inc.
v. King Const. of Houston, L.L.C., 782 F.3d 186, 193–94 (5th
Cir. 2015) (citing Walker).
The

Interpleader

Complaint

alleges,

and

Midland

agrees,

that Midland is a Nevada corporation with its principal place of
business in New York.
¶ 3.)

(Interpleader Compl. ¶ 3; Midland Answer

The Interpleader Complaint alleges that several of the

other adverse claimants are Florida citizens for diversity purposes.

(Interpleader Compl. ¶¶ 2, 4–6.)

There is minimal di-

versity.
Third, on the day it commenced this action, AutoZone filed
a motion seeking leave to deposit the Disputed Funds into the
Court’s registry.

(Deposit Motion.)

After receiving permis-

sion, AutoZone deposited the funds.

(Deposit Notice.)

meets § 1335(a)’s deposit requirement.

See, e.g., Columbus Life

8

That

Ins. Co. v. Walker-Macklin, No. 1:15-CV-535, 2016 WL 1588515, at
*2 (S.D. Ohio Apr. 19, 2016).
The Court has original jurisdiction over this action under
§ 1335(a).
III. STANDARDS
A.

Interpleader

The Sixth Circuit has discussed the two-stage process governing interpleader actions:
Interpleader is an equitable proceeding that
“affords a party who fears being exposed to
the vexation of defending multiple claims to
a limited fund or property that is under his
control a procedure to settle the controversy and satisfy his obligation in a single
proceeding.”
An interpleader action typically proceeds in two stages.
During the
first stage, the court determines whether
the stakeholder has properly invoked interpleader, including whether the court has jurisdiction over the suit, whether the stakeholder is actually threatened with double or
multiple liability, and whether any equitable concerns prevent the use of interpleader.
During the second stage, the court determines the respective rights of the claimants to the fund or property at stake via
normal
litigation
processes,
including
pleading, discovery, motions, and trial.
“When the court decides that interpleader is available” –– typically, at the
conclusion of the first stage –– “it may issue an order discharging the stakeholder, if
the stakeholder is disinterested, enjoining
the parties from prosecuting any other proceeding related to the same subject matter,
and
directing
the
claimants
to
interplead . . . .”

9

United States v. High Tech. Prod., Inc., 497 F.3d 637, 641 (6th
Cir. 2007) (quoting 7 Charles Alan Wright et al., Federal Practice and Procedure §§ 1704, 1714 (3d ed. 2001)). 4
The Court has completed the “first stage.”
Discharge Mot.; Discharge Order.)

(See generally

The “second stage” remains:

resolving the respective rights of the claimants to the Disputed
Funds

“via

normal

litigation

processes.”

Midland’s

Judgment Motion seeks to resolve the dispute.

Summary-

Summary judgment

is an appropriate way to resolve the second stage of an interpleader action.

See, e.g., Genworth Life Ins. Co. v. Oliver,

No. 11-14531, 2012 WL 4048875, at *3 (E.D. Mich. Aug. 9, 2012)
(citing cases), report and recommendation adopted, No. 11-14531,
2012 WL 4049048 (E.D. Mich. Sept. 13, 2012); cf. N.Y. Life Ins.
Co. v. Terry, No. 5:15-CV-353-HAI, 2017 WL 102965, at *7 (E.D.
Ky. Jan. 10, 2017) (resolving second stage of interpleader action on summary judgment).
B.

Summary Judgment

Under Federal Rule of Civil Procedure 56, a court shall
grant a party’s summary-judgment motion “if the movant shows
that there is no genuine dispute as to any material fact and the
4

A footnote in High Technology Products distinguishes between
rule interpleader under Federal Rule of Civil Procedure 22 and
statutory interpleader based on 28 U.S.C. § 1335.
497 F.3d at
641 n.1. High Technology Products was a rule-interpleader case,
but the Sixth Circuit stated that “the general principles discussed
in
this
section
apply
to
both
rule
and statutory interpleader.” Id.

10

movant is entitled to judgment as a matter of law.”
Civ. P. 56(a).

Fed. R.

Although summary judgment must be used careful-

ly, it “is an integral part of the Federal Rules as a whole,
which are designed to secure the just, speedy, and inexpensive
determination of every action[,] rather than a disfavored procedural shortcut.”

FDIC v. Jeff Miller Stables, 573 F.3d 289, 294

(6th Cir. 2009) (quotation marks and citations omitted).
No

party

has

responded

to

the

Summary-Judgment

Motion. 5

However, a “‘party is never required to respond to a motion for
summary judgment in order to prevail since the burden of establishing the nonexistence of a material factual dispute always
rests with the movant.’”

FTC v. E.M.A. Nationwide, Inc., 767

F.3d 611, 630 (6th Cir. 2014) (quoting Smith v. Hudson, 600 F.2d
60, 64 (6th Cir. 1979)).

“[E]ven where a motion for summary

judgment is unopposed, a district court must review carefully
the portions of the record submitted by the moving party to determine whether a genuine dispute of material fact exists.”
IV.

Id.

ANALYSIS
No remaining party has responded to the Summary-Judgment

Motion.

The Court must review those portions of the record sub-

5

As noted above, Branch filed an “Objection to Plaintiff’s Complaint for Interpleader.” The Objection does not argue, however, that that Branch is entitled to any portion of the Disputed
Funds.

11

mitted by Midland to determine whether there is a genuine dispute as to any material fact.
Midland states the following facts to support its claim to
the Disputed Funds.
into the FSA.

In March 2014, Red Hot and Midland entered

(Statement of Undisputed Material Facts in Supp.

of Mot. for Summ. J. by Midland Am. Capital Corp. ¶ 15, ECF No.
42 (“SUMF”). 6)

Under the FSA, Red Hot secured certain obliga-

tions by granting Midland “a continuing, first priority security
interest in ‘Collateral’ which is defined as [Red Hot’s] ‘now
owned and hereafter acquired Accounts, Chattel Paper, Inventory,
Equipment, Instruments, Investment Property, Documents, Letter
of Credit Rights, Commercial Tort Claims, and General Intangibles[.]’”

(Id. ¶ 18.)

Red Hot later defaulted under the FSA.

(Id. ¶¶ 24–25.)

As

a result, Midland demanded various forms of FSA-permitted relief.

(Id. ¶ 26.)

Midland originally sought to recover more

than $523,000 from Red Hot.

(Id. ¶ 28.)

The settlement of Mid-

land’s suit with AutoZone covered some of that amount, but as of
October

17,

$432,460.00.”

2016,

Red

Hot

owed

Midland

“not

less

than

(Id. ¶¶ 28, 32.)

The Disputed Funds are amounts AutoZone owed Red Hot, based
on invoices for lighters that AutoZone ordered from Red Hot be6

Each SUMF paragraph cites other record evidence. (See generally SUMF.)
Those citations are omitted in the SUMF citations
that follow.

12

tween November 2014 and March 2015.

(Id. ¶ 30.)

Those invoices

postdate the execution of the FSA, and so qualify as Red Hot’s
Collateral under the FSA.

(Id.)

Under section 10.1.1 of the

FSA, Red Hot agreed that, if it had outstanding obligations to
Midland, Midland was authorized, inter alia, to “[r]eceive” or
“take” the “proceeds of any Collateral[.]”
tion in original).)

(Id. ¶ 31 (altera-

Midland contends that, because the Disputed

Funds are “proceeds” of Collateral pursuant to the FSA, Midland
is entitled to the Disputed Funds.

(Id. ¶ 32.)

The Court has reviewed those portions of the record Midland
has submitted.

There is no genuine dispute as to any material

fact supporting Midland’s Motion.
ment as a matter of law.

Midland is entitled to judg-

The Summary-Judgment Motion is GRANT-

ED. 7

7

As discussed above (see Section I supra), two parties –– Red
Hot
and
RHI –– are
in
default.
Midland
argues
that
“[n]otwithstanding that defaults have been entered against these
two defendants, it is appropriate for the court to enter summary
judgment against them.” (Def. Midland Am. Capital Corp.’s Mem.
of Law in Supp. of Mot. for Summ. J. ¶ 5 (citing cases), ECF No.
41.)
Midland also argues that summary judgment is permissible
although, pursuant to Federal Rule of Civil Procedure 5(a)(2),
it did not serve Red Hot or RHI with the Summary-Judgment Motion. See Fed. R. Civ. P. 5(a)(2) (“No service is required on a
party who is in default for failing to appear.”).
Midland is
correct.
See, e.g., Rood v. Nelson, No. 2:12-CV-00893-GMN-NJ,
2014 WL 4635585, at *6 (D. Nev. Sept. 15, 2014) (“[N]umerous
district courts have recognized that, ‘[n]othing in Federal Rule
of Civil Procedure 56 appears to prevent a party from seeking
summary judgment against a party in default.’
In fact, a district court may grant a motion for summary judgment against a
defendant in default even if, as in the instant case, the movant
13

V.

CONCLUSION
For the reasons discussed above, Midland’s Summary-Judgment

Motion is GRANTED.

Judgment will enter in favor of Midland.

So ordered this 27th day of June, 2017.

/s/ Samuel H. Mays, Jr.
__
SAMUEL H. MAYS, JR.
UNITED STATES DISTRICT JUDGE

was excused from serving the motion pursuant to Rule 5(a)(2).”
(citations omitted)); see also, e.g., Allstate Ins. Co. v. Davis, No. 5:08-CV-00039-WRW, 2008 WL 2428871, at *1 (E.D. Ark.
June 12, 2008) (granting summary-judgment motion notwithstanding
failure to serve party based on Rule 5(a)(2)). Summary judgment
is appropriate as to Red Hot and RMI. It is also appropriate as
to Branch, who, although no default has been entered against
him, was served with a copy of the Summary-Judgment Motion and
has failed to respond.

14