CapitalPlus Equity LLC v. Glenn Rieder Inc

Filing 26

ORDER signed by Judge J.P. Stadtmueller on 1/3/2018: DENYING 17 Plaintiff's Motion for Summary Judgment; GRANTING 25 Defendant's Motion for Leave to File Sur-Reply; and DENYING 21 Defendant's Request for Summary Judgment pursuant to Fed. R. Civ. P. 56(f)(1). See Order. (cc: all counsel) (jm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
CAPITALPLUS EQUITY, LLC,
Plaintiff,
v.

Case No. 17-CV-639-JPS

GLENN RIEDER, INC.,
Defendant and
Third-Party Plaintiff,
v.
THE ESPINOSA GROUP, INC.,

ORDER

Third-Party Defendant.

This case arises from payments allegedly remitted to the wrong
entity. Specifically, CapitalPlus Equity, LLC (“CapitalPlus”) claims that it
purchased accounts receivable owed by Glenn Rieder, Inc. (“Glenn
Rieder”) to The Espinosa Group, Inc. (the “Espinosa Group”). Despite
receiving notice of the sale, Glenn Rieder remitted several payments,
totaling almost $200,000, to the Espinosa Group. CapitalPlus has sued
Glenn Rieder for breach of the contract, and Glenn Rieder has joined the
Espinosa Group as a third-party defendant, arguing that it is liable for any
mistaken payments. Before the Court are the primary parties’ competing
requests for summary judgment. For the reasons stated below, the Court
is unable to grant judgment as a matter of law to either side.

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1.

LEGAL STANDARD
Federal Rule of Civil Procedure 56 provides that the court “shall

grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); Boss v. Castro, 816 F.3d 910, 916 (7th
Cir. 2016). A fact is “material” if it “might affect the outcome of the suit”
under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). A dispute of fact is “genuine” if “the evidence is such
that a reasonable jury could return a verdict for the nonmoving party.” Id.
The court construes all facts and reasonable inferences in the light most
favorable to the non-movant. Bridge v. New Holland Logansport, Inc., 815
F.3d 356, 360 (7th Cir. 2016). The court must not weigh the evidence
presented or determine credibility of witnesses; the Seventh Circuit
instructs that “we leave those tasks to factfinders.” Berry v. Chicago Transit
Auth., 618 F.3d 688, 691 (7th Cir. 2010).
2.

RELEVANT FACTS
Glenn Rieder used the Espinosa Group as a subcontractor for

several building projects. It owed money to the Espinosa Group in the
form of accounts receivable. The Espinosa Group thereafter entered into a
financing

agreement,

also

called

a

“factoring

agreement,”

with

CapitalPlus. The agreement provided two financing alternatives. First, the
Espinosa Group could “factor,” or assign, its accounts receivable to
CapitalPlus. Second, it could obtain payroll advances.
CapitalPlus alleges that the Espinosa Group sold it two Glenn
Rieder accounts in October 2016. It relies on a declaration signed by

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Michael Espinosa (“Espinosa”), President and CEO of the Espinosa
Group, on July 24, 2017. (Docket #19-1). In the declaration, Espinosa
averred that while some accounts sold to CapitalPlus were identified in
written schedules, others were identified and agreed to through e-mails
and other informal communications between the companies. Id. ¶ 4. He
further stated that the two Glenn Rieder accounts at issue here “[were]
sold and assigned to CapitalPlus by [the Espinosa Group] pursuant to the
Factoring Agreement on or about October 1, 2016.” Id. ¶ 7.
Glenn Rieder disagrees, noting that at Espinosa’s October 30, 2017
deposition—which occurred after CapitalPlus filed its motion for
summary judgment—he recanted his averments. At the deposition,
Espinosa testified that any account assigned to CapitalPlus was always
documented on written schedules executed weekly between the Espinosa
Group and CapitalPlus. He rejected the notion that the parties used
informal methods such as e-mail to identify accounts that were sold. His
view is corroborated by the factoring agreement itself, which provides
that accounts sold must be recorded in a bill of sale. The agreement states,
in pertinent part:
Purchased Accounts. [The Espinosa Group] from time to
time may offer Accounts to [CapitalPlus] for purchase. [The
Espinosa Group] shall sign and submit to [CapitalPlus] a
Schedule of Purchased Accounts form which constitutes a
Bill of Sale for the invoices representing the Accounts offered
for purchase by [CapitalPlus] and agreed to be considered
Acceptable Accounts by [CapitalPlus]. [CapitalPlus] may
also require other supporting documentation for such
invoices as special circumstance arise. [CapitalPlus] may
purchase from [the Espinosa Group] such Acceptable

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Accounts as [CapitalPlus] elects. All purchases shall be
subject to the terms and conditions of this Agreement.
(Docket #23-1 ¶ 2). No bill of sale memorializes the sale of any Glenn
Rieder account.
Furthermore, Espinosa testified that there are several instances of
the Espinosa Group receiving payroll advances from CapitalPlus under
the factoring agreement, and it used two checks from Glenn Rieder to help
pay back those advances. According to him, the Espinosa Group sent
frequent e-mails to CapitalPlus requesting payroll advances, and some of
those payroll advances mention the two projects the Espinosa Group
worked on for Glenn Rieder. But he maintains that mere mention of the
accounts in emails did not amount to assignment, which had to be
formalized.
Espinosa thus testified that the facts set forth in his July 24, 2017
declaration are incorrect, that he did not read the declaration prior to
signing it, and he never would have signed the declaration if he had read
it. Espinosa signed the declaration as it was sent to him by Scott
Applegate (“Applegate”) of CapitalPlus, after a lunch meeting in New
York City. At that meeting, Applegate told Espinosa that this case had
settled, and that Applegate was going to send Espinosa a document for
him to sign as part of that settlement, so that the unions could get paid.
When Applegate sent the proposed declaration to Espinosa, it had no
exhibits attached to it. Espinosa signed it without reading it and sent it
back to Applegate. Espinosa did not attach any exhibits to the declaration
before sending it back to Applegate.

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In reply, CapitalPlus contends that whether Espinosa’s affidavit or
deposition testimony is believed, it is uncontroverted that the factoring
agreement gave it a security interest in the Glenn Rieder accounts. (Docket
#23-1 ¶ 13). Pursuant to the agreement, the Espinosa Group granted
CapitalPlus a security interest in “all assets” of the company. Id. These
assets specifically included “all Accounts” of the Espinosa Group. Id.;
(Docket #23-3 ¶ 1). This, in CapitalPlus’ view, included the Glenn Rieder
accounts. CapitalPlus contends its security interest is enforceable in the
same manner and degree as an outright assignment.
On October 13, 2016, CapitalPlus and the Espinosa Group jointly
sent a notice of assignment to Glenn Rieder, notifying it that the Espinosa
Group had assigned all present and future accounts of Glenn Rieder to
CapitalPlus and that all payments due to the Espinosa Group now or in
the future must be made directly to CapitalPlus. However, Glenn Rieder
says that the notice was false. In support, Glenn Rieder observes that the
notice was a generic form that was signed in blank by Espinosa. The
Notice is not addressed to Glenn Rieder, but instead is addressed to “Dear
Accounts Payable Manager.” (Docket # 19-5). Espinosa testified that he
had no advance knowledge that CapitalPlus was going to send the Notice
to Glenn Rieder. He testified that CapitalPlus was not authorized to send
the notice to Glenn Rieder; it was sent solely by CapitalPlus without his
consent.
Whether authorized or not, Glenn Rieder does not dispute that it
received the notice. Following receipt of the notice, in December 2016,
Glenn Rieder delivered to CapitalPlus two checks with the notation “FOR

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ACCOUNT: ESPINOSA GROUP[.]” The checks were made out to the
Espinosa Group. Glenn Rieder explains that it sent the checks directly to
CapitalPlus at the Espinosa Group’s request to help expedite its
repayment of payroll advances. Espinosa testified to this effect at his
deposition.
On or about January 20, 2017, Glenn Rieder remitted a check in the
amount of $55,803.88 directly to the Espinosa Group for amounts related
to one of the relevant accounts. Next, during February 2017, Glenn Rieder
made a payment of approximately $143,895 directly to the Espinosa
Group related to the other relevant account.
3.

ANALYSIS
CapitalPlus’ motion seeks a ruling that Glenn Rieder has paid the

wrong entity. At first, the question seems quite straightforward, as neither
party disputes the applicable law. Under the Uniform Commercial Code,
which exists in materially identical form in all states mentioned in the
relevant contracts, an account debtor such as Glenn Rieder
may discharge its obligation by paying the assignor until,
but not after, the account debtor receives a notification,
authenticated by the assignor or the assignee, that the
amount due or to become due has been assigned and that
payment is to be made to the assignee. After receipt of the
notification, the account debtor may discharge its obligation
by paying the assignee and may not discharge the obligation
by paying the assignor.
See Wis. Stat. § 409.406. “Thus, where an account debtor receives
notification of assignment but nonetheless pays only the assignor, the
account debtor remains obligated in full under the contract, and upon the

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assignor’s default, the assignee may enforce the account debtor’s
contractual obligations.” Reading Coop. Bank v. Suffolk Constr. Co., 984
N.E.2d 776, 782 (Mass. 2013). This UCC provision “requires an account
debtor that has received a notice of assignment to pay the assignee in
order to discharge its contractual obligation to the assignor.” Durham
Commer. Capital Corp. v. Select Portfolio Servicing, Inc., Case No. 3:14-cv-877J-34PDB, 2016 WL 6071633, at *21 (M.D. Fla. Oct. 17, 2016). According to
CapitalPlus, Glenn Rieder remains indebted to it and cannot receive credit
for payments inadvertently remitted to the Espinosa Group.
But Glenn Rieder says that no assignment was ever made, and thus
no payments were ever due CapitalPlus. It relies upon the “sham
affidavit” rule, asking the Court to disregard Espinosa’s July 2017
declaration and credit his testimony during his October 2017 deposition.
The sham affidavit rule prohibits litigants from manufacturing issues of
fact with affidavits that contradict their prior sworn testimony. Janky v.
Lake Cnty. Convention & Visitors Bureau, 576 F.3d 356, 362 (7th Cir. 2009).
Otherwise, the ability of a court on summary judgment to “weed out
unfounded claims, specious denials, and sham defenses—would be
severely undercut.” Bank of Ill. v. Allied Signal Safety Restraint Sys., 75 F.3d
1162, 1168–69 (7th Cir. 1996). Consequently, “[w]here a deposition and
affidavit are in conflict, the affidavit is to be disregarded unless it is
demonstrable that the statement in the deposition was mistaken, perhaps
because the question was phrased in a confusing manner or because a
lapse of memory is in the circumstances a plausible explanation for the
discrepancy.” Russell v. Acme-Evans Co., 51 F.3d 64, 67–68 (7th Cir. 1995).

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At first blush, the sham affidavit rule seems appealing in a case like
this one. CapitalPlus makes no effort to refute the allegation that
Applegate cajoled Espinosa into signing an affidavit without reading it on
the false representation that it would make the case against him
disappear. Having explained himself more clearly in the deposition, it
would seem prudent to credit Espinosa’s oral sworn testimony over the
sworn statements in the affidavit.
But the Court must recall its limited role during summary
judgment. It cannot resolve disputes of fact or decide what testimony is
more credible. Berry, 618 F.3d at 691. The key to the sham affidavit rule is
not the form of the sworn statement—i.e., affidavit versus deposition—but
the timing of the statements. Bank of Illinois and the cases cited therein
uniformly involve a witness trying to contradict an earlier sworn
statement with a later one. See Bank of Ill., 75 F.3d at 1169. The nature of
each statement is immaterial. What matters is that the witness’ earlier
statement must stand unless he can adequately explain why his more
recent statement is necessary. Id. In such cases, it is the later statement that
must be disregarded, if any.1
The Seventh Circuit in Russell also expressed general skepticism of
affidavits drafted by lawyers as opposed to a witness’ own statements at a
deposition. Russell, 51 F.3d at 67–68; see also Harris v. Owens-Corning Fiberglass
Corp., 102 F.3d 1429, 1432 (7th Cir. 1996). But in every case the Court could locate
applying the sham affidavit rule, including those cited by Russell, there existed
the temporal distinction between earlier and later statements, a competition
between which must be resolved in favor of the former. See, e.g., Slowiak v. Land
O’Lakes, Inc., 987 F.2d 1293, 1297 (7th Cir. 1993); Adelman-Tremblay v. Jewel Cos.,
859 F.2d 517, 520–21; Babrocky v. Jewel Food Co., 773 F.2d 857, 861–62 (7th Cir.
1985). That was the case in Russell, too, Russell, 51 F.3d at 68, and although the
Seventh Circuit has at times displayed a preference for deposition testimony, this
1

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Thus, the Court cannot, as Glenn Rieder requests, reject Espinosa’s
affidavit under this rule. It could only reject the deposition testimony. But
CapitalPlus does press the Court to do so. While it claims that the
deposition testimony is “false,” CapitalPlus does not cite the sham
affidavit rule at all. (Docket #23 at 2). The Court cannot discount the
deposition testimony on the bare assertion that it is false or self-serving.
Hill v. Tangherlini, 724 F.3d 965, 967 (7th Cir. 2013).
As a consequence, the Court is left with a genuine dispute as to the
central issue in the case: whether the Glenn Rieder accounts were in fact
sold to CapitalPlus. On the one hand, the factoring agreement itself never
effected the sale of any accounts. It provided that sales could be made if
agreed between the parties and reflected in a bill of sale. See (Docket #21 at
10). Yet there is no formal documentation of the sale of the Glenn Rieder
accounts. On the other hand, CapitalPlus has Espinosa’s affidavit, which
suggests that informal assignments were not impermissible and that this
is how the Glenn Rieder accounts were sold. This dispute is critical, as the
notice CapitalPlus sent to Glenn Rieder demanding payment would have
no force or effect unless the accounts had actually been assigned to it.
Forest Capital, LLC v. BlackRock, Inc., 658 F. App’x 675, 681 (4th Cir. 2016);
Platinum Funding Servs., LLC v. Petco Insulation Co., No. 3:09CV1133 MRK,
2011 WL 1743417, at *9 (D. Conn. May 2, 2011); Durham, 2016 WL 6071633,
cannot, standing alone, undermine the vast body of case law that confines the
sham affidavit rule to its temporal underpinnings. See In re 3RC Mech. &
Contracting Servs., LLC, 505 B.R. 818, 826 (Bankr. N.D. Ill. 2014) (“[T]he timing of
the contradictory statement matters at least as much as the inherently greater
reliability of live deposition testimony over sworn statements in writing
prepared by attorneys.”).

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at *16. This question must be answered by the finder of fact. See In re 3RC,
505 B.R. at 826.2
In response to this new circumstance, CapitalPlus does not concede
the existence of a triable issue of fact. Instead, it changes its tune: rather
than claim the rights of an assignee of the accounts, it now relies on the
fact that the agreement gave it a security interest in the accounts, which it
says is enforceable to the same degree as an assignment. (Docket #23 at 2).
What CapitalPlus does not provide, however, is citation to a single legal
authority substantiating its claim that its rights as a secured party are
coextensive with its rights had it been an assignee. In fact, CapitalPlus first
tries to cover up this fatal flaw in its reasoning, blithely citing the same
UCC cases it did in its opening brief without acknowledging that they
pertain only to assignees of accounts. See (Docket #23 at 7–8). Notably,
UCC section 9–406 only forces the account debtor to pay an “assignee,”
not a holder of a security interest, upon proper notification. Wis. Stat. §
409.406(1).
Because of this, CapitalPlus claims that another UCC provision,
Wis. Stat. § 409.607, authorizes it, as a secured party, to gain the right to
payment on an account after notice to the account debtor. (Docket #23 at
7–8). What it conveniently leaves out, however, is the prefatory clause of
that section. As Glenn Rieder explains in its sur-reply—leave for which
will be granted—a secured party’s right to payment under UCC Section 9The dispute about whether the notice to Glenn Rieder was authorized by
the Espinosa Group is immaterial. If CapitalPlus truly owned the accounts, it
would not need the assignee’s permission to demand payment from the account
debtor. Wis. Stat. § 409.406(1) (the notification may be “authenticated by the
assignor or the assignee”) (emphasis added).
2

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607 is predicated on an express agreement permitting security interest
holders to demand payment or a default on the account. (Docket #25-1 at
2–4); Wis. Stat. § 409.607(1)(a). There has been no allegation, much less
evidence, of either circumstance in this case, and thus long-standing UCC
principles did not permit CapitalPlus to transform its security interest into
a right to immediate payment. In other words, this was not a right that
CapitalPlus could simply exercise. To be sure, the requisite conditions
precedent were not met.
Not only does CapitalPlus’ argument not comport with the law, it
makes no sense. Assuming CapitalPlus is correct, then because the
factoring agreement gave it a security interest in all Espinosa Group
accounts, it could have taken the Espinosa Group’s right to payment for
any account simply by giving notice to the account debtor. This is wholly
at odds with the factoring agreement, which sets out detailed protocols for
assigning rights in accounts receivable, and with the UCC, which limits
the rights of secured parties as compared to assignees. As a result,
CapitalPlus’ argument does not carry the day, nor does it dispel the need
for a jury to decide the ultimate question of whether the Glenn Rieder
accounts were actually assigned to it.
4.

CONCLUSION
Having run into a genuine dispute of fact as to whether it bought

the Glenn Rieder accounts at issue in this case, CapitalPlus should have
stopped there. It nevertheless pressed forward, adopting a wholly
unsupported interpretation of its UCC rights.

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Finally, the Court notes that Glenn Rieder in its opposition brief
asked the Court to grant it summary judgment under Federal Rule of Civil
Procedure 56(f)(1). (Docket #21 at 13–14). That Rule permits summary
judgment to be entered in favor of a non-movant if the party against
whom judgment will be entered was given notice and a reasonable time to
respond. Fed. R. Civ. P. 56(f)(1). This consideration together with the
matter of Espinosa’s credibility and the conflict between his sworn
statements means that summary judgment is not appropriate in favor of
either party.
Accordingly,
IT IS ORDERED that Plaintiff’s motion for summary judgment
(Docket #17) be and the same is hereby DENIED;
IT IS FURTHER ORDERED that Defendant’s motion for leave to
file a sur-reply (Docket #25) be and the same is hereby GRANTED; and
IT IS FURTHER ORDERED that Defendant’s request for summary
judgment pursuant to Rule 56(f)(1) (Docket #21) be and the same is hereby
DENIED.
Dated at Milwaukee, Wisconsin, this 3rd day of January, 2018.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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