Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_07-cv-00522/USCOURTS-almd-2_07-cv-00522-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Declaratory Judgement

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IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, NORTHERN DIVISION

KOCH FOODS OF ALABAMA LLC, )

an Alabama Limited )

Liability Co., )

)

Plaintiff, )

) CIVIL ACTION NO.

v. ) 2:07cv522-MHT

) (WO) 

GENERAL ELECTRIC CAPITAL )

CORPORATION, a Delaware )

Corporation, )

)

Defendant. )

OPINION

Plaintiff Koch Foods of Alabama, LLC (Koch Foods)

brought this lawsuit, concerning the ownership of two

pieces of poultry-processing equipment, against defendant

General Electric Capital Corporation (GE Capital). GE

Capital removed this suit from state court and properly

invoked this court’s diversity-of-citizenship

jurisdiction under 28 U.S.C. §§ 1332, 1441. Koch Foods

sought declaratory judgment on three issues: that the

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pieces of poultry-processing equipment are fixtures of

the Koch Foods facility; that, as a result, Koch Foods is

not liable to GE Capital for rent or unjust enrichment;

and that, if the equipment pieces are not fixtures, GE

Capital is liable to Koch for storage costs. Koch Foods

also raised a claim for unjust enrichment. GE Capital

filed a counterclaim seeking damages from Koch Foods for

conversion of the equipment. 

The case is currently before the court on GE

Capital’s and Koch Foods’ motions for summary judgment.

GE Capital seeks summary judgment on its conversion

counterclaim and on Koch Foods’ declaratory-judgment and

unjust-enrichment claims, and Koch Foods seeks summary

judgment on GE Capital’s conversion counterclaim. For

the reasons that follow, GE Capital’s motion is denied on

its own conversion counterclaim and is granted on Koch

Foods’ claims for declaratory judgment and unjust

enrichment, and Koch Foods’ motion is granted on GE

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Capital’s conversion counterclaim, with the result that

neither party will take anything from this litigation. 

I. STANDARD FOR SUMMARY JUDGMENT

Summary judgment is appropriate “if the pleadings,

the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any

material fact and that the movant is entitled to judgment

as a matter of law.” Fed. R. Civ. P. 56(c). Under Rule

56, the party seeking summary judgment must first inform

the court of the basis for the motion, at which point the

burden then shifts to the non-moving party to demonstrate

why summary judgment would not be proper. Celotex Corp.

v. Catrett, 477 U.S. 317, 323 (1986); see also

Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-17

(11th Cir. 1993) (discussing burden-shifting under Rule

56). The non-moving party must affirmatively set forth

specific facts showing a genuine issue for trial and may

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not rest upon the mere allegations or denials in the

pleadings. Fed. R. Civ. P. 56(e).

The court’s role at the summary-judgment stage is not

to weigh the evidence or to determine the truth of the

matter, but rather to determine only whether a genuine

issue exists for trial. Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 249 (1986). In doing so, the court must

view the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor

of that party. Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574, 587 (1986).

II. FACTS

In December 2005, Sylvest Farms, Inc., a poultryprocessing company, entered into a lease for certain

large items of poultry-processing equipment--including a

chicken deboner, a spiral freezer, and equipment used for

shrink-wrapping--with GE Capital. Sylvest Farms

installed the equipment in its facility, although the

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*The letter is dated January 2, 2006, but its content

and the overall timeline of events lead the court to

presume that it was actually sent on January 2, 2007. 

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spiral freezer was never fully installed. Approximately

four months later, Sylvest Farms filed for bankruptcy,

and Koch Foods purchased substantially all of Sylvest

Farms’ assets in May 2006. Koch Foods did not, however,

assume the equipment lease. 

Koch Foods began production in the former Sylvest

Farms facility, using the equipment, in May 2006. In

approximately June 2006, GE Capital’s counsel discussed

with Koch Foods the necessity of relocating the

equipment, and Koch Foods informed GE Capital that the

equipment could remain on-site while GE Capital located

a buyer. GE Capital sold the shrink-wrapping equipment

in August 2006, but the deboner and spiral freezer

remained in Koch Foods’ facility. In a January 2007

letter from GE Capital’s counsel to Koch Foods’ counsel,

GE Capital expressed its concern that Koch Foods was

using the equipment without its permission.*

 It demanded

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rent payments in the amount of $ 237,493.99 and

threatened a suit for conversion should Koch Foods fail

to pay. 

Following that letter, tensions between the parties

heightened. In an email dated February 17, 2007, Koch

Foods’ counsel informed GE Capital’s counsel of the price

that Koch Foods would be willing to pay for the deboning

line. The calculation of that price was influenced by

Koch Foods’ belief that the line was used; the fact that

Koch Foods would have preferred deboning equipment with

different specifications; and the convenience of the

equipment’s already being installed in the facility. The

email also noted that, if GE Capital were to decline Koch

Foods’ offer, “Koch will purchase other equipment and

will gladly allow GE to enter Koch’s plant at a

reasonable and mutually agreeable time to remove the

equipment,” assuming that “GE agrees to a mutual release

and to indemnify Koch for any damage caused to the plant

by GE’s removal of the equipment.” GE Capital objected

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to these conditions, and the equipment was not removed.

In April 2007, Koch Foods purchased new deboning

equipment; the existing deboning equipment was deinstalled and placed in the facility’s yard. 

The next correspondence in the record is another

email from Koch Foods’ counsel to GE Capital’s counsel,

dated April 18, confirming that “Koch has declined [GE

Capital]’s demand that Koch purchase the equipment ... as

well as [pay] rental value for the nearly one-year period

that the equipment has been at the site” and again asking

GE Capital to arrange to remove its equipment.

Discussions apparently broke down on May 21, 2007, when

GE Capital announced that it would sue Koch Foods for

conversion. Four days later, Koch Foods sued GE Capital

in state court, seeking declaratory judgments that it

owned the equipment, that it would not be liable to GE

Capital for rent or unjust enrichment, and that GE

Capital would be liable to it for storage costs. Koch

Foods also asserted an alternative claim for unjust

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enrichment. GE Capital removed the case to federal court

and filed a counterclaim for conversion. 

III. DISCUSSION

A. Koch Foods’ Declaratory-Judgment Claim

The court is currently faced with two competing

claims: Koch Foods’ request for declaratory judgment and

GE Capital’s counterclaim for conversion. The

Declaratory Judgment Act, 28 U.S.C. § 2201(a), gives

courts discretion to hear declaratory judgment actions.

Courts are not obligated to adjudicate these claims,

because in “the declaratory judgment context, the normal

principle that federal courts should adjudicate claims

within their jurisdiction yields to considerations of

practicality and wise judicial administration.” Wilton

v. Seven Falls Co., 515 U.S. 277, 288 (1995). It is

evident in the instant case that Koch Foods filed its

declaratory judgment claim in anticipation of GE

Capital’s action for conversion; indeed, the record

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demonstrates that GE Capital had threatened a conversion

action against Koch Foods. Not knowing precisely how GE

Capital would bring its conversion action, Koch Foods

took a kitchen-sink approach to its declaratory judgment

action. Now that GE Capital has brought its conversion

claim, however, there is no need to adjudicate Koch

Foods’ alternative declaratory judgment claim. As such,

this court deems it more prudent to adjudicate GE

Capital’s actual action for conversion--as well as Koch

Food’s remaining claim for unjust enrichment--rather than

Koch Foods’ anticipatory claim for declaratory judgment.

B. Ownership of the Equipment

Before turning to GE Capital’s conversion

counterclaim and Koch Foods’ unjust-enrichment claim, the

court must ascertain whether GE Capital was properly the

owner of the equipment.

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1. W.T. Adams

A 1898 Alabama Supreme Court case, W.T. Adams Mach.

Co. v. Interstate Bldg. and Loan Assoc., 24 So. 857 (Ala.

1898), provides the crucial precedent in the instant

case. In W.T. Adams, a landowner purchased heavy

equipment, intended to be attached to his property, under

an agreement that the seller would retain title of the

equipment until all payments had been made. Id. at 857.

Meanwhile, the landowner had secured a loan backed by the

mortgage of his property. Id. When he defaulted on his

loan payments, the lender sought to foreclose on the

property and sued the seller to enjoin it from removing

the equipment that was “attached to the building.” Id.

at 857. The Alabama Supreme Court held that the seller

retained title to the equipment and could assert that

title against the lender, even though the equipment had

been affixed to the mortgaged property. Id. The court

reaffirmed its decision more than 50 years later in

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Mobile Cab and Baggage Co., Inc. v. Texas Co., 74 So.2d

498, 499 (Ala. 1954). 

Applied to the instant case, W.T. Adams compels the

conclusion that the equipment still belongs to GE

Capital. GE Capital leased the equipment to Sylvest

Farms with the understanding that the equipment would be

installed in Sylvest Farms’ facility and that Sylvest

Farms could purchase the equipment at the termination of

the lease. Upon Sylvest Farm’s bankruptcy, Koch Foods

took title of the property but did not assume the

equipment lease. Koch Foods is therefore in a situation

analogous to that of the lender in W.T. Adams: it

rightfully owns the facility but not the equipment

installed in it. 

 

2. Fixtures

While the court believes that W.T. Adams dictates its

decision as to the ownership of the equipment, the

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parties’ disagreement concerning fixtures is worthy of

some attention. 

A “fixture” is “an article which was once a chattel,

but which, by being physically annexed or affixed to the

realty, has become accessory to it and part and parcel of

it.” Milford v. Tenn. River Pulp & Paper Co., 355 So.2d

687, 689-90 (Ala. 1978) (quoting Farmers & Merchants Bank

v. Sawyer, 163 So. 657, 658 (Ala. Ct. App. 1935)). In

the instant case, Koch Foods contends that while the

deboner and spiral freezer were once property that

Sylvest Farms leased from GE Capital, their affixation to

the property rendered them “part and parcel” of the

property and transferred ownership to Koch Foods.

Whether an item has morphed from personal property to

realty is determined by three well-established criteria:

“(1) Actual annexation to the realty or something

appurtenant thereto; (2) application to the use or

purpose to which that part of the realty with which it is

connected is appropriated; (3) the intention of the party

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making the annexation to make a permanent accession to

the freehold.” Langston v. State, 11 So. 334, 335 (Ala.

1892). 

In the instant case, the court may assume the

presence of the first two criteria, as the third and most

important criterion, intent, demonstrates that the pieces

of equipment are not fixtures. See Langston, 11 So. at

335 (“the intention of the person making the annexation

is the controlling factor in determining the character of

the article annexed”). The lease executed between GE

Capital and Sylvest Farms plainly states the parties’

intentions: “All equipment shall at all times remain

personal property of [GE Capital] even though it may be

attached to real property. The Equipment shall not

become part of any other property by reason of any

installation in, or attachment to, other real or personal

property.” Def.’s Ex. C (Doc. No. 45), at ¶ 19(b). Koch

Foods contends that this provision was “boilerplate” and

not discussed by the parties, but there is no evidence of

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any intention to the contrary. See Southland Quality

Homes, Inc. v. Williams, 781 So.2d 949, 953 (Ala. 2000)

(“If a contract is unambiguous on its face, there is no

room for construction and it must be enforced as

written.”). Additionally, Koch Foods was aware of the

agreement between GE Capital and Sylvest Farms, as the

lease was included in Sylvest Farms’ “data room.”

Campbell Depo. (Doc. No. 45), at 11.

The only evidence that one of the parties to the

contract did intend for the equipment to become fixtures

is Sylvest Farms’ apparent decision to install the

equipment in a “hostile environment”--making it more

difficult to remove the equipment--so that GE Capital

would give it a more favorable price at the conclusion of

the contract. While this evidence may suggest some bad

faith on the part of Sylvest Farms, the evidence is not

controlling as to the limited question of to whom the

equipment belongs, because the contract states on its

face that the equipment will always remain personal

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property, regardless of the manner in which it is

installed. 

C. GE Capital’s Conversion Counterclaim

Because the equipment belongs to GE Capital and not

Koch Foods, the court may turn to GE Capital’s claim for

conversion. It is well-established that “[i]n order to

constitute conversion, nonconsent to the possession and

the disposition of the property by [the owner] is

indispensable.” Jones v. DCH Health Care Auth., 621

So.2d 1322, 1324 (Ala. 1993) (quoting 89 C.J.S. Trover &

Conversion § 5 (1955)). GE Capital therefore cannot

recover for conversion because GE Capital clearly

consented to Koch Foods’ retention and disposition of the

equipment.

By January 2007--and perhaps as early as Koch Foods’

acquisition of the facility--GE Capital had become aware

that Koch Foods was using, and not merely storing, the

equipment. Upon acquiring this information, GE Capital

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asked not for the return of the equipment but for rental

payments. Pl.’s Ex. 9 (Doc. No. 46), at 31-32. GE

Capital made no attempts to reclaim the equipment. By

not doing so, GE Capital engaged in a course of conduct

clearly evincing its consent to Koch Foods’ use of the

equipment. See McCaig v. Talladega Publ’g Co., 544 So.2d

875, 879 (Ala. 1989) (“[C]onsent may be implied from

custom, usage, or conduct.”). Similarly, GE Capital had

previously requested the surrender of the shrink-wrapping

equipment it had leased to Sylvest Farms but had taken no

action with respect to the other equipment, which further

demonstrates its consent to Koch Foods’ use of the other

equipment.

Given GE Capital’s clear consent to Koch Foods’ use

of the equipment, Koch Foods “is not liable to the extent

that [GE Capital] has effectively consented to the

interference with [its] rights.” Restatement (Second) of

Torts § 252 (2007). 

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D. Koch Foods’ Unjust-Enrichment Claim

Koch Foods’ complaint also included a claim for

unjust enrichment based upon its storage and maintenance

of the equipment. This claim must fail. To make out a

claim of unjust enrichment under Alabama law, a plaintiff

must show that “the donor of the benefit ... acted under

a mistake of fact or in misreliance on a right or duty,

or (2) the recipient of the benefit ... engaged in some

unconscionable conduct, such as fraud, coercion, or abuse

of a confidential relationship.” Jordan v. Mitchell, 705

So.2d 453, 458 (Ala. Civ. App. 1997). Koch Foods makes

no such allegations. Indeed, the parties simply took no

action to alter the status quo as long as the status quo

benefitted them. From the outset of their relationship,

Koch Foods and GE Capital contentedly took advantage of

each other: Koch Foods’ retention of the equipment saved

GE Capital the cost of the equipment’s removal and

storage elsewhere, and GE Capital’s failure to remove the

equipment saved Koch Foods the cost of purchasing its own

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equipment. Unjust enrichment is “an old equitable remedy

permitting the court in equity and good conscience to

disallow one to be unjustly enriched at the expense of

another,” Avis Rent A Car Sys., Inc. v. Heilman, 876

So.2d 1111, 1123 (Ala. 2003) (citation omitted), and

nothing suggests that the trial court must step in to

balance the equities in this case. See id. (“A claim for

restitution is equitable in nature, and permits a trial

court to balance the equities and to take into account

competing principles to determine if the defendant was

unjustly enriched.”) (citation omitted). 

 

***

For the foregoing reasons, GE Capital’s motion for

summary judgment is denied on its counterclaim for

conversion and is granted on Koch Foods’ claims for

declaratory judgment and unjust enrichment. Koch Foods’

motion for summary judgment is granted on GE Capital’s

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conversion counterclaim. An appropriate judgment will be

entered. 

DONE, this the 8th day of April, 2008.

 /s/ Myron H. Thompson 

UNITED STATES DISTRICT JUDGE

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