Source: https://casetext.com/case/in-re-cflc-inc-2
Timestamp: 2020-02-23 13:04:37
Document Index: 705521738

Matched Legal Cases: ['§ 1303', '§ 547', '§ 2102', '§ 2', '§ 13101', '§ 2', '§ 23', '§ 1205', '§ 2', '§ 2', '§ 7307', '§ 7307', '§ 7', '§ 7']

Expeditors International of Washington, Inc. v. Official Creditors Committee of CFLC, Inc., 166 F.3d 1012 | Casetext
Expeditors International of Washington, Inc. v. Official Creditors Committee of CFLC, Inc.
C9 Ventures v. SVC-West, L.P.
(§ 1303, subd. (b).) “An inference of the parties' common knowledge or understanding that is based upon a…
Coulson v. Kane (In re Price)
See In re Ace Lumber Supply, Inc., 105 B.R. 964, 968 (Bankr. D. Mont. 1989).In re CFLC, Inc., 166 F.3d 1012,…
Full title:In re: CFLC, INC., a Delaware Corporation, Debtor. EXPEDITORS…
166 F.3d 1012 (9th Cir. 1999)
finding in a case under Article 9 of the UCC that "[c]ourse of dealing analysis is not proper in an instance where the only action taken has been the repeated delivery of a particular form by one of the parties"
Summary of this case from Trans-Tec Asia v. M/V Harmony Container
No. 97-17345
Argued and Submitted October 9, 1998 — San Francisco, California
Terrence V. Ponsford and Carl R. Goldberg, Bronson, Bronson McKinnon, San Francisco, California, for the appellee.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel Ollason, Volinn and Meyers, Judges, Presiding BAP No. NC-96-01232-OlVoMe.
In August 1991, Expeditors began providing transportation related services for Debtor CFLC, Inc., formerly known as Everex Systems, Inc. ("Everex"), including freight forwarding, ocean shipping and customs brokerage. For 17 months prior to Everex's filing its bankruptcy petition, Expeditors handled Everex's export and import shipments. Expeditors negotiated with Everex for all of the air freight forwarder rates and services performed by Expeditors' subsidiaries. Expeditors was in continuous possession, either directly or through its agents, of Everex's goods.
Everex never signed the invoices or any agreement with Expeditors regarding the printed invoice terms. The parties neither discussed nor expressly bargained over Sections 15 and 16 of the invoice or any other provision on the reverse side of the invoice. Everex did not object to the invoice terms prior to its bankruptcy, and Expeditors did not attempt to enforce Section 15 of the invoice by asserting a security interest or lien against the shipments prior to the 90-day period before the petition date. On October 29, 1992, Expeditors notified an Everex employee that it would be asserting its lien on the Everex goods in its possession until payments were made on outstanding invoices. Before the bankruptcy petition was filed, the parties continued normal business operations. At the time of Everex's bankruptcy filing, Expeditors was in possession of Everex property valued at $81,402.
Expeditors later released Everex's property pursuant to a stipulation for adequate protection approved by the bankruptcy court. In exchange Expeditors was granted a lien against an interest-bearing trust account to the extent that Expeditors could establish that it was a secured creditor of Everex.
Everex filed a voluntary Chapter 11 petition on January 4, 1993. In March 1994, Expeditors filed a complaint in the Bankruptcy Court to determine the validity, priority and extent of the claimed lien. Expeditors alleged that Everex owed a balance of $42,919.33, exclusive of post-petition interest, attorneys' fees and costs, for 68 past-due invoices dated January through October 1992.
Expeditors appealed the bankruptcy court's decision to the Bankruptcy Appellate Panel ("BAP"). The BAP affirmed the grant of partial summary judgment and dismissal of Expeditors' complaint. The BAP determined, inter alia, that: (1) the invoices did not amount to an agreement for a security interest; (2) Expeditors repeated delivery of invoice terms was not evidence of course of dealing because no security agreement existed that could be supplemented by such evidence; and (3) Article 2 of the U.C.C. did not apply to the service transactions involved. See In re CFLC, Inc., 209 B.R. 508, 513-16 (B.A.P. 9th Cir. 1997). Because the BAP determined that Expeditors did not have a security interest in Everex's property, it did not reach the question whether the transfer of the security interests was subject to preference under § 547(c)(5) of the Bankruptcy Code. This timely appeal followed.
Because we affirm the BAP's determination that no valid security interest was created, we need not reach this issue.
We review de novo decisions of the BAP. See In re Mantle, 153 F.3d 1082, 1084 (9th Cir. 1998). We independently review the bankruptcy court's rulings on appeal from the BAP. See id. We review the bankruptcy court's conclusions of law de novo and its factual findings for clear error. See id.; In re Claremont Acquisition Corp., Inc., 113 F.3d 1029, 1031 (9th Cir. 1997).
Article 2 of the U.C.C. applies only to transactions involving goods, not services. See Cal. Com. Code § 2102 ("this division applies to transactions in goods"). We hold that Article 2 does not apply to the contract between Expeditors and Everex because the parties contracted for services. Therefore, Expeditors' assertion that invoice terms rendered without objection constitute valid additions to the parties' contract under § 2-207 is inapplicable.
Although the parties contest whether California or Washington law controls this case, the relevant sections of the U.C.C. do not materially differ between the two states. California has adopted the U.C.C. See Cal. Com. Code § 13101 et seq. (West 1998). Sections of the California Commercial Code cited herein are identical to the U.C.C. unless otherwise noted.
We need not reach Expeditors' contention that because the invoice terms did not constitute material alterations, they should become part of the contract pursuant to U.C.C. § 2-207(2). Material alterations apply only to transactions in goods where Article 2 would apply. See Independent Machinery, Inc. v. Kuehne Nagel, Inc., 867 F. Supp. 752, 764 n. 13 (N.D. Ill. 1994) (action by shipper against carrier for losses arising out of damages to cargo is not an Article 2 transaction).
Section 9203 of the California Commercial Code outlines three requirements for the attachment and enforceability of a security interest: possession pursuant to an agreement, value given and debtor rights in the collateral."No magic words or precise form are necessary to create or provide for a security interest so long as the minimum formal requirements of the Code are met." In re Amex-Protein Dev. Corp., 504 F.2d 1056, 1058-59 (9th Cir. 1974). "Although the U.C.C. does not specifically state that intention to create a security agreement is an element necessary to creating a valid security agreement, it is clear that intention to do so is required." In re Airwest Int'l, 70 B.R. 914, 919 (Bankr. D. Haw. 1987). Determining whether the parties intended to create a security interest is a two-step process. The court must find both language in a written agreement that objectively indicates the parties' intent to create a security interest and the presence of a subjective intent by the parties to create a security interest. See id. (citing White Summers, Handbook of the Law Under the Uniform Commercial Code, § 23-3 (1980)). The intent to create a security interest must appear on the face of a written document executed by the debtor. See In re Ace Lumber Supply, Inc., 105 B.R. 964, 968 (Bankr. D. Mont. 1989).
. . . [a] security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless all of the following are applicable:
(a) The collateral is in the possession of the secured party pursuant to agreement . . . .
Expeditors contends that Everex's failure to object to the invoice terms constituted a tacit approval of the creation of a security agreement. See Expeditors Int'l of Washington, Inc. v. Wang Lab., Inc., No. Civ. A. 92-12630-MLW, 1995 WL 791935, at *7-8 (D. Mass. Nov. 14, 1995). The Wang court found that invoice terms identical to those at issue here created a security agreement between the parties. The court based its holding on the facts that Wang had ample opportunity to inspect the terms on the invoices, Wang never objected to the terms of the invoices and Wang knowingly employed the services of Expeditors without renegotiating any terms or conditions on the invoices. See id. at *7. The court found that these factors sufficiently proved that Wang had accepted Expeditors terms and that Wang had intended to transact business with Expeditors pursuant to these terms.
Although the invoice terms at issue in Wang are the same in the instant case, the facts in Wang differ. In Wang, the parties interacted more extensively than merely delivering pre-printed invoices with shipments. The parties had negotiated two written contracts that described the terms and conditions for air freight shipments and limited the use of certain types of freight as collateral. See id. at *9. Expeditors also presented to Wang language identical to the invoices in two credit applications and a bid proposal, although the parties did not complete either agreement. Id. at 2. In this case, Expeditors and Everex never discussed the terms on the invoices and never reached any agreements regarding a security interest. Additionally, no documents were executed by Everex that showed Everex's intention to create a security interest. Expeditors possessed Everex's property because it was providing freight forwarding services, not because Expeditors was securing Everex's obligation through a general lien. On these facts, the requirement that both parties demonstrate an intent to create a security interest has not been met. The pre-printed invoice terms did not explicitly create a security interest.
Course of dealing is defined as "a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct." Cal. Com. Code § 1205 (emphasis added). An inference of the parties' common knowledge or understanding that is based upon a prior course of dealing is a question of fact. See New Moon Shipping Co., Ltd. v. Man B W Diesel, AG, 121 F.3d 24, 31 (2d Cir. 1997) (citing Capitol Converting Equip., Inc. v. LEP Transp., Inc., 965 F.2d 391, 395 (7th Cir. 1992)). We review for clear error the BAP's determination that no course of dealing existed. See In re Mantle, 153 F.3d 1082, 1084 (9th Cir. 1998).
Course of dealing analysis is not proper in an instance where the only action taken has been the repeated delivery of a particular form by one of the parties. See Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 103-04 (3d Cir. 1991). In Step-Saver a software producer printed a "Limited Use License Agreement" on the package of each software program provided to its customers. Id. at 103. The box-top license stated that "[o]pening this package indicates your acceptance of these terms and conditions." Id. at 97. The software producer argued that the repeated expression of those terms eventually incorporated them into the contract through course of dealing analysis. See id. at 96-7.
The Step-Saver court gave two reasons for refusing to extend course of dealing analysis to a situation where the parties had not previously taken any action with respect to the matters addressed by the disputed terms. See id. at 104. First, the repeated exchange of forms merely indicated the seller's desire to have these terms included. The failure to obtain the purchaser's express assent to those terms indicates the seller's agreement to do business on other terms — those expressly agreed upon by the parties. Second, a seller in multiple transactions will typically have the opportunity to negotiate the precise terms of the parties' agreement. The seller's unwillingness or inability to obtain a negotiated agreement reflecting its desired terms strongly suggests that those terms are not a part of the parties' commercial bargain. See id.
Other circuits disagree with this conclusion. The Second Circuit has held that the understanding of parties "may be inferred from the resolution of a prior dispute between the parties (or from tacit acceptance of a clause repeatedly sent to the offeree in an order confirmation document." New Moon, 121 F.2d at 31. The New Moon court) "extended this doctrine beyond prior dealings involving actual disputes to include evidence that a party has ratified terms by failing to object." Id. (citing Pervel Indus. v. T M Wallcovering, Inc., 871 F.2d 7, 8 (2d Cir. 1989)). However, because the transactions took place between a purchaser and a manufacturer, and are thereby governed by U.C.C. Article 2, the Pervel court's reasoning was likely premised on Article 2-207 "battle of the forms" analysis.
Section 2-207 of the U.C.C. sets out the conditions for the addition of terms in acceptance or confirmation in transactions between merchants.
Although the Pervel court does not specifically reference § 2-207 of the U.C.C., the cases cited to support its holding that new terms may be incorporated into a contract through their repeated inclusion in purchase order confirmations rely on § 2-207. See, e.g., Genesco, Inc. v. T. Kakiuchi Co., 815 F.2d 840, 845-46 (2d Cir. 1987); Manes Org., Inc. v. Standard Dyeing Finishing Co., 472 F. Supp. 687, 690-91 (S.D.N.Y. 1979).
We have already determined that Article 2 does not apply to the transactions between Expeditors and Everex, and thus the holding in Pervel is inapposite. Moreover, we decline to apply course of dealing analysis to non-Article 2 transactions in which there has been only a tacit acceptance of a contract term repeatedly sent to the offeree on a pre-printed form. Even under the common law, "[s]ilence in the face of an offer is not an acceptance, unless there is a relationship between the parties or a previous course of dealing pursuant to which silence would be understood as acceptance." Southern Cal. Acoustics Co. v. C. V. Holder, Inc., 71 Cal.2d 719, 722, 456 P.2d 975, 978 (Cal. 1969).
The Seventh Circuit has also used course of dealing analysis to supplement the terms of a written agreement. See Capitol Converting Equip., Inc. v. LEP Transp., Inc., 965 F.2d 391, 395-96 (7th Cir. 1992). In LEP, the court determined that a course of dealing was established by the receipt of invoices with terms limiting the seller's liability, and that course of dealing analysis could be used to "fill the void" where the agreement was silent on the question of liability. The BAP correctly distinguished LEP because the term at issue was liability, a term that is inherent to a shipping contract. In the case before us, Expeditors seeks to create an additional term that is not normally within the scope of a carrier contract. A carrier's lien for charges and expenses is inherent in the contract between Expeditors and Everex because it is provided by California statute. See Cal. Com. Code § 7307. However, the general lien asserted by Expeditors is not automatically provided by the U.C.C. and is not inherent to a shipping contract. Unlike the liability term which was inherent to the shipping contract in LEP, the addition of a general lien term would do more than "fill the void," and, therefore, should not be added to the contract without the mutual agreement of the parties. We hold that it is not proper to use course of dealing analysis to establish a security interest.
Cal. Com. Code § 7307 provides, in pertinent part:
The U.C.C. does provide a general lien in certain instances, such as a warehousemen's lien. See U.C.C. § 7-209. U.C.C. Comment to § 7-307 specifically distinguishes a carrier's lien from those that automatically provide a general lien ("since carriers do not commonly claim a lien for charges in relation to other goods or lend money on the security of goods in their hands, provisions for a general lien or a security interest similar to those in Section 7-209(1) and (2) are omitted").
In CFLC, the plaintiff contended that a general lien provision, like that at issue in this case, contained on the back side of a preprinted invoice was enforceable under a course of dealing analysis.
Summary of this case from Maersk-Sealand v. Eurocargo Express, LLC
construing analogous California law
Summary of this case from In re Batsell
In CFLC, the plaintiff provided the debtor with transportation-related services and subsequently sent the debtor approximately 330 invoices containing "Terms and Conditions of Service" over a seventeen-month period.
Summary of this case from In re Outboard Marine Corporation
Summary of this case from In re Outboard Marine Corp.