Court Opinion

ID: 5141677
Source: CourtListenerOpinion
Date Created: 2021-12-30 17:13:01.016005+00
Date Added: 2024-06-11T08:24:30.386050
License: Public Domain

[Cite as Cortland Savs. & Banking Co. v. Platinum Rapid Funding Group, Ltd., 2021-Ohio-4615.]

               IN THE COURT OF APPEALS OF OHIO
                           ELEVENTH APPELLATE DISTRICT
                                TRUMBULL COUNTY

THE CORTLAND SAVINGS                                      CASE NO. 2021-T-0006
AND BANKING COMPANY,

                Plaintiff-Appellee,                       Civil Appeal from the
                                                          Court of Common Pleas
        -v-

PLATINUM RAPID FUNDING                                    Trial Court No. 2019 CV 00633
GROUP, LTD., et al.,

                Defendant-Appellant.

                                             OPINION

                                  Decided: December 30, 2021
                                 Judgment: Reversed; remanded

Matthew G. Vansuch and Timothy M. Reardon, Brouse McDowell LPA, 6550 Seville
Drive, Suite B, Canfield, OH 44406 (For Plaintiff-Appellee).

Jerry M. Bryan and J. Michael Thompson, Henderson, Covington, Messenger, Newman
& Thomas Co., LPA, 6 Federal Plaza Central, Suite 1300, Youngstown, OH 44503 (For
Defendant-Appellant).

THOMAS R. WRIGHT, J.

        {¶1}    Platinum Rapid Funding Group, Ltd. (“Platinum”) appeals the decision

denying its motion for summary judgment and granting partial summary judgment to The

Cortland Savings and Banking Company (“Cortland Bank”). We reverse and remand.

        {¶2}    Cortland Bank is a community bank in Northeastern Ohio. On March 19,

2018, Cortland Bank, 21st Century Concrete Construction, Inc. (“21st Century”), and

Patrick J. Butler as president of 21st Century, entered into a written business loan
agreement, whereby Cortland Bank loaned 21st Century $1,000,000 pursuant to a

promissory note and a commercial security agreement.         The commercial security

agreement granted Cortland Bank a security interest in numerous assets owned by 21st

Century, including its accounts. Pursuant to the business loan agreement, 21st Century

maintained a deposit account with Cortland Bank (“the checking account”). Cortland

Bank filed a UCC-1 Financing Statement with the Ohio Secretary of State identifying the

collateral involved in the transaction.

       {¶3}   Platinum is a “New York corporation engaged in the business of providing

businesses with working capital funding for operating expenses by virtue of purchasing

future business receivables and sales proceeds from merchants at a discount.” In April,

June, and October 2018, Platinum and 21st Century entered into three merchant

agreements, whereby Platinum agreed to make two advances of $250,000 and one

advance of $846,000 to 21st Century in exchange for a percentage of 21st Century’s

future receivables in the total amount of $1,526,000. 21st Century authorized Platinum

to withdraw weekly payments from its checking account maintained at Cortland Bank until

the amount owed to Platinum was paid in full. Between March 2018 and March 2019,

$869,250 was transferred from the checking account to Platinum.

       {¶4}   21st Century defaulted on its loan with Cortland Bank. On April 29, 2019,

Cortland Bank received a judgment against 21st Century and Butler in the approximate

amount of $1,000,000.

       {¶5}   Thereafter, Cortland Bank filed a complaint against 21st Century, Butler,

and Platinum.    Subsequently, Cortland Bank amended its complaint, removing 21st

Century as a named defendant. With respect to Platinum, Cortland Bank sought return

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of all funds transferred to Platinum from the checking account prior to 21st Century

defaulting on the Cortland Bank loan. Cortland Bank alleged claims of conversion, unjust

enrichment, impairment of a security interest, and tortious interference with contract.

Cortland Bank and Platinum filed competing summary judgment motions. The trial court

denied Platinum’s motion and granted Cortland Bank’s motion on its claims for

conversion, impairment of security interest, and tortious interference with contract and

certified that there was no just cause for delay pursuant to Civ.R. 54.

       {¶6}   In its first assigned error, Platinum argues:

       {¶7}   “[1.] The trial court erred in granting Cortland’s Motion for Summary

Judgment, and denying Platinum’s Motion for Summary Judgment, based upon its finding

that Platinum did not receive the Transfers from the Deposit Account of 21st Century at

Cortland free and clear of any Cortland security interest (T.d. 75).”

       {¶8}   “We review decisions awarding summary judgment de novo, i.e.,

independently and without deference to the trial court’s decision.” Hedrick v. Szep, 11th

Dist. Geauga No. 2020-G-0272, 2021-Ohio-1851, ¶ 13, citing Grafton v. Ohio Edison Co.,

77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996).

              Civ.R. 56(C) specifically provides that before summary
              judgment may be granted, it must be determined that: (1) No
              genuine issue as to any material fact remains to be litigated;
              (2) the moving party is entitled to judgment as a matter of law;
              and (3) it appears from the evidence that reasonable minds
              can come to but one conclusion, and viewing such evidence
              most strongly in favor of the party against whom the motion
              for summary judgment is made, that conclusion is adverse to
              that party.

Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327, 364 N.E.2d 267 (1977); Allen v.

5125 Peno, LLC, 2017-Ohio-8941, 101 N.E.3d 484, ¶ 6 (11th Dist.), citing Holliman v.

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Allstate Ins. Co., 86 Ohio St.3d 414, 415, 715 N.E.2d 532 (1999). “The initial burden is

on the moving party to set forth specific facts demonstrating that no issue of material fact

exists and the moving party is entitled to judgment as a matter of law.” Allen at ¶ 6, citing

Dresher v. Burt, 75 Ohio St.3d 280, 292-293, 662 N.E.2d 264 (1996). “If the movant

meets this burden, the burden shifts to the nonmoving party to establish that a genuine

issue of material fact exists for trial.” Allen at ¶ 6, citing Dresher at 293.

       {¶9}   Here, the trial court’s decision turns largely upon statutory construction.

“The meaning of statutory language is a question of law, which we review de novo.” State

v. Jeffries, 160 Ohio St.3d 300, 2020-Ohio-1539, 156 N.E.3d 859, ¶ 15, cert. denied, 141

S.Ct. 1085, 208 L.Ed.2d 539, citing State v. Vanzandt, 142 Ohio St.3d 223, 2015-Ohio-

236, ¶ 6. “A fundamental preliminary step in our analysis of any legislation is to review

the plain language of the statute.” Jeffries at ¶ 15, citing Vanzandt at ¶ 7. “‘When the

language of a statute is plain and unambiguous and conveys a clear and definite meaning,

there is no need for this court to apply the rules of statutory interpretation.’” Jeffries at ¶

15, quoting Symmes Twp. Bd. of Trustees v. Smyth, 87 Ohio St.3d 549, 553, 721 N.E.2d

1057 (2000). “When there is no ambiguity on the face of the statute, it must simply be

applied as written.” Jeffries at ¶ 15, citing Lake Hosp. Sys., Inc. v. Ohio Ins. Guar. Assn.,

69 Ohio St.3d 521, 524, 634 N.E.2d 611 (1994).

       {¶10} “We must read statutory words and phrases in context and construe them

in accordance with the rules of grammar and common usage.” Jeffries at ¶ 16, citing

State ex rel. Barley v. Ohio Dept. of Job & Family Servs., 132 Ohio St.3d 505, 2012-Ohio-

3329, 974 N.E.2d 1183, ¶ 20. “But words and phrases that have a technical or particular

meaning by legislative definition must be construed accordingly.” Jeffries at ¶ 16, citing

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Case No. 2021-T-0006
State ex rel. Barley at ¶ 21. “‘Where a statute defines terms used therein which are

applicable to the subject matter affected by the legislation, such definition controls in the

application of the statute.’” Jeffries at ¶ 16, quoting Woman’s Internatl. Bowling Congress,

Inc. v. Porterfield, 25 Ohio St.2d 271, 267 N.E.2d 781 (1971), paragraph two of the

syllabus.

       {¶11} This matter involves Article 9 of the Uniform Commercial Code (“UCC”) as

adopted in Ohio Revised Code Chapter 1309, as it applies to “[a] transaction, regardless

of its form, that creates a security interest in personal property or fixtures by contract[.]”

R.C. 1309.109(A)(1). Pursuant to R.C. 1309.201(A), “[e]xcept as otherwise provided * *

*, a security agreement is effective according to its terms between the parties, against

purchasers of the collateral, and against creditors.”

       {¶12} There does not appear to be any dispute that Cortland Bank held a security

interest in 21st Century’s accounts receivable and deposit account effective against

Platinum pursuant to R.C. 1309.201(A). In addition, Cortland Bank’s interest in the

accounts receivable attached to proceeds from the accounts receivable pursuant to R.C.

1309.315(A), which provides:

              Except as otherwise provided in this chapter and in division
              (B) of section 1302.44 of the Revised Code:

              (1) A security interest or agricultural lien continues in collateral
              notwithstanding sale, lease, license, exchange, or other
              disposition thereof unless the secured party authorized the
              disposition free of the security interest or agricultural lien; and

              (2) A security interest attaches to any identifiable proceeds of
              collateral.

       {¶13} However, the parties dispute the meaning of R.C. 1309.332, which

provides:

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Case No. 2021-T-0006
              (A) A transferee of money takes the money free of a security
              interest unless the transferee acts in collusion with the debtor
              in violating the rights of the secured party.

              (B) A transferee of funds from a deposit account takes the
              funds free of a security interest in the deposit account unless
              the transferee acts in collusion with the debtor in violating the
              rights of the secured party.

Neither party argues that subsection (A) applies.             However, based upon R.C.

1309.332(B), Platinum maintains that the funds it received from 21st Century’s account

at Cortland Bank were transferred free of Cortland Bank’s interest.

       {¶14} The trial court disagreed, concluding that because the “funds from a deposit

account” are different than the “deposit account” itself, R.C. 1309.332(B) strips a secured

party’s interest in “the deposit account,” leaving intact its interest in the “funds.” In

reaching this conclusion, the trial court relied on the Fifth Circuit’s decision in In re Tusa-

Expo Holdings, Inc. v. Knoll, Inc., 811 F.3d 786, 798 (5th Cir.2016). There, the court

found that the plain language of Texas’ adoption of this UCC provision (identical to that

adopted in Ohio) does not “even address, must less strip, a security interest that

encumbers the funds contained in the deposit account.” (Emphasis added.) Id. at 796.

       {¶15} However, the Fifth Circuit did not consider the definition of an “account”

under Article 9. Despite ordinary parlance, a “deposit account” under Article 9 is not a

device containing funds. See Merriam-Webster Dictionary, https://www.merriam-

webster.com/dictionary/deposit%20account (defining a deposit account as “a bank

account in which people keep money that they want to save: savings account.”)

(accessed August 5, 2021). Instead, Article 9 defines a “deposit account” as “a demand,

time, savings, passbook, or similar account maintained with a bank but does not include

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Case No. 2021-T-0006
investment property or accounts evidenced by an instrument.” (Emphasis added.) R.C.

1309.102(A)(29). The UCC defines an “account” as, with certain exclusions,

             a right to payment of a monetary obligation, whether or not
             earned by performance, (i) for property that has been or is to
             be sold, leased, licensed, assigned, or otherwise disposed of,
             (ii) for services rendered or to be rendered, (iii) for a policy of
             insurance issued or to be issued, (iv) for a secondary
             obligation incurred or to be incurred, (v) for energy provided
             or to be provided, (vi) for the use or hire of a vessel under a
             charter or other contract, (vii) arising out of the use of a credit
             or charge card or information contained on or for use with the
             card, or (viii) as winnings in a lottery or other game of chance
             operated or sponsored by a state, governmental unit of a
             state, or person licensed or authorized to operate the game
             by a state or governmental unit of a state.

(Emphasis added.) R.C. 1309.102(A)(2)(a).

      {¶16} Accordingly, for purposes of Article 9, a deposit account is by statutory

definition a right to payment from a bank of the money that was deposited by the

customer. Pursuant to this definition, the deposit of funds in an account is the equivalent

of exchanging the funds for a promise to pay. Therefore, we disagree with In re Tusa-

Expo insofar as the court based its decision on the premise that a deposit account

contains funds. Instead, the funds are transformed to a right to payment, i.e. the deposit

account, to which the security interest attaches. However, the security interest does not

attach from the deposit account to the funds ordered paid, absent collusion, pursuant to

R.C. 1309.322(B).

      {¶17} Although we reach this conclusion based upon the statutory definition of

“account,” this reading of the statute is also consistent with the policy underlying R.C.

1309.332, as set forth in Official Comment 3, which provides:

             Broad protection for transferees helps to ensure that security
             interests in deposit accounts do not impair the free flow of

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Case No. 2021-T-0006
              funds. It also minimizes the likelihood that a secured party will
              enjoy a claim to whatever the transferee purchases with the
              funds. Rules concerning recovery of payments traditionally
              have placed a high value on finality. The opportunity to upset
              a completed transaction, or even to place a completed
              transaction in jeopardy by bringing suit against the transferee
              of funds, should be severely limited. * * *

       {¶18} Applying the above Article 9 provisions and definitions to this case, Cortland

Bank’s interest in 21st Century’s accounts receivable attached to the proceeds of the

accounts receivable upon payment. See R.C. 1309.315(A). When the proceeds were

deposited to the checking account, Cortland Bank’s interest attached to the deposit

account, i.e. the right to payment. See id. Cortland Bank also had an original interest in

the deposit account, i.e. the right to payment, superior to Platinum’s, due to Cortland

Bank’s position as a secured creditor that is also the depository bank.             See R.C.

1309.203(B)(3)(d) (security interest in a deposit account enforceable pursuant to security

agreement where creditor has control of the account); R.C. 1309.104(A)(1) (“A secured

party has control of a deposit account if * * * [it] is the bank with which the deposit account

is maintained[.]”); and R.C. 1309.327(C) (“[e]xcept as otherwise provided * * *, a security

interest held by the bank with which the deposit account is maintained has priority over a

conflicting security interest held by another secured party”). However, when the funds

were transferred to Platinum, R.C. 1309.332(B) operated to transfer the funds free of the

interest in the right to payment, i.e. the deposit account, if there was no collusion.

       {¶19} Therefore, Platinum’s first assigned error has merit insofar as we agree that

R.C. 1309.332(B) permits Platinum, as the transferee, to take the funds free of Cortland

Bank’s security interest in the deposit account absent collusion, and that the trial court

erred in its determination that a security interest in the funds remained intact. This is the

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outcome precisely contemplated by Comment 2 to R.C. 1309.332, as illustrated by

Example 1 to that Comment:

              Example 1: Debtor maintains a deposit account with Bank A.
              The deposit account is subject to a perfected security interest
              in favor of Lender. Debtor draws a check on the account,
              payable to Payee. Inasmuch as the check is not the proceeds
              of the deposit account (it is an order to pay funds from the
              deposit account), Lender’s security interest in the deposit
              account does not give rise to a security interest in the check.
              Payee deposits the check into its own deposit account, and
              Bank A pays it. Unless Payee acted in collusion with Debtor
              in violating Lender’s rights, Payee takes the funds (the credits
              running in favor of Payee) free of Lender’s security interest.
              This is true regardless of whether Payee is a holder in due
              course of the check and even if Payee gave no value for the
              check.

        {¶20} Although the parties raised arguments regarding collusion in their summary

judgment filings, the trial court did not reach that issue, as it was unnecessary due to its

construction of the statute. However, the issue of collusion is now determinative, and this

matter is remanded to the trial court to address that issue in the first instance. See Alcus

v. Bainbridge Twp., 11th Dist. Geauga No. 2019-G-0206, 2020-Ohio-626, ¶ 30 (“Where

the trial court does not rule on a summary judgment argument because it finds it moot, it

is not proper for the appellate court in the first instance to address the argument.”

(Citations omitted.)).

       {¶21} In its remaining assigned errors, Platinum argues:

       {¶22} “[2.] The trial court erred in granting Cortland’s Motion for Summary

Judgment, and denying Platinum’s Motion for Summary Judgment, based upon its finding

that Cortland’s common law claims were not preempted by the Uniform Commercial Code

(T.d. 75, pp. 9-10).”

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        {¶23} “[3.] The trial court erred in granting Cortland’s Motion for Summary

Judgment and denying Platinum’s Motion for Summary Judgment on Cortland’s

conversion claim, based upon its finding that the Transfers received by Platinum were

specifically identifiable funds and/or proceeds subject to a conversion claim (T.d. 75, p.

10).”

        {¶24} “[4.] The trial court erred in granting Cortland’s Motion for Summary

Judgment, and denying Platinum’s Motion for Summary Judgment, on Cortland’s claim

for impairment of a security interest (T.d. 75, p. 11).”

        {¶25} “[5.] The trial court erred in granting Cortland’s Motion for Summary

Judgment, and denying Platinum’s Motion for Summary Judgment, on Cortland’s claim

for tortious interference with contract (T.d. 75, pp. 11-12).”

        {¶26} Based on our disposition of Platinum’s first assigned error, the trial court’s

judgment is reversed, and the matter is remanded for the trial court to apply R.C.

1309.332(B) as set forth above. Because the trial court’s judgment regarding the claims

for conversion, impairment of a security interest, and tortious interference with contract

depend upon application of R.C. 1309.332(B), our review of the second through fifth

assigned errors would be premature, and we decline to address them.

        {¶27} The judgment is reversed, and this matter is remanded for further

proceedings consistent with this opinion.

MARY JANE TRAPP, P.J.,

MATT LYNCH, J.,

concur.

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