## Facts

- Tarheel Plastics, LLC made injection-molded plastic parts for Electrolux Home Products, Inc. from about 2008 to 2013, and Electrolux work accounted for roughly 95% of Tarheel’s business.
- Electrolux used an online portal through which suppliers submitted quotes; when accepted, Electrolux issued purchase orders and standard terms of sale through the portal.
- To perform Electrolux orders, Tarheel purchased raw materials and resin and kept those materials at its facility.
- Electrolux periodically offset the cost of resin against Tarheel’s invoices for previously completed parts rather than paying separately for the resin as a standalone sale.
- At the time Tarheel’s business failed, Tarheel still possessed (a) resins and raw materials, (b) completed but unshipped parts, and (c) tools and molds used in producing Electrolux parts.
- In December 2011, Electrolux filed a UCC financing statement claiming a security interest in certain specifically identified tools located at Tarheel.
- In 2013, Electrolux and Tarheel executed a tooling agreement addressing additional tools and molds and stating Electrolux claimed ownership of tools and molds provided for production of parts Electrolux would later purchase.
- Crestmark Bank was Tarheel’s primary lender and extended a $1.2 million line of credit.
- On November 27, 2012, Tarheel granted Crestmark a security interest in substantially all of Tarheel’s assets, including accounts, goods, inventory, and equipment; Crestmark perfected its interest by filing.
- In the fall of 2013, Crestmark stopped advancing funds; Tarheel’s operations ended, leaving the disputed goods and tooling at Tarheel’s premises.
- Crestmark took control of the collateral under its security interest and sought declarations that its lien was superior to Electrolux’s claims; Electrolux counterclaimed for conversion, asserting Crestmark wrongfully retained Electrolux’s property.
- Both parties moved for summary judgment.

## Issues

1. Whether Electrolux established that it was a buyer in the ordinary course of business under UCC § 9-320, taking free of Crestmark’s perfected inventory lien as to resins/raw materials and completed but unshipped parts.
2. Whether Electrolux otherwise proved that title or a superior property interest in the resins/raw materials or the completed parts had passed to Electrolux under UCC Article 2.
3. Whether Electrolux had superior rights in particular tools and molds based on its December 2011 UCC filing and later tooling documentation, or whether Crestmark’s later blanket security interest in Tarheel’s equipment had priority.
4. Whether Electrolux was entitled to summary judgment on its conversion counterclaim against Crestmark for retaining the disputed items.

## Decision

- The court granted Crestmark summary judgment as to the resins/raw materials and the completed but unshipped parts, and denied Electrolux summary judgment as to those items.
- Electrolux did not carry its burden to show buyer-in-the-ordinary-course status for the specific resins or finished parts at issue, including by failing to tie its claim to particular identified goods or documented purchases/commitments for those goods.
- Electrolux also failed to show, on the record presented, that title to the resins or the specific finished parts in Tarheel’s possession had passed to Electrolux before Tarheel shut down.
- As to tools and molds, the court reached a split result: Electrolux had superior rights only for tools/molds that were sufficiently connected to Electrolux’s earlier, item-specific filing and supporting documentation; Crestmark’s perfected security interest prevailed for tools/molds not adequately shown to fall within Electrolux’s earlier perfected interest or ownership claim.
- The court denied Electrolux summary judgment on its conversion counterclaim; Crestmark’s retention of property covered by its senior security interest was not wrongful as a matter of law, and Electrolux did not establish a superior right to possession for the disputed categories of goods on summary judgment.

## Legal Principles

- Under UCC Article 9, a secured creditor with a properly perfected security interest in a debtor’s inventory generally has priority over later-asserted claims to that inventory unless an Article 9 exception applies.
- UCC § 9-320’s buyer-in-the-ordinary-course rule requires proof that the claimant actually bought specific goods in the ordinary course from a seller of goods of that kind; generalized course-of-dealing evidence, without records tying the claim to the particular goods, is insufficient on summary judgment.
- Setoff arrangements (such as offsetting resin costs against invoices) do not, by themselves, establish that title to raw materials held by the debtor transferred to the buyer before the debtor’s default; title and “special property” depend on Article 2 concepts such as identification to the contract and the parties’ agreement.
- Competing claims to tooling turn on item-by-item proof: earlier perfection and adequate description in a UCC filing and related documents can give priority as to the identified tools, while a later blanket lien can prevail as to tools not shown to be covered by the earlier filing or an ownership agreement.
- A conversion claim under Michigan law requires that the plaintiff have ownership or an immediate right to possession; a secured creditor’s control or disposition of collateral is not conversion when the creditor holds the superior right to possession under Article 9.

## Conclusion

Crestmark Bank v. Electrolux Home Products held that Crestmark’s perfected, all-assets security interest in Tarheel’s inventory had priority over Electrolux’s claims to resins/raw materials and completed but unshipped parts because Electrolux did not prove buyer-in-the-ordinary-course status or passage of title for the specific goods, while priority as to tools and molds depended on whether Electrolux could link particular items to its earlier, specifically described UCC filing and supporting tooling documents; Electrolux therefore could not obtain summary judgment on its conversion counterclaim.


Crestmark Bank v. Electrolux Home Products, 155 F. Supp. 3d 723 (2016)