Chorches v. Ogden (In re Bolin & Co., LLC)

Andrea Ulanoff and Noah Citron opened Bolin & Co. as a retail store for antique, custom, and unusual pieces of jewelry. From its inception, however, Bolin struggled to survive. Poor accounting practices meant that Bolin’s accounts overstated the store’s sales and understated its liabilities, and Bolin’s inventories of the jewels in its possession were never accurate, all of which resulted in significant cash-flow difficulties. To manage these struggles, Ulanoff obtained a loan from Sally Ogden (defendant) in the amount of $270,000, which loan was memorialized in a promissory note and secured by a security agreement, but the terms of each varied with respect to the definition of default and the rights to which Ogden was entitled in the event of Bolin’s default. The promissory note defined default as Bolin’s failure to repay the loan within five days of Ogden’s demand for repayment but included no prescription for how Ogden was to recover collateral. The security agreement defined default as Bolin’s failure to repay the loan when due (including by acceleration), or as an encumbrance or civil judgment entered against collateral, and permitted Ogden to repossess collateral without a judicial proceeding. The security agreement also entitled Ogden to accelerate repayment of the loan whenever Ogden felt insecure for any reason whatsoever. When Ogden discovered Bolin’s poor financial condition and its habit of pawning jewelry in order to free enough cash to cover payments owed to jewelers and vendors, Ogden entered Bolin’s premises and took whatever jewels Bolin had in its possession that were not held on consignment. Bolin later filed for relief under Chapter 7 of the United States Bankruptcy Code. The bankruptcy trustee (plaintiff) initiated the instant proceeding against Ogden, asserting claims of trespass, conversion, wrongful repossession, and theft. Ogden argued that Bolin defaulted on the loan and, therefore, Ogden was entitled under the terms of the security agreement to repossess the jewelry as collateral.