General Electric Capital Corp. v. Union Planters Bank, N.A.

Machinery, Inc. rented, sold, and serviced aerial-manlift equipment. Two of its creditors were General Electric Capital Corporation (GECC) (plaintiff) and Union Planters Bank (UPB) (defendant). GECC held a security interest in some of Machinery’s inventory. UPB had a lien on all of Machinery’s property. GECC and UPB signed a subordination agreement in March 2000, by which UPB agreed to subordinate its security interest (and the arising cash, rents, and proceeds) in the inventory financed by GECC to the GECC’s interest in that inventory. After that agreement, Machinery deposited funds received from sales, rentals, and services into a parent account at UPB. UPB then covered Machinery’s daily checks. When the parent account could not cover the checks, UPB’s line of credit covered the shortage. UPB swept any extra funds to itself to pay down Machinery’s balance on the line of credit. However, when Machinery deposited money from rental of the GECC-financed inventory, it did not identify which inventory had generated which proceeds. In March 2001, Machinery filed for bankruptcy. GECC sued UPB for multiple claims, including conversion. GECC filed a summary-judgment motion, arguing that UPB had converted funds belonging to GECC when UPB swept the daily accounts. UPB filed a counter-motion for summary judgment. The district court granted GECC’s motion regarding conversion, leaving aside damages. At a later bench trial, the court found that UPB had converted $62,818 by sweeping the Machinery accounts. Ninety-two Machinery customers made payments during the months in question that were swept into the parent account. UPB showed that 23 of those customers had also leased equipment GECC had no security interest in. Lacking information on splits between GECC and non-GECC inventory, the court disregarded those 23 customers entirely. Of the remaining 69 customers, evidence indicated that UPB had swept 37.6% of the total deposits into its own possession, and the court measured 37.6% as equaling $62,818. This was despite evidence that only 4 to 5 percent of the deposits in the account were related to GECC-financed inventory. GECC appealed the ruling on damages, seeking damages from all 92 customers, and UPB cross-appealed the summary judgment on liability, arguing that the trial court had erred in finding that Machinery’s payments to UPB were outside the ordinary course of Machinery’s business.