U.S. Claims, Inc. v. Flomenhaft

U.S. Claims, Inc. (plaintiff) was in the business of buying the interests of plaintiffs engaged in personal-injury lawsuits and purchasing fee interests from personal-injury attorneys engaged in tort actions. U.S. Claims transacted to purchase several fee interests in pending lawsuits from attorney Michael Flomenhaft and his firm (defendants). However, Flomenhaft and his firm later executed a financing agreement with Stillwater Asset-Backed Fund LP (Stillwater) and granted Stillwater an interest in all assets. Stillwater perfected its security interest by filing a financing statement. U.S. Claims had not filed a financing statement, and its interest remained unperfected. U.S. Claims sued Flomenhaft and his firm in federal district court for the proceeds U.S. Claims had not received as required by the purchasing agreement. U.S. Claims also sought declaratory judgment against Stillwater. Although the trial court dismissed U.S. Claims’ declaratory-judgment action and ruled that Stillwater had a perfected superior interest, the court permitted U.S. Claims to amend its complaint, suing Stillwater and new defendants for conversion. In the amended complaint, U.S. Claims argued that Stillwater was guilty of conversion because the company perfected its security interests despite knowing of U.S. Claims’ prior unsecured interest. U.S. Claims also argued that a claim for conversion may coexist with the Uniform Commercial Code’s (UCC) provisions because the UCC does not specifically address conversion in relation to accounts.