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03/09/93 JOSEPH G. FLEMING v. CARROLL PUBLISHING

March 9, 1993

JOSEPH G. FLEMING, ET AL., APPELLANTS
v.
CARROLL PUBLISHING CO., APPELLEE



Appeal from the Superior Court of the District of Columbia; (Hon. Truman A. Morrison, III, Trial Judge)

Before Ferren, Schwelb, and Ferrell, Associate Judges.

The opinion of the court was delivered by: Ferren

FERREN, Associate Judge : This appeal concerns a dispute over the security interest of appellants, Joseph W. Fleming et al., trading as "Equity 80-F" (Equity), in computer hardware and software they "leased" to appellee Carroll Publishing Co. (Carroll). Appellants contend the trial court erred in ruling that Equity (1) was barred from seeking a deficiency judgment for the amount of the contract payments attributable to the software, (2) had abandoned any security interest in the software remaining in Carroll's possession, and (3) was not entitled to any attorney's fee, either under the contract or under Super. Ct. Civ. R. 11. We affirm the trial court's ruling on the first issue. However, because we conclude as a matter of law that, under the circumstances of this case, Equity did not lose its security interest in the software, we reverse on the second issue and remand this case to the trial court for further proceedings concerning attorney's fees and other appropriate remedies.

I.

The facts are detailed in this court's opinion in an earlier appeal by the same parties, Fleming v. Carroll Publishing Co., 581 A.2d 1219, 13 U.C.C.R. Serv. 2d (Callaghan) 610 (D.C. 1990) (Fleming I). Briefly, Equity agreed to finance Carroll's acquisition of computer hardware and software from a third-party vendor, Information Sciences Corporation (ISC), in return for a series of "lease" payments to be made over a five-year term, commencing December 29, 1980. On August 25, 1982, Carroll terminated the "lease" agreement on the ground that the vendors had failed to deliver certain items of hardware and software, as provided for in the agreement. In the termination letter Carroll also notified Equity's agent that "the equipment" in Carroll's possession was available to be picked up.

In response, Equity filed suit against Carroll on February 22, 1983, declaring that Carroll had defaulted on the "lease" agreement and seeking recovery of the remaining amount to be paid on that contract plus costs, including attorney's fees. In its answer and counterclaim, Carroll alleged, among other things, that Equity had no enforceable security interest under the agreement because the equipment had never been delivered. *fn1 On June 27, 1983, Equity moved for an order directing Carroll to return to Equity all equipment covered by the agreement. Attached to this motion was a listing of the leased equipment then in Carroll's possession, including both hardware and software. Carroll responded by stating its willingness to turn over the hardware, omitting any mention of the software. The trial court then issued an order on August 4, 1983, granting Equity's motion and ordering Carroll to deliver within 30 days "the equipment listed upon the documents filed in conjunction with the motion for return of equipment." On September 29, 1983, an Equity representative arrived at Carroll with the order in hand. Carroll turned over several items of hardware but did not deliver any software, except for one disk that happened to be in the disk drive of one of the computers repossessed by Equity. Nor did Equity's representative specifically request the return of any software. In the course of 1984, Equity sold several of the repossessed hardware items without notice to Carroll.

On April 18, 1985, while still waiting for trial on its complaint for damages on the contract, Equity filed a motion for contempt against Carroll for its failure to return the software specified in the earlier court order. In response, Carroll asserted that it had fully complied with the court order for return of the "equipment," which meant only hardware, not software. The trial on Equity's complaint for breach of contract did not begin until September 9, 1985. Arguments on Equity's contempt motion were also heard at trial. The parties made their final arguments on October 1, 1985, and submitted post-trial briefs on October 11, 1985. The trial court issued its decision on September 22, 1987.

In Fleming I, we affirmed the trial court's rulings that (1) the "lease" contract between the parties was in fact a security agreement under the provisions of Article 9 of the Uniform Commercial Code, D.C. Code §§ 28:9-101 through 9-507 (1989), and (2) Equity's failure to give Carroll advance notice of the sale of repossessed property, in violation of D.C. Code § 28:9-504, barred Equity from seeking a deficiency judgment *fn2 against Carroll. 581 A.2d at 1222-25. We added, however, that the bar to the deficiency judgment did not necessarily preclude Equity from seeking to repossess the software collateral remaining in Carroll's possession. Id. at 1225. More specifically, we concluded that "the fact that the lease was in reality a security agreement meant that the creditor's Article 9 security interest in the unrepossessed collateral continued until the debt was paid, absent an express or implied relinquishment of the security interest." Id. at 1226. At the same time, however, we did not directly rule on Equity's rights to the remaining software, noting:

The facts as finally determined may indicate that in fact Equity by its actions at the time of repossession effectively determined to abandon any security interest it had in the collateral not repossessed in September 1983 or is otherwise estopped to make any claim to the unrepossessed property.

Id. at 1226 n.15.

Accordingly, we remanded the case for the trial court to determine what rights, if any, Equity retained in the remaining unrepossessed property. We also asked the trial court to reconsider the attorney's fees the trial court had awarded to Equity on the basis of a contractual provision between the parties. We said that, even where the asserted right of attorney's fees is contractually based, "the degree of success in litigation is a relevant factor in the award of attorney's fees." Id. at 1228. Because Equity "appeared in fact to have been largely unsuccessful" in its suit on the debt, id. at 1227, we questioned the trial court's decision to award substantially all of Equity's claimed fees.

In an Opinion and Order dated March 29, 1991, the trial court found that Equity had voluntarily relinquished all rights to any software remaining in Carroll's possession. By failing to ask for the return of the software until more than two and one half years after Carroll's default, the court said, Equity had abandoned its interest in this security. *fn3 The court refused to credit Equity's excuse that it delayed in asserting its ownership because it did not know that Carroll possessed the software. The court also relied on a finding that the software was of doubtful economic value to Equity. Furthermore, the court ruled that Equity could not seek the alternative remedy of a monetary judgment for the remainder of the contract payments attributable to software costs. In the trial court's opinion, "the absolute bar rule [announced by this court in Fleming I ] precluded a deficiency judgment with respect a portion of the debt just as it had prevented Equity from collecting on the whole debt." Finally, the court ruled that Equity was not entitled to any attorney's fees because "Equity lost this litigation in almost every respect." As for Equity's claim for attorney's fees as a sanction for alleged Rule 11 violations, the court determined that Equity had failed to preserve this issue in the original trial proceeding. Equity now challenges these rulings.

II.

Equity argues that the trial Judge ignored this court's opinion in Fleming I when he ruled that Equity was precluded from seeking a deficiency judgment even for that portion of the contract payments attributable to the software. This contention is mistaken. Fleming I held that where, as in this case, the various items of collateral are all the subject of a single transaction and are not identified or priced individually, the failure to comply with the requirements for Disposition of repossessed property bars any further deficiency judgment. 581 A.2d at 1225 & n.10. The fact that Equity had not actually repossessed the software and might have disposed of it in a separate transaction is irrelevant. See DeLay First Nat'l Bank & Trust Co. v. Jacobson Appliance Co., 196 Neb. 398, N.W.2d 745, 751 (Neb. 1976) (holding that even where there are several sales of collateral, some valid and others invalid under Article 9, a deficiency judgment is, nonetheless, barred with respect to the entire debt; the U.C.C. does not ...


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