Variety Wholesalers, Inc. v. Salem Logistics Traffic Services, LLC
365 N.C. 520
| N.C. | 2012Background
- Variety and Salem entered into an asset-based loan in 2006 where Ark provided a revolving line of credit secured by Salem's assets and required funds to be deposited in a lockbox Shin at Wachovia (now Wells Fargo); Ark controlled the lockbox funds and used them to pay interest and principal on Salem's loan, with no segregation of funds from multiple clients.
- Variety entered a July 2007 Freight Agreement with Salem for freight bill payment and auditing, where Schedule A details services and Schedule B sets compensation; Variety directed payments to a Wachovia lockbox but Salem did not disclose Ark's control over the account.
- After carriers reported late payments, Variety terminated the Freight Agreement in December 2008 and discovered the Wachovia account actually belonged to Ark; Variety amended its complaint to add Ark.
- The trial court granted Variety summary judgment on conversion against Ark and Ark summary judgment on constructive trust, but the Court of Appeals reversed and remanded.
- The North Carolina Supreme Court held there are genuine issues of material fact on both the conversion and constructive trust claims and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there was ownership of the funds under Schedule A to support conversion | Variety retained ownership under contractual intent | Salem/Moved funds belonged to Salem and passed through | Genuine issues of material fact preclude summary judgment |
| Whether Ark can enforce a bona fide purchaser defense based on notice | Ark had no notice of Variety's interest | Ark contends lack of notice bars liability | Summary judgment inappropriate on notice/constructional notice |
| Whether a constructive trust can be imposed without a fiduciary relation | Equitable relief possible for unconscientious acquisition | No fiduciary duty negates constructive trust | Summary judgment improper; factual issues remain on notice and unconscientious acquisition |
| Whether commingling defeats money identification for conversion | Identified funds could be traced despite commingling | Commingling destroys identifiable funds | Issue for the trier of fact; commingling does not automatically defeat identification |
Key Cases Cited
- Peed v. Burleson's, Inc., 244 N.C. 437 (N.C. 1956) (definition of conversion; elements)
- Gadson v. Toney, 69 N.C.App. 244 (N.C. App. 1984) (two essential elements of conversion)
- Wilson v. Crab Orchard Dev. Co., 276 N.C. 198 (N.C. 1970) (constructive trust without fiduciary relation possible)
- Edgecombe Bank & Trust Co. v. Barrett, 238 N.C. 579 (N.C. 1953) (trust pursuit; tracing survives mingling; substantial identification allowed)