Variety Wholesalers, Inc. v. Salem Logistics Traffic Services, LLC
212 N.C. App. 400
| N.C. Ct. App. | 2011Background
- Variety filed suit against Salem for breach of contract, conversion, larceny, fraud, false pretenses, and unfair and deceptive acts related to Salem's handling of funds for Variety's carriers.
- Ark Royal Capital owned the Wachovia account and provided a revolving line of credit to Salem under a 2006/2008 Accounts Receivable Finance Agreement, securing a first lien in Salem's assets including receivables.
- Salem deposited funds from Variety into the Wachovia/Ark account, and Ark provided advances based on Salem's accounts presented as Eligible Accounts.
- Salem directed payments from customers to the Ark-owned account; Schedule A/ Schedule B of the Freight Agreement governed service execution and fees, but no explicit bailment for the funds.
- Variety later discovered Ark's ownership of the account; it amended the complaint to add Ark for conversion and constructive trust claims, while the trial court granted summary judgment for Ark on constructive trust and for Variety on conversion.
- On appeal, the court affirmed the constructive trust ruling for Ark and reversed as to the conversion claim, ultimately holding Ark owed no fiduciary duty for constructive trust and varieties could not prove ownership rights in the funds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constructive trust requires fiduciary relation | Variety argues Ark owed fiduciary duties via possession of funds and board influence. | Ark contends no fiduciary relationship existed; bailment not shown. | No fiduciary relationship; constructive trust affirmed for Ark. |
| Conversion requires ownership/possession of funds by plaintiff | Variety maintained ownership rights under bailment implied by Freight Agreement. | Ark asserts no ownership; funds were Salem's revenue or subject to Ark's loan security. | Variety failed to show ownership; conversion reversed in favor of Ark. |
Key Cases Cited
- Sec. Nat'l Bank of Greensboro v. Educators Mut. Life Ins. Co., 265 N.C. 86 (1965) (fiduciary duties for constructive trust require special confidence)
- Dalton v. Camp, 353 N.C. 647 (2001) (definition of fiduciary relationship and domination in confidence)
- Upchurch v. Upchurch, 128 N.C.App. 461 (1998) (constructive trust burden and evidentiary standard)
- Lake Mary Ltd. P'ship v. Johnston, 145 N.C.App. 525 (2001) (distinguishes ownership interests in similar context)
- Troxler v. Bevill, 215 N.C. 640 (1939) (bailment concept and the requisite relationship)
- Fabrics, Inc. v. Delivery Service, 39 N.C.App. 443 (1979) (bailment and acceptance elements for bailment formation)
- Crow v. McCullen, 235 N.C. 380 (1952) (money may be object of bailment)
- Walton v. City of Raleigh, 342 N.C. 879 (1996) (contract interpretation and intent governs property rights)