Even the most prudent businesses can be dragged into expensive litigation. Being named in a lawsuit — even a frivolous one — threatens a business with liability risk, legal costs, and distractions from core operations. Rushing McCarl LLP client Armada Trucking Group recently faced this reality when it was sued for $1.65 million in federal court by an Illinois bank with which it had never done business. The case involved complex issues relating to the law of conversion, contracts, and secured transactions under California’s adoption of the Uniform Commercial Code (UCC). In the end, Rushing McCarl secured a total victory, with the bank agreeing to a nonconfidential pretrial settlement of $0.
Armada provides shipping services to FedEx Ground, Amazon, and other companies throughout Southern California. It prevailed after Rushing McCarl obtained key discovery admissions and developed a powerful case theory, allowing us to credibly threaten to bring sanctions against the plaintiff for continuing to prosecute a frivolous lawsuit.
The dispute arose from a loan transaction that didn’t involve our client. An unaffiliated shipping company called Gribben & Associates borrowed $4.9 million from Plaintiff Byline Bank to buy a business operating FedEx delivery routes. Later, in a routine FedEx-approved sale, Gribben sold Armada the rights to eight routes.
When Gribben defaulted on its loan, Byline launched an expansive lawsuit against numerous parties — including Armada, which wasn’t even aware of the loan — to recover the loan funds. Byline sued Armada for $1.65 million on the theory that Armada’s FedEx routes had been part of the collateral on Byline’s loan, so buying the right to service the routes constituted the tort of conversion.
Rushing McCarl successfully pursued an early, decisive resolution of the case by identifying fatal flaws in Byline’s claims, advising the plaintiffs’ attorneys that we would seek sanctions if they continued prosecuting the suit, and beginning aggressive discovery to secure dispositive admissions. After reviewing Byline’s complaint and the Gribben-Armada sale contract, Rushing McCarl partner Ryan McCarl — who has published articles about property law and creditors’ remedies — knew that the route contracts could not be converted because they didn’t transfer vested payment rights. He led a research team that left no stones unturned and ultimately turned up a dispositive, analogous case that was decided in 1920 and involved a contract to run a newspaper route.
Relying on the Supreme Court of California’s decision in Boehm v. Spreckels, 183 Cal. 239 (1920), we showed that FedEx route contracts are not property that can be converted. Instead, they are personal-services contracts to provide shipping services to FedEx if FedEx approves and offers the work. Only once FedEx offers future shipping opportunities and the carrier performs them could the carrier earn compensation. Boehm and other cases establish that such opportunities constitute a mere expectancy without vested property rights. They therefore cannot serve as the basis for a conversion claim, since only personal property can be converted.
Nor was that the only reason Byline’s conversion claim failed. Even if the FedEx route contracts were property, Byline lacked an enforceable security interest for three reasons. First, the security agreement and UCC-1 financing statement failed to adequately identify the routes; Byline’s boilerplate listing of generic asset categories did not sufficiently notify third parties — such as our client — of any claim. Second, neither Gribben nor Byline ever had any “rights in the collateral” because it did not own the routes; it merely held an agency relationship that FedEx could terminate whenever it wished. Finally, the law governing secured transactions (UCC Article 9) excludes contracts that require the assignee — here, Armada — to perform services for compensation.
Early in the case, Rushing McCarl explained these points to Byline’s counsel, moved to dismiss, and promised to seek sanctions if Byline continued imposing costs on our client by prosecuting the frivolous lawsuit. Partner John Rushing then closed the deal by taking depositions in which the bank’s employees made admissions confirming that the FedEx routes were not property; they were just contracts for future service opportunities that FedEx might or might not offer.
Facing a likely motion for summary judgment or loss at trial, Byline offered to settle. It voluntarily dismissed its $1.65 million conversion claim in exchange for $0 and an agreement not to seek costs or sanctions — a total victory for Armada. Rushing McCarl ensured that the settlement was nonconfidential so that Armada could show anyone considering a future lawsuit that it would stand up for itself and never reward plaintiffs who bring baseless lawsuits.
This victory underscores the importance of hiring a litigation team that operates at the cutting edge of business law and can perform thorough research, develop credible and aggressive strategies, write persuasive briefs and demand letters, and take devastating depositions. The case — Byline Bank v. Gribben & Associates, Inc. et al., Case No. 2:24-cv-00927-KS (C.D. Cal. 2024) — was handled by Rushing McCarl attorneys Ryan McCarl, John Rushing, and Adam Burch, as well as our former colleague Davit Avagyan.
Further reading: 2024-04-01 Armada Trucking motion to dismiss (Rushing McCarl LLP) (Byline v. Gribben)