• October 9, 2008

Noble Systems Corp. v. Alorica Central, LLC (8th Cir.) (10/8/08)

The Court of Appeals affirms dismissal claims of tortious interference, fraud, intentional and negligent misrepresentation, conversion, unjust enrichment, conspiracy, and replevin under Minnesota law. The problems in the case can be traced to Plaintiff’s failure to perfect a security interest. Having failed to do so, it lost priority for its security for a loan to a company that went under and its efforts to remedy the lapse by filing a lawsuit appear to have failed entirely.

Noble sold a customer-support call-center, hardware and software, to ACI in Augst, 2004. Noble got a security interest in assets but failed to perfect it. Another company, Pandora, in exchange for granting a line of credit, got a security interest covering the same assets, which it perfected by filing with the Minnesota Secretary of State.

Pandora eventually pulled its line of credit due to an alleged default; Alorica bought ACI assets from Pandora at a foreclosure proceeding, without knowledge of the preexisting unperfected Noble security interest.

Noble, on news of the sale, demanded licensing fees from Alorica, which at first complied, then refused, so Noble cut off Alorica’s access to the software.

In deciding in defendants’ favor on a motion to dismiss, the District Court took judicial notice of the perfected Pandora filing, as a public record, a decision the 8th Circuit affirmed.

In response to Noble’s tortious interference claim against Pandora, the 8th Circuit held it could entertain on a motion to dismiss Pandora’s affirmative defense of justification and, doing so, it affirmed dismiss of this claim.

As for Alorica, the 8th Circuit held that it came on the scene after the alleged wrong-doing had already occurred and its sole alleged misconduct was refusing to buy ACI directly but rather through the foreclosure sale. The 8th Circuit saw no wrong-doing there.

As for claims of fraud, misrepresentation, etc., against Pandora and Alorica, the 8th Circuit essentially found no duty to notify Noble of the foreclosure sale or the terms of the asset purchase.

Finally, on the claim of conversion, the Court pointed out that Noble sold the assets to ACI, retaining only a security interest. Further, it had to be conceded that Pandora had a higher priority security interest. For the same reason, the replevin claim failed. Similarly, claims of conspiracy and unjust enrichment presuppose wrong-doing, which the Court found was not alleged.

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