A federal judge from the Western District of Washington has granted summary judgment to a plaintiff soccer organization, concluding that the CEO of a technology company, which specialized in handling credit card transactions for sports organizations, may be liable to the plaintiff after withholding registration fees that were paid by area parents.
The plaintiff, Montclair United Soccer Club, is a non-profit organization that sponsors recreational and competitive soccer programs for more than 1600 children from Montclair, New Jersey, and surrounding communities. It also sponsors soccer programs for children with special needs and programs for the benefit of local parks and schools. The organization is funded solely through registration fees and donations made on behalf of the children who participate in its programs.
The defendant was Count Me In Corporation, a Washington company based in Bellevue that describes itself as “the trusted online sports registration software for thousands of organizations, tens of thousands of activities, millions of registrations and hundreds of millions in payments.”
On February 23, 2007, Montclair entered a Client Service Agreement (CSA) with CMI, whereby CMI handled the plaintiff’s credit card transactions, passing through the fees after a transaction fee was administered.
In 2008, Montclair’s registrants paid more than $210,000 in fees and donations to Montclair using CMI’s website. However, CMI failed to remit the monies. When Montclair’s directors contacted CMI to inquire about the funds, they received an email from CMI’s Chief Executive Officer, defendant J. Terrence Drayton, which read in pertinent part:
“These are challenging times and like many firms in the current credit crisis we are having cash flow problems. We have stabilized the situation and are working to address it as quickly as possible with a capital infusion. We are doing our best to get you the funds and will pay you as soon as we possibly can. We are addressing all client remittances on a systematic basis and will remit the outstanding payments for Cycle’s [sic] 13 through 15 that total $ 67,326.70 Thursday or worst case on Friday of this week. That will get Montclair United current to mid-August. We will also pay you the interest of 1.5% per month on any amounts we owe you until it is paid in full. . . .
Sincerely, Terry Drayton
Founder & CEO”
Although CMI eventually paid some of the monies, it still owed approximately $117,000.
The plaintiff sued CMI and its parent, Arena Group, Inc., in the fall of 2008, claiming breach of contract, breach of good faith and fair dealing, unfair and deceptive trade practices in violation of the Washington Consumer Protection Act, conversion, and unjust enrichment. It also sued CEO Drayton for conversion, which was the subject of the motion for summary judgment.
First, the court explained that conversion is “the act of willfully interfering with any chattel, without lawful justification, whereby any person entitled thereto is deprived of the possession of it.” Id. at 1147 (quoting Wash. State Bank v. Medalia Healthcare LLC, 96 Wn. App. 547, 984 P.2d 1041 (Wash. Ct. App. 1999)). In addition, “money may become the subject of conversion, but only if the party charged with conversion wrongfully received the money, or if that party had an obligation to return the money to the party claiming it. Id. (citations omitted); see also Maynard Inv. Co. v. McCann, 77 Wn.2d 616, 465 P.2d 657, 662 (Wash. 1970) (holding that where a plaintiff’s funds given to a construction contractor for use in paying for labor and material men on a remodeling project were used to pay off the construction contractor’s creditors instead, such misuse of funds constituted conversion).”
To prove that Drayton should be held liable for conversion, the court wrote, the plaintiff “must show that: (1) CMI converted Montclair’s funds, and (2) Drayton participated in CMI’s conversion of Montclair’s funds, or with knowledge approved of that conduct. See Consulting Overseas Mgmt, Ltd. v. Shtikel, 105 Wn. App. 80, 18 P.3d 1144, 1147 (Wash. Ct. App. 2001)
“Here, CMI had a contractual obligation to return to Montclair the funds that Montclair’s registrants paid using CMI’s website. Drayton argues that the funds were, in fact, owned by CMI in the same way that a borrower owns loan proceeds, and that, therefore, CMI cannot be held liable for conversion. He cites Consulting Overseas Management, in which the court held that a company’s use of certain corporate loan proceeds for a different purpose than that stated in the loan agreement did not constitute conversion. 18 P.3d at 1147. The court based its decision on the fact that, under Washington law, upon signing a loan agreement and the disbursal of those funds, the borrower is deemed to ‘own’ the loan proceeds. Id. at 1147-48.
“This case is distinguishable from Consulting Overseas Management. The funds at issue did not constitute a loan. Rather, the CSA expressly referred to the registration fees collected through CMI’s website as ‘Client fees’–that is, belonging to the client, Montclair United Soccer Club.”
The court also reviewed Drayton’s claim that he was “not personally involved in CMI’s conversion of Montclair’s funds. Specifically, he argues that he never handled the remittance funds and ‘never instructed anyone to convert Montclair’s funds with the intention of permanently depriving any clients.’ [Id.] The uncontroverted evidence belies his claim.”
The court concluded that Drayton “participated in or knew about CMI’s conversion of Montclair’s funds, such that he is personally liable to Montclair for conversion.”
Montclair United Soccer Club v. Count Me In Corp. et al.; W.D. Wash.; Case No. C08-1642-JCC, 2010 U.S. Dist. LEXIS 65919; 6/9/10
Attorneys of record: (for plaintiff) Christopher J. Harnett, Todd M Simpson, William J McCabe, Lead Attorneys, Pro Hac Vice, Ropes & Gray LLP (NY), New York, NY; Daniel C Carmalt, Lead Attorney, Groff Murphy PLLC, Seattle, WA; Reeta K Whitney, Lead Attorney, Pro Hac Vice, Ropes & Gray LLP, East Palo Alto, CA. (for defendants) Lawrence Carl Locker, Summit Law Group, Seattle, WA.
