Rfc Capital Corp. v. Earthlink, Inc., Unpublished Decision (12-23-2004)

OPINION {¶ 1} Defendant-appellant, EarthLink, Inc. ("EarthLink"), appeals from the Franklin County Court of Common Pleas' denial of its motion for directed verdict and grant of judgment in favor of plaintiff-appellee, RFC Capital Corporation ("RFC"). For the following reasons, we reverse the judgment in favor of RFC and remand.

{¶ 2} The genesis of this case lies in the Loan and Security Agreement RFC and non-party Internet Commerce Communications, Inc. ("ICC") executed on May 22, 2000.¹ At the time ICC executed the Loan and Security Agreement, it was a publiclytraded corporation that provided internet access, among other internet services, to its customers. RFC was, and is, a finance company focused on lending money in the telecommunications, energy and technology industries.

{¶ 3} Pursuant to the Loan and Security Agreement, RFC agreed to loan ICC up to $12 million of working capital. RFC structured the loan as a revolving line of credit, allowing ICC to borrow at a rate of three times the amount of monthly revenues received into a lockbox account under RFC's control.

{¶ 4} To secure the loan, ICC granted RFC a security interest in, among other assets:

[A]ll of [ICC's] customer base, which shall include but not be limited to all of [ICC's] past, present and future customer contracts, agreements, lists, documents, computer tapes, letters of agency or other arrangements, any customer list relating thereto and any information regarding prospective customers and contracts, agreements, goodwill and other intangible assets associated with any of the foregoing (herein the "Customer Base") * * *.

Loan and Security Agreement, Section 12(a)(vi). RFC protected this security interest by mandating that ICC could not "further sell, assign, transfer, pledge, hypothecate, mortgage or otherwise encumber any right or rights with respect to the Collateral or any rights or interests thereunder absent the express written consent of [RFC]." Loan and Security Agreement, Section 14(d).

{¶ 5} One day after RFC and ICC executed the Loan and Security Agreement, RFC filed a UCC-1 financing statement with the Colorado Secretary of State and the Denver County Recorder's Office. The UCC-1 financing statement identified those assets in which RFC had a security interest, including the customer base.²

{¶ 6} By late 2000, ICC was experiencing financial trouble and began working with a broker to sell its dial-up internet access customer base ("customer base"). ICC's broker contacted Cliff Bryant, EarthLink's Director of Acquisitions, and inquired whether EarthLink³ would be interested in buying ICC's customer base. Mr. Bryant expressed interest, and visited ICC's headquarters in January and March 2001 to pursue a possible purchase. During the March 2001 meeting, ICC executives and Mr. Bryant discussed the size of the customer base. Charles Eazor, ICC's Senior Vice President of Operations, drafted and gave Mr. Bryant a document in which ICC represented that 124,926 dial-up users logged onto the internet via ICC's system and 97,338 active dial-up customers were in the ICC billing systems. ICC also provided Mr. Bryant with a breakdown of ICC dial-up customers by region showing that ICC had a total of 100,728 customers.

{¶ 7} On March 15, 2001, ICC and EarthLink executed a contract entitled "Agreement by EarthLink Enterprises, Inc. to Acquire the Dial-Up Subscriber Business of Internet Commerce Communications, Inc." ("EarthLink Agreement"). Pursuant to the EarthLink Agreement, ICC agreed to deliver its customer base to EarthLink and EarthLink agreed to pay a "bounty" of $190 for each ICC dial-up customer who transferred his or her business to EarthLink and paid for either dial-up or web hosting service for two consecutive months. In Exhibit A to the EarthLink Agreement, ICC represented that it had 97,000 customers who could transfer to EarthLink. Thus, if all 97,000 customers transferred to EarthLink and paid for two months of service, EarthLink would pay ICC a total of $18,430,000.

{¶ 8} Because the parties would not be able to determine the total purchase price until months after signing the EarthLink Agreement, they agreed that EarthLink would make multiple partial payments to ICC. The first two payments were each to be $4,607,500, or 25 percent of the estimated total purchase price. The parties calculated this amount by multiplying the $190 bounty by the number of ICC customers set forth in Exhibit A — 97,000 — and dividing by four [($190 x 97,000 customers) / 4 = $4,607,500]. The EarthLink Agreement called for the first payment to be made within 24 hours of the execution of the EarthLink Agreement⁴ and the second to be made within 48 hours of the transfer of the customer base. Thereafter, EarthLink would make any additional payments, if necessary, on a monthly basis.

{¶ 9} The EarthLink Agreement further stated that:

RFC Corporation, pursuant to a Loan and Security Agreement with RMI.NET (now, Internet Commerce Communications, Inc.) dated May 22, 2000, has a senior secured lien on all customers, revenue, assets, and real or personal property associated with the Transferred Customer Base. RFC has agreed to waive any security interest, lien, or encumbrance in the Transferred Customer Base, and execute any necessary documents, in order to allow this Agreement to be executed, and performed under in full by ICC. EarthLink Agreement, Exhibit A, Section D. This provision was added to the EarthLink Agreement when Douglas Hanson, ICC's Chairman and CEO, telephoned Mr. Bryant immediately before the parties executed the EarthLink Agreement and informed him that RFC had a security interest in the customer base. Mr. Bryant asked if RFC knew of the proposed sale of the customer base, and Mr. Hanson assured him that RFC knew of the sale and had agreed to release the collateral.

{¶ 10} Mr. Bryant believed that Section D protected EarthLink from any claims RFC could have on the customer base. Thus, neither Mr. Bryant nor any other EarthLink employee contacted RFC or conducted a search of UCC filings to determine whether RFC filed a UCC-3 filing statement releasing its security interest.

{¶ 11} Meanwhile, RFC was unaware of the pending deal until March 13, 2001, when Jon Steging, ICC's Chief Financial Officer, telephoned Clint Mitchell, who was then RFC's Senior Credit Manager. Mr. Steging forwarded Mr. Mitchell a draft of the EarthLink Agreement and requested that RFC provide ICC a letter releasing its security interest in the customer base. In response, Mr. Mitchell told Mr. Steging that RFC would only release its security interest if ICC paid off its loan or paid down the loan by an amount equal to the value of the customer base. Mr. Mitchell also informed Mr. Steging that the EarthLink Agreement should not include the false representation that RFC already agreed to release its security interest.

{¶ 12} Dissatisfied with RFC's refusal to provide an outright release of its security interest, Mr. Hanson, ICC's Chairman and CEO, emailed Richard Rudek, RFC's President, and informed him that the sale of the customer base was necessary for ICC's survival. In response, Mr. Rudek did not agree to an outright release of RFC's security interest, but he did agree to conduct a financial review of ICC to determine the exact parameters under which RFC might release its security interest.

{¶ 13} Thus, at the time ICC and EarthLink executed the EarthLink Agreement, RFC was considering the release of its security interest, but it had not agreed to do so. Nevertheless, ICC stated in the 10K Form filed with the Securities and Exchange Commission on March 30, 2001 that, "[w]e have received approval from RFC Capital Corporation, our lender under a revolving line of credit, regarding their release of any lien they may have on [the] portion of our business [sold to EarthLink]."

{¶ 14} After RFC's financial review of ICC, RFC drafted the "Second Amendment to the Loan and Security Agreement" ("Second Amendment") to address the sale of the customer base. RFC and ICC executed the Second Amendment on April 2, 2001. Section 11 of the Second Amendment provided that:

The Lender hereby consents to the sale of the Purchased Accounts by [ICC]. Upon the performance by [ICC] and [its wholly-owned subsidiary] of all their obligations under the Loan Agreement and this Amendment, the Lender agrees to release its security interest in the Purchased Accounts.

{¶ 15} Among ICC's obligations under the Second Amendment was making principal payments so that the loan amount outstanding equaled only 1.75 times the monthly revenues received into the RFC-controlled lockbox account.⁵ See Second Amendment, Section 12. At the time RFC and ICC entered into the Second Amendment, RFC expected that ICC would meet this obligation by transferring to RFC money from the sale of the customer base. Indeed, in April 2001, ICC paid down the loan by $2.3 million with funds obtained from EarthLink's first payment. RFC estimated that ICC would have to pay at least another $2.4 million to comply with its obligation under Section 12 to pay down the loan amount.

{¶ 16} Neither ICC nor RFC informed EarthLink of the Second Amendment. In fact, Mr. Hanson forbade RFC from contacting EarthLink. Despite RFC's knowledge that EarthLink expected the customer base to be delivered free and clear of any security interest, RFC followed Mr. Hanson's instructions.

{¶ 17} On May 3, 2001, EarthLink received the first of many customer databases from ICC. This database included 103,845 entries, with each entry purportedly representing a unique log-in name and email address. EarthLink, however, found this database deficient because it contained inaccurate information, it did not provide all the necessary information for each customer and it included duplicate entries. EarthLink estimated that the database included only 80,000 legitimate customers.

{¶ 18} When Mr. Bryant, EarthLink's Director of Acquisitions, was informed of the deficient quality of the database, he decided EarthLink would only remit $2,992,500 of the second payment called for in the EarthLink Agreement. Mr. Bryant knew that under the EarthLink Agreement, ICC was entitled to a second payment equaling 25 percent of the total purchase price, which would bring the percentage of the total purchase price paid to 50 percent. Therefore, Mr. Bryant reasoned that because ICC had only 80,000 (not 97,000) customers who might transfer, EarthLink only owed enough money so that the total of the first and second payments would equal $7.6 million or 50 percent of the total payment for 80,000 customers. As EarthLink had already made a $4,607,500 first payment, EarthLink only made a $2,992,500 second payment to ICC ($4,607,500 + $2,992,500 = $7,600,000).

{¶ 19} After receiving the $2,992,500 second payment on May 8, 2001, ICC transferred approximately $1.5 million of it to RFC. This payment did not satisfy ICC's obligation under the Second Amendment to pay down its loan so that the amount outstanding equaled only 1.75 times the monthly revenues received into the RFCcontrolled lockbox account. Accordingly, RFC did not release its security interest in the dial-up customer base. Nevertheless, neither ICC nor RFC communicated this fact to EarthLink, and the transition of the customer base continued unabated.

{¶ 20} On June 12, 2001, Mr. Eazor, ICC's Senior Vice President of Operations, sent a letter to Mr. Bryant expressing his displeasure with the slow pace at which EarthLink was transitioning the customer base. News of EarthLink's purchase of the customer base had become public, and Mr. Eazor was worried that competitors were using the uncertainty caused by the sale to poach customers. EarthLink responded to Mr. Eazor's concerns by engineering a face-to-face meeting between the ICC and EarthLink employees who were working on the transition. Moreover, EarthLink sent William Neves, a Senior Integration Manager, to ICC's headquarters to ease the transition.

{¶ 21} From May to August 2001, ICC and EarthLink employees worked to "clean up" the information contained in the ICC customer databases. During this time period, EarthLink grew increasingly concerned that the number of ICC customers were much less than ICC represented, particularly when ICC disclosed that its radius server counted only 62,361 unique log-ins to its network during a four month period. Further, EarthLink discovered that approximately 20,000 of the customers ICC included within the database were email-only customers who, by the terms of the EarthLink Agreement, EarthLink had not agreed to take or pay for.

{¶ 22} As part of the transition, ICC emailed its dial-up customers on July 5, 2001 and officially informed them that ICC would be transferring their accounts to EarthLink. In this email, ICC told its customers that an EarthLink account would be automatically created for them, unless they notified ICC otherwise. Further, ICC assured its customers that EarthLink would allow them to retain their current email addresses.

{¶ 23} Then, on July 23, 2001, Mr. Hanson, ICC's Chairman and CEO, telephoned Mr. Bryant, EarthLink's Director of Acquisitions, and told him that ICC was so far in arrears in paying its network vendors that the vendors were going to shut off the network on July 27. If the network shut down, all of ICC's customers would lose their internet access and EarthLink would not be able to transition them to EarthLink's system. Mr. Hanson asked Mr. Bryant to wire ICC $2 million so ICC could pay its network vendors.

{¶ 24} Rather than give ICC $2 million, EarthLink decided to try to transition the ICC customers without ICC's participation. To do this, EarthLink had to prematurely load the ICC customer databases into its centralized customer base and billing system so that it could directly email the customers and mail them welcome kits. Beginning on July 27, 2001, EarthLink loaded the customer databases and sent the approximately 66,000 ICC customers in the databases a welcome email. The email informed the ICC customers to look for welcome kits in the mail that would include EarthLink software, as well as the customer's new username and password. Importantly, the email stated that ICC customers would not be able to keep their current email addresses.

{¶ 25} ICC discovered that EarthLink was sending this email on July 28, 2001 and immediately sent its own email informing its customers that EarthLink's email was in error and that they would be able to retain their current email addresses. These dueling emails created customer confusion, and ICC's Customer Service Center was inundated with telephone calls and emails throughout the week after the emails were sent. During that week, approximately 4,000 ICC customers cancelled their service. Mr. Neves, EarthLink's employee at ICC headquarters, estimated that of these 4,000 cancellations, 3,200 to 3,500 were due to EarthLink's email.

{¶ 26} ICC, meanwhile, did not lose its network connection. To forestall its vendors, ICC declared bankruptcy on July 31, 2001.

{¶ 27} Throughout August 2001, EarthLink continued to integrate the ICC customer databases into its own database and correct inaccurate ICC customer information. EarthLink was also busy adding ICC points of presence, or POPs, to its system. A POP houses equipment that enables a dial-up internet user to access a remote server via a local phone number. Adding ICC's POPs into its system enabled EarthLink to offer dial-up service to the more far-flung ICC customers. However, EarthLink decided not to incorporate five of ICC's POPs into its system, and thus, EarthLink could not offer dial-up service to an estimated 6,000 ICC customers.

{¶ 28} Ultimately, EarthLink loaded approximately 85,000 ICC customers into its own customer and billing database.⁶ This number did not include an estimated 10,000 customers EarthLink was first informed about in late August. EarthLink decided not to load these customers because it considered the customer information ICC provided for these customers questionable.

{¶ 29} On September 11, 2001, EarthLink "cut over" internet access for the approximately 85,000 ICC customers from ICC's system to EarthLink's system. As of September 22, 2001, only 27,708 of these ICC customers had logged onto EarthLink's system. The majority of the accounts EarthLink set up for the approximately 85,000 ICC customers were cancelled. EarthLink generated a "User Count Summary" from its customer and billing database to show the ICC customers' rate of and reasons for cancellation. According to this summary, EarthLink itself initiated the majority of the cancellations due to non-payment. Additionally, a significant number of ICC customers initiated cancellation themselves because they simply did not want their account to be acquired by EarthLink or they were dissatisfied with the transition process. Ultimately, only 25,144 former ICC customers paid EarthLink for either dial-up or web hosting service for two consecutive months.

{¶ 30} Because EarthLink had paid for 40,000 customers,⁷ but only received 25,144 customers, EarthLink determined that it did not owe ICC any further payments. By late September 2001, RFC knew that it could not count on any more payments from EarthLink to pay down ICC's loan. Thus, RFC turned to recouping what amounts it could from the liquidation of ICC in bankruptcy. As a secured creditor, RFC ultimately received $2 million from the bankruptcy, resulting in an unpaid loan balance of $4 million.

{¶ 31} On May 24, 2002, RFC filed suit against EarthLink, alleging conversion, tortious interference with a contractual relationship, unjust enrichment, impairment of RFC's security interest, and a right to an accounting. RFC claimed that, as a secured party, it was entitled to a recovery from EarthLink because EarthLink took and damaged its collateral without obtaining a release.

{¶ 32} The parties tried the case to a jury from June 3 to June 19, 2003. Prior to beginning its case, EarthLink moved for directed verdict and the motion was denied. The case was submitted to the jury, which found EarthLink liable and awarded RFC $6 million. On June 23, 2003, the trial court entered judgment for RFC in the amount of $6 million plus post-judgment interest. EarthLink then filed this appeal.

{¶ 33} On appeal, EarthLink assigns the following errors:

1. The trial court erred in denying EarthLink's directed verdict motion with respect to its consent defense, given the unrebutted evidence of RFC's explicit and implicit consent to the EarthLink-ICC transaction.

2. The trial court erred in denying EarthLink's directed verdict motion with respect to RFC's conversion claim, given the absence of a demand for return of the collateral by RFC, and the fact that EarthLink came into possession of the collateral lawfully.

3. The trial court erred in denying EarthLink's directed verdict motion with respect to RFC's tortious interference claim, given RFC's failure to prove four of the five elements of the claim.

4. The trial court erred in denying EarthLink's directed verdict motion with respect to RFC's unjust enrichment claim, given RFC's failure to prove any of the elements of the claim.

5. The trial court erred in denying EarthLink's directed verdict motion with respect to RFC's impairment of security interest in collateral claim, given that there is no such claim, and that even if such a claim is recognized, RFC failed to prove damages or causation.

6. The trial court erred in giving a special jury instruction on spoliation despite the absence of any factual basis that evidence was spoliated, and despite the fact that RFC had the allegedly spoliated evidence in hand before trial.

7. The trial court erred in giving the particular jury instruction on spoliation requested by RFC, as it misstated the law of spoliation.

8. To the extent that a spoliation instruction was appropriate, the trial court erred in refusing to give the alternative instruction on spoliation proposed by EarthLink.

9. The trial court erred in denying EarthLink the opportunity to proffer evidence demonstrating that it had not spoliated any evidence.

10. The trial court erred in giving all of RFC's proposed jury instructions verbatim, and giving none of EarthLink's proposed jury instructions.

11. The trial court erred in repeatedly instructing the jury to find in favor of RFC, but never stating the alternative, i.e., that the jury could find in favor of EarthLink.

12. The trial court erred in repeatedly instructing the jury to deem certain facts as having been established, when those facts were disputed.

13. The trial court erred in repeatedly referring to EarthLink in pejorative terms in its jury instructions.

14. The trial court erred in giving RFC proposed jury instruction no. 11, which is not an accurate statement of the law of consent, and which effectively took the issue of consent — EarthLink's principal defense — from the jury.

15. The trial court erred in giving RFC proposed jury instruction no. 17, which is not an accurate statement of the law of security interests, and which effectively took the issue of consent — EarthLink's principal defense — from the jury.

16. The trial court erred in giving RFC proposed jury instruction no. 19, which is not an accurate statement of the law of security interests, and which effectively took the issue of consent — EarthLink's principal defense — from the jury.

17. The trial court erred in giving RFC proposed jury instruction no. 21, which is not an accurate statement of the law of security interests, and which, among other things, invented a new cause of action for "failure to conduct a lien search."

18. The trial court erred in giving RFC proposed jury instruction no. 22, which is not an accurate statement of the law on the release of a security interest in collateral.

19. The trial court erred in giving RFC proposed jury instruction no. 23, as there is no tort in Ohio for "impairment of a security interest."

20. The trial court erred in giving RFC proposed jury instruction no. 24 on conversion, which instruction omitted the element of a demand for return of the collateral, and which added the element of "securing an express release," effectively eliminating the law of implied consent.

21. The trial court erred in giving RFC proposed jury instruction no. 25 on unjust enrichment, which instruction omitted the requirement that RFC be the source of the benefit conferred, and eliminated the injustice element.

22. The trial court erred in giving RFC proposed jury instruction no. 27 on tortious interference with contract, which omitted the intent element.

23. The trial court erred in giving RFC proposed jury instruction no. 28, captioned "Interpretation of a Writing — Prior Written Consent," which instructed the jury to find for RFC on its tortious interference claim if RFC proved one fact — that it did not consent in writing to the transaction — and which eliminated EarthLink's consent defense.

24. The trial court erred in giving RFC proposed jury instruction no. 29, captioned "Interpretation of a Writing — Payments into Controlled Accounts," which instructed the jury to find for RFC on its tortious interference claim if RFC proved one fact — that EarthLink did not transfer its payments to ICC into the RFC "lockbox" that EarthLink didn't even know existed — and which eliminated EarthLink's consent defense.

25. The trial court erred in giving RFC proposed jury instruction no. 30, which is not an accurate statement of the law of consent, and which effectively took the issue of consent from the jury.

26. The trial court erred in giving RFC proposed jury instruction no. 31 on consent, which invented a new, heightened burden of proof, and eliminated the doctrine of implied consent from the law.

27. The trial court erred in giving RFC proposed jury instruction no. 32, which invented a new, heightened burden of proof, eliminated the doctrine of implied consent from the law, and ordered the jury to find for RFC on all of its claims if EarthLink failed to prove its affirmative defense of consent.

28. The trial court erred in giving RFC proposed jury instruction no. 35, which is not an accurate statement of the law of damages.

29. The trial court erred in giving RFC proposed jury instruction no. 36, which is not an accurate statement of the law of damages for conversion.

30. The trial court erred in giving RFC proposed jury instruction no. 37, which is not an accurate statement of the law of damages for unjust enrichment.

31. The trial court erred in giving RFC proposed jury instruction no. 38, which instructed the jury that it could award to RFC, a secured creditor, an amount greater than its outstanding loan balance.

32. The trial court erred in giving RFC proposed jury instruction no. 40, which instructed the jury that it could award to RFC, a secured creditor, an amount greater than its outstanding loan balance.

33. The trial court erred in giving RFC proposed jury instruction no. 39, which directed the jury to apply the collateral source rule in this Uniform Commercial Code case, and which again instructed the jury that it could award to RFC, a secured creditor, an amount greater than its outstanding loan balance.

34. The trial court erred in excluding evidence relating to RFC's recovery of part of its damages from the ICC bankruptcy estate, and evidence of RFC's current loan balance.

35. The trial court erred in admitting evidence of and allowing references to the investigation of EarthLink by the Washington Attorney General, which evidence and references were irrelevant and highly prejudicial.

36. The trial court erred in excluding properly authenticated and identified ICC business records.

37. The trial court erred in denying EarthLink the ability to have Jon Steging of ICC testify on the basis that he was untimely disclosed, when the court simultaneously gave RFC clearance to have late-disclosed fact witnesses testify.

38. The trial court erred in denying EarthLink the right to proffer Mr. Steging's probable testimony.

39. The trial court erred in giving a special jury instruction following opening statements based upon conduct of EarthLink's counsel, which instruction effectively directed the jury to ignore EarthLink's principal defense before the trial even began.

40. The trial court erred in admitting thousands of purported ICC customer complaints for the truth of the matters asserted therein without the testimony of a single complaining ICC customer or even an ICC employee.

41. The trial court's bias in the proceedings below was so complete and pervasive that it denied EarthLink due process.

{¶ 34} By EarthLink's first through fifth assignments of error, it challenges the trial court's denial of its Civ.R. 50(A) motion for directed verdict. Pursuant to Civ.R. 50(A), "a motion for directed verdict is granted if, after construing the evidence most strongly in favor of the party against whom the motion is directed, `reasonable minds could come to but one conclusion upon the evidence submitted and that conclusion is adverse to such party.'" Goodyear Tire Rubber Co. v. Aetna Cas. SuretyCo., 95 Ohio St.3d 512, 2002-Ohio-2842, at ¶ 3, quoting Civ.R. 54(A)(4). Although this analysis requires a court to review and consider the evidence, a motion for directed verdict presents a question of law because a court must examine the sufficiency of the evidence, not weigh the evidence or try the credibility of the witnesses. Wagner v. Roche Lab. (1996), 77 Ohio St.3d 116,119. See, also, Malone v. Courtyard by Marriott L.P. (1996),74 Ohio St.3d 440, 445 ("[T]he court is confronted solely with a question of law: Was there sufficient material evidence presented at trial on this issue to create a factual question for the jury?"). As a motion for directed verdict presents a question of law, an appellate court applies the de novo standard of review.Goodyear Tire Rubber Co., supra, at ¶ 4.

{¶ 35} By EarthLink's first assignment of error, it argues that it obtained the customer base free and clear of RFC's security interest because RFC released that interest. As EarthLink contends, without a security interest, RFC has no basis on which to assert its claims. Accordingly, the trial court should have granted EarthLink directed verdict on all of RFC's claims if RFC released its security interest.

{¶ 36} EarthLink's argument that RFC released its security interest is based upon R.C. 1309.315(A)(1) [UCC 9-315(a)(1)], which reads:

A security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien.

Accordingly, pursuant to R.C. 1309.315(A)(1), although a debtor may sell or otherwise dispose of collateral, that disposition does not extinguish the secured party's interest in the collateral absent the secured party's consent. 1A Coogan, Hogan, Vagts McDonnell, Secured Transactions Under the Uniform Commercial Code (2004) 7A-62, Section 7A.15[1]. In other words, the buyer of the collateral takes the collateral subject to the secured party's interest unless the secured party authorizes its release. 1 Nimmer, Commercial Asset-Based Financing (2003) 3-41, Section 3:16.

{¶ 37} EarthLink argues that RFC authorized the release of its security interest in the customer base in four ways: (1) RFC implicitly authorized the release through its actions, (2) RFC explicitly authorized the release by agreeing in the Second Amendment to the sale of the customer base, (3) RFC explicitly authorized the release by agreeing in the Second Amendment to release its security interest upon the condition that ICC complete its contractual obligations, and (4) RFC authorized the release by waiving the condition it placed upon its consent to a release. We will deal with each argument in succession.

{¶ 38} First, EarthLink contends that RFC implicitly authorized the sale of the customer base free from the security interest. EarthLink asserts that RFC's knowledge of the sale, coupled with its failure to stop the sale, amounts to implicit authorization. We disagree.

{¶ 39} Because nothing in R.C. 1309.315 limits the definition of "authorization" to express authorization, we conclude that a secured party's actions can impliedly authorize the disposition of collateral free of its security interest. Implied authorization occurs "when, from the circumstances, general language and conduct of the parties, it is found that [the secured party] intended to authorize the sale" free of the security interest. J.I. Case Credit Corp. v. Crites (C.A.10, 1988), 851 F.2d 309, 313, quoting Poteau State Bank v. Denwalt (Okla. 1979), 597 P.2d 756, 760.⁸ See, also, Morgan Cty.Feeders, Inc. v. McCormick (Colo.App. 1992), 836 P.2d 1051, 1054 ("Implied authorization is a factual determination based upon the circumstances of the parties, the nature of the collateral, the course of dealing of the parties, and the usage of trade."); 1 Clark, The Law of Secured Transactions Under the Uniform Commercial Code (Ed.Rev. 2004) 3-23, Paragraph 3.02[3][b] ("If the lien is to be released, the transferee should provide some affirmative evidence that this was the parties' intent. This is the position taken by Rev. Article 9. Rev. UCC § 9-315(a).").

{¶ 40} To constitute implied authorization, a secured party's acts must unequivocally demonstrate an intent to waive its security interest since such a waiver cannot be inferred from doubtful or ambiguous factors. United Natl. Bank of Parkersburgv. Norton Machine Co., Inc. (1991), 81 Ohio App.3d 101, 106, quoting Central Washington Bank v. Mendelson-Zeller, Inc. (1989), 113 Wash.2d 346, 779 P.2d 697, 701. See, also, FirstInterstate Bank of Arizona, N.A. v. Interfund Corp. (C.A.5, 1991), 924 F.2d 588, 595 ("The acts, words or conduct relied upon to establish intention must be such as to manifest an unequivocal intention to no longer assert the right" to the security interest.). Further, because R.C. 1309.315(A)(1) does not require a secured party to take any action to preserve its security interest, inaction alone may not necessarily lead to a finding of an implied authorization. J.I. Case Credit Corp., supra, at 313, quoting Poteau, supra, at 761. See, also, Lafayette Prod.Credit Assn. v. Wilson Foods Corp. (N.D. Ind. 1987),687 F.Supp. 1267, 1276 ("Mere silence, acquiescence or inactivity is not a waiver or authorization unless there was a duty to speak or act.").

{¶ 41} Generally, whether a secured party has authorized a disposition of collateral free of a security interest is a question of fact. First Interstate Bank of Arizona, N.A., supra, at 595; Neu Cheese Co. v. Federal Deposit Ins. Corp. (C.A.8, 1987), 825 F.2d 1270, 1272; In re Klipfer (Bankr.Ct.S.D.Ohio 1986), 62 B.R. 290, 295; Central WashingtonBank, supra, at 700; Northern Commercial Co. v. Cobb (Alaska 1989), 778 P.2d 205, 208. Consequently, in order to prevail, EarthLink must demonstrate that reasonable minds could only conclude that RFC's actions demonstrated an intent to authorize the release of its security interest in the customer base. EarthLink attempts to meet this burden by pointing to evidence that RFC knew of ICC's intent to sell the customer base prior to the execution of the EarthLink Agreement, but it did nothing to stop the sale. Further, EarthLink notes that RFC employees admitted to knowingly accepting sale proceeds from ICC to pay down ICC's loan. In response, RFC points to Mr. Rudek and Mr. Mitchell's testimony that they consistently told ICC employees that RFC would not release its security interest without ICC's compliance with certain conditions. Moreover, RFC stresses that it never filed a UCC-3 form terminating its security interest.

{¶ 42} Construing the evidence in favor of RFC as the non-moving party, we conclude that there was sufficient evidence to create a question of fact regarding RFC's intent. In other words, reasonable minds could differ as to whether RFC's actions, or its inaction, unequivocally demonstrated an intent to release its security interest. Although RFC knew of the sale and accepted part of the sale proceeds, RFC also repeatedly refused to release its security interest unless ICC met certain conditions. Given this conflicting evidence regarding RFC's intent, directed verdict in EarthLink's favor was unjustified. Accordingly, we conclude that the trial court properly denied EarthLink directed verdict on its consent defense despite EarthLink's contention that RFC implicitly authorized the release of its security interest.

{¶ 43} Second, EarthLink contends that RFC expressly authorized the release of its security interest when it consented to the sale of the customer base in the Second Amendment. We disagree.

{¶ 44} Before the recent revision of the Uniform Commercial Code ("UCC"), the analogous provision to current R.C.1309.315⁹ read, "a security interest continues in collateral notwithstanding sale, exchange, or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise * * *." Former R.C.1309.25(B) [Former UCC 9-306(2)]. Courts interpreting this provision debated whether it meant a secured party effectuated a release upon the mere authorization of the sale, or whether a secured party was required to authorize the sale free of thesecurity interest before a release occurred. See, e.g., In reSouthern Properties (Bankr.Ct.E.D.Va. 1984), 44 B.R. 838,842-843.

{¶ 45} On March 10, 1990, the UCC drafters issued PEB Commentary No. 3 to address this dilemma. Pursuant to this Commentary:

A transferee will acquire the collateral free and clear of a preexisting security interest only if the disposition of the collateral by the debtor was authorized by the secured party free and clear of the secured party's security interest. If the disposition was not authorized by the secured party, or was authorized by the secured party subject to the secured party's security interest, the transferee will not acquire the collateral free and clear of the security interest. Thus, if a secured party authorized the sale of the collateral, but retained a security interest in the collateral, the security interest survived the sale.

{¶ 46} In reworking former UCC 9-306(2), the UCC drafters adopted the view of Commentary No. 3 by making it explicit in UCC 9-315(a)(1) that a security interest continues in collateral "unless the secured party authorize[s] the disposition free ofthe security interest * * *." UCC 9-315(a)(1) (emphasis added). See, also, UCC 9-315 Official Comment 2. Further, the revised UCC provides that if a secured party opts to authorize the disposition only, then the secured party's filed financing statement remains effective. R.C. 1309.507(A) [UCC 9-507(a)] ("A filed financing statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents to the disposition.").

{¶ 47} In the case at bar, Section 11 of the Second Amendment provided that:

[RFC] hereby consents to the sale of the Purchased Accounts by [ICC]. Upon the performance by [ICC] * * * of all [its] obligations under the Loan Agreement and this Amendment, [RFC] agrees to release its security interest in the Purchased Accounts.

Construing the two sentences of Section 11 together, we conclude that RFC authorized the sale of the customer base, but made that collateral subject to its security interest until ICC performed its contractual obligations. Because RFC retained its security interest, despite its consent to the sale, the customer base remained encumbered as long as ICC's contractual obligations went unperformed. Additionally, pursuant to R.C. 1309.507(A), because RFC only authorized the sale of the customer base, and not the release of its security interest, the UCC-1 financing statement RFC filed with the Colorado Secretary of State and the Denver County Recorder's Office remained effective.

{¶ 48} Accordingly, we conclude the trial court properly denied EarthLink a directed verdict on EarthLink's consent defense despite EarthLink's contention that RFC authorized the release of its security interest by consenting to the sale of the customer base in the Second Amendment.

{¶ 49} Third, EarthLink contends that the condition RFC imposed upon the release of its security interest (i.e., ICC's performance of its contractual obligations) was ineffective against EarthLink because satisfaction of the condition was outside of EarthLink's control. Consequently, EarthLink reasons that, even though ICC did not perform its contractual obligations, RFC's security interest was released.

{¶ 50} As EarthLink points out, there is a split in authority regarding whether a conditional consent cuts off a secured party's interest in the collateral. The line of authority EarthLink relies upon holds that, "a condition imposed on an authorization to sell is ineffective, unless performance of the condition is within the buyer's control." Production CreditAssn. of Baraboo v. Pillsbury Co. (1986), 132 Wis.2d 243,392 N.W.2d 445, 448. See, also, Moffat Cty. State Bank v. ProducersLivestock Marketing Assn. (D.Colo. 1984), 598 F.Supp. 1562,1568-1570, affirmed (C.A.10, 1987), 833 F.2d 908; Peoples Natl.Bank Trust v. Excel Corp. (1985), 236 Kan. 687, 695 P.2d 444,447-450; Anon, Inc. v. Farmers Prod. Credit Assn. of Scottsburg (Ind.App. 1983), 446 N.E.2d 656, 661-662. These courts reason that a condition requiring performance only the seller can provide is not a "real" condition because it "makes the buyer an insurer of acts beyond its control." First Natl. Bank TrustCo. of Oklahoma City v. Iowa Beef Processors, Inc. (C.A.10, 1980), 626 F.2d 764, 769. Under this view, the third party purchaser who agreed to no condition has superior rights over the secured party who permitted the collateral to be placed on the market. Western Idaho Prod. Credit Assn., L.V. v. Simplot FeedLots, Inc. (1984),