                     United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                               Nos. 03-3828/03-3832
                                   ___________

General Electric Capital Corporation, *
                                      *
            Appellant/Cross-Appellee, *
                                      * Appeals from the United
     v.                               * States District Court for the
                                      * Eastern District of Missouri.
Union Planters Bank, NA,              *
                                      *
            Appellee/Cross-Appellant. *
                               ___________

                             Submitted: September 16, 2004
                                Filed: May 31, 2005
                                 ___________

Before LOKEN, Chief Judge, BEAM, and SMITH, Circuit Judges.
                              ___________

BEAM, Circuit Judge.

        This diversity case involves a dispute between two creditors—General Electric
Capital Corporation (GECC), the plaintiff, and Union Planters Bank (UPB), the
defendant—about funds UPB received from their common debtor—Machinery, Inc.
(Machinery). The district court granted GECC's motion for summary judgment on
liability, and held a bench trial to determine damages. Ultimately, the court entered
judgment against UPB for $62,818. GECC appeals the damages determination, and
UPB cross-appeals the liability ruling. We affirm in part, reverse in part, and remand
the case for further proceedings.
I.    BACKGROUND

      Machinery was in the business of renting, selling, and servicing aerial manlift
equipment. Machinery financed the purchase of its manlift inventory with GECC,
UPB, and various other lenders, and it gave those creditors security interests in the
inventory they financed. UPB was also Machinery's lender on an operating note,
secured by a blanket lien on all of Machinery's property, and it was Machinery's
depository bank. In March 2000, GECC and UPB entered into a subordination
agreement in which UPB subordinated its security interest in GECC-financed
inventory to the interest of GECC, as well as its interest in "all cash, rents and non-
cash proceeds" arising from that same property.

       In April 2000, UPB and Machinery set up a cash management system. Under
this system, Machinery maintained three demand deposit accounts with UPB: a parent
account and two operating accounts. Machinery would deposit the funds it had
collected from equipment rentals, sales, and service into the parent account and write
checks on the operating accounts to cover expenses. Each day, when Machinery's
checks were presented for payment, UPB would transfer funds from the parent
account to the operating accounts to cover the checks. If the parent account balance
was inadequate to cover the operating-account expenditures, a revolving line of credit
covered the shortfall. And, if an excess existed in the parent account after the items
drawn on the operating accounts were paid, UPB would automatically "sweep" the
funds from Machinery's parent account to pay down the balance owing on the line of
credit. In July 2000, Machinery established the $1,250,000 line of credit at issue in
this case.1




      1
       It appears that a prior line of credit enabled the cash management system to
operate in the same manner from April until July.

                                         -2-
       From April 2000, Machinery deposited its revenue in the parent account
without identifying which items of inventory, if any, generated the funds it was
depositing. UPB swept funds from the parent account and provided funds to the
operating accounts regularly and automatically. The system operated in this manner
until the beginning of March 2001, when Machinery's affairs began to fall apart.
Machinery fell into default with UPB, and UPB terminated the automatic feature of
the cash management system. Ultimately, Machinery filed for bankruptcy on March
29, 2001.

       GECC filed suit against UPB claiming that UPB wrongfully swept proceeds
of GECC-financed inventory from Machinery's parent account in January, February
and March 2001. GECC asserted causes of action for wrongful setoff, breach of the
subordination agreement, conversion, tortious interference with contract, and unjust
enrichment. GECC moved for partial summary judgment on its conversion claim,
arguing that UPB converted funds in which GECC had a superior interest when UPB
swept the account. UPB cross-moved for summary judgment on all of GECC's
claims. The district court granted GECC's partial motion, holding that UPB was
liable for conversion, but reserved the question of damages for trial. The court
dismissed the remaining counts with prejudice because they all sought relief for the
same injury.

       Evidence of damages was presented at a bench trial. The district court
concluded that UPB converted $62,818 of funds in which GECC had a superior
interest when it swept Machinery's account in January, February, and March.

       GECC appeals the damages ruling, and UPB cross-appeals the district court's
entry of summary judgment on liability. The district court had jurisdiction under 28
U.S.C. § 1332, and we have appellate jurisdiction under 28 U.S.C. § 1291.




                                        -3-
II.   DISCUSSION

       In diversity cases, we apply the substantive law of the state in which the district
court sits. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Here, that is Missouri,
and we review the district court's interpretation of Missouri law de novo. Bass v.
Gen. Motors Corp., 150 F.3d 842, 846-47 (8th Cir. 1998).

        UPB appeals the district court's grant of partial summary judgment to GECC
on its conversion claim, and the district court's denial of its cross-motion for summary
judgment on the same claim. "We review a grant of summary judgment de novo and
apply the same standards as the district court." Bockelman v. MCI Worldcom, Inc.,
403 F.3d 528, 531 (8th Cir. 2005). "Summary judgment is warranted if the evidence,
viewed in the light most favorable to the nonmoving party, shows that no genuine
issue of material fact exists and that the moving party is entitled to judgment as a
matter of law." Id.

       GECC appeals the district court's damages judgment. "Rule 52(a) of the
Federal Rules of Civil Procedure mandates that in cases tried to the court, findings
of fact shall not be set aside unless clearly erroneous." Adzick v. UNUM Life Ins.
Co., 351 F.3d 883, 889 (8th Cir. 2003).

      Under Missouri law,

      [c]onversion is the unauthorized assumption of the right of ownership
      over the personal property of another to the exclusion of the owner's
      rights. Kennedy v. Fournie, 898 S.W.2d 672, 678 (Mo. App. 1995) . . . .
      [A] plaintiff must show title to, or a right of property in, and a right to
      the immediate possession of the property concerned at the alleged date
      of conversion. Id.

Bell v. Lafont Auto Sales, 85 S.W.3d 50, 54 (Mo. Ct. App. 2002).


                                           -4-
      This case involves a conflict over funds generated by leases of inventory in
which GECC held a security interest. Those proceeds were deposited in Machinery's
parent account with UPB. This was typical of Machinery's operations and there is no
evidence that GECC objected to the deposit of those funds in that account. GECC's
conversion theory is based on what happened after those funds were deposited.

        GECC claimed that UPB converted GECC's property when it swept funds from
Machinery's parent account under the cash management system in January, February,
and March 2001. GECC premised this claim on its security interest in the proceeds
of GECC-financed inventory. Specifically, it sought to establish that it had a "right
of property in, and a right to the immediate possession of," the funds UPB received.
Id. Because GECC's rights were premised on its security interest, GECC had to prove
that it had a security interest in the funds UPB received from the parent account. To
do that, GECC was faced with two tasks. First, it had to prove that proceeds in which
it held a security interest were deposited in Machinery's parent account. If GECC
established that fact, then GECC's security interest in the funds that were deposited
continued in the deposit account to the extent of the amount of such deposits.
GECC's second task, then, was to prove that the funds UPB received through its
sweeps were encumbered by GECC's security interest in the deposit account. We
address these two aspects of GECC's claim in turn.

      A.     GECC's Security Interest in Machinery's Deposits

       The district court determined that GECC had a security interest in certain funds
that were deposited by Machinery in its parent account. It made this determination
at the bench trial, and its conclusion is a finding of fact.

       GECC sought to establish its security interest in deposited funds by
establishing that (1) ninety-two of Machinery's customers made lease payments to
Machinery during January, February, and March 2001, (2) those customers leased

                                         -5-
GECC-financed inventory, and (3) the funds paid by those customers were deposited
in the parent account. The funds paid by a lessee of inventory are proceeds of that
inventory under Missouri law, and GECC's security interest in the inventory therefore
continued in those proceeds. Mo. Ann. Stat. § 400.9-306(1)-(2), cmt. 6.2 But GECC's
evidence was weak. Audit records indeed revealed that the ninety-two customers had
leased GECC-financed inventory. And cancelled checks that had been deposited in
Machinery's parent account established the amounts paid by the ninety-two customers
to Machinery. But no leases, invoices, or other evidence tying the payments to the
collateral was presented. GECC nonetheless argued that the audit records and
cancelled checks showed that the funds paid by the ninety-two lessees and deposited
in the parent account were proceeds of GECC-financed inventory because those
customers were likely making payments on their leases of GECC-financed inventory.

       UPB countered with testimony establishing that twenty-three of the ninety-two
customers also leased equipment in which GECC had no security interest. The
district court concluded that GECC had not proven that those twenty-three customers'
payments were proceeds of GECC-financed inventory because the inference upon
which GECC relied—that such customers were likely making payments on their
leases of GECC-financed inventory—was no longer valid given UPB's evidence. The
court therefore excluded those twenty-three customers' payments from its deposit
calculations and held that GECC had proven that the remaining sixty-nine customers'
payments were proceeds of GECC-financed inventory that was deposited in the
parent account. We agree with the district court.3 Including the twenty-three

      2
       Unless otherwise indicated, all citations to Missouri's Uniform Commercial
Code are to the 1997 version that applies in this case. Missouri adopted the revised
version of Article 9, effective July 1, 2001. Mo. Ann. Stat. § 400.9-101 (West 2003).
However, all events in question occurred before the revisions became effective.
      3
       While we reject GECC's arguments to the contrary, one of its many arguments
borders on frivolity. GECC argues that the district court clearly erred because GECC
should be excused from presenting competent evidence on the issue—i.e., through

                                        -6-
customers' payments requires speculation, and although GECC's evidence was scant,
we see no clear error in the district court's finding with regard to the remaining sixty-
nine customers' payments.

      B.     GECC's Security Interest in the Funds UPB Received

             1.   Ordinary Course Payments: When To Use Equitable Tracing

       GECC, however, did not object to the deposit of these funds. Its conversion
claim rests on UPB's sweeps. So GECC had the burden of proving that the funds
UPB swept were traceable to the funds deposited—funds in which it had a security
interest. See Bell, 85 S.W.3d at 54. But proving that link is quite difficult, if not
impossible, when funds from numerous sources are deposited and credited to a single
account, from which the depositor makes withdrawals and orders payments.
Equitable tracing principles ease this difficulty. The question how such tracing works
in this case is addressed below. But because equitable tracing principles cannot be
used unless equity calls for it, and because there are "good commercial reasons" for
not using such principles to impose liability, we must initially "determine when [a
court] should trace proceeds through a commingled account." Harley-Davidson
Motor Co. v. Bank of New England, 897 F.2d 611, 622 (1st Cir. 1990).




an analysis of Machinery's leases, accounts, invoices, and deposits. According to
GECC, "the record was clear that such an attempted reconstruction would have taken
weeks of professional time and cost hundreds of thousands of dollars, something
obviously unreasonable in this case, with less than $500,000 in controversy." App.
Reply Br. at 21 (citation to the record omitted). The amount of money at stake in
litigation is relevant only to our diversity jurisdiction; it does not excuse a plaintiff
from offering evidence that proves its claim.

                                          -7-
      One UCC provision has been used to delineate when a debtor's payee will be
deemed a recipient of encumbered proceeds through the use of equitable tracing
principles. That provision provides the following:

      Where cash proceeds are covered into the debtor's checking account and
      paid out in the operation of the debtor's business, recipients of the funds
      of course take free of any claim which the secured party may have in
      them as proceeds. What has been said relates to payments and transfers
      in ordinary course. The law of fraudulent conveyances would no doubt
      in appropriate cases support recovery of proceeds by a secured party
      from a transferee out of ordinary course or otherwise in collusion with
      the debtor to defraud the secured party.

Mo. Ann. Stat. § 400.9-306, cmt. 2(c).

       We agree with the district court that Missouri, like most other states confronted
with this issue, would recognize this official comment as law. The current version
of Missouri's Uniform Commercial Code supports this result. See Mo. Ann. Stat. §
400.9-332(b) (West 2003) (ending a security interest in a deposit account upon the
transfer of funds "unless the transferee acts in collusion with the debtor in violating
the rights of the secured party"). And we agree with those courts that have held that
this comment effectively delineates those circumstances when tracing is appropriate:
when the payee receives funds "out of ordinary course or otherwise in collusion with
the debtor." See, e.g., Harley-Davidson Motor Co., 897 F.2d at 622. Here, the
district court held that the subordination agreement meant that UPB, as a matter of
law, did not receive the funds swept from the parent account in the ordinary course
of Machinery's business. We disagree.

      In Orix Credit Alliance, Inc. v. Sovran Bank, 4 F.3d 1262 (4th Cir. 1993), the
court was faced with a factually similar situation. The depository bank and the
debtor/depositor had set up a "cash collateral account" in which all of the debtor's


                                          -8-
customers' payments were deposited. Routinely, and pursuant to an agreement, the
balance of that account was applied to the depositor's line of credit with the
depository bank. The transaction that gave rise to the lawsuit involved the depository
bank's application of the balance of the deposit account to reduce the balance on the
outstanding line of credit just after the proceeds of a crane had been deposited in the
debtor's cash collateral account. Both the plaintiff—another lender—and the
depository bank had a security interest in the crane and the generated proceeds that
were deposited. The depository bank had subordinated its interest in the crane to the
competing lender's interest in the crane. And the court assumed that the bank knew
the proceeds of the crane had been deposited in the account. Id. at 1264-66 & n.7.

       The court in Orix held that the depository bank took the funds free of the
plaintiff's superior security interest under Official Comment 2(c). Id. at 1267-69. As
to the plaintiff's claim that the depository bank knew that encumbered proceeds had
been deposited, the court said, "[A] transferee's knowledge of a prior security interest
in proceeds does not, by itself, indicate that the transfer of these proceeds occurred
outside the ordinary course of the debtor's business." Id. at 1267. We agree with that
statement and, like the court in Orix, we conclude that the phrase "in the ordinary
course," means that the plaintiff must establish more than a defendant's knowledge
of a superior security interest: It must establish either a lack of good faith or that the
payee "knows . . . that the [payment] is in violation of some term in the security
agreement not waived by the words or conduct of the secured party." Mo. Ann. Stat.
§ 400.9-307, cmt. 2; accord Orix, 4 F.3d at 1266-67; ITT Commercial Fin. Corp. v.
Bank of the West, 166 F.3d 295, 307-08 (5th Cir. 1999) (collecting and discussing
authorities).

       GECC's claim is weaker than the plaintiff's claim in Orix. In Orix, the balance
of the cash collateral account was applied only to the line of credit and there was
some evidence that the depository bank knew that the deposit at issue contained
proceeds. Thus, there was at least an inference (albeit an insufficient inference for

                                           -9-
liability purposes) of the depository bank's knowledge that proceeds of a secured
party's collateral had been deposited, and there was no question that the account
balance was created by such funds. Here, there is no evidence that UPB knew that
proceeds of GECC-financed inventory had been deposited. And, more importantly,
there is no evidence that UPB knew that the account balance after all other expenses
had been paid was created by such deposits. Even GECC's trial evidence shows that
only about four or five percent of Machinery's $4 million in total deposits were
proceeds of GECC-financed inventory, while UPB swept an amount that equaled
37.6% of the total deposits. UPB should not be charged with knowing that the
remaining account balance was created by the small portion of proceeds of GECC-
financed inventory that had been deposited.

       If UPB did not know that the remaining account balance was traceable to the
encumbered deposits, then as a matter of law it did not know that its sweeps violated
the terms of GECC's security agreement with Machinery because it did not know
GECC's interests were implicated. And even if UPB knew that proceeds of GECC-
financed inventory had been deposited in the account and that the remaining balance
had been created by the deposits, as in Orix, that knowledge is not enough. Given
Machinery's apparent ability to deposit those funds and use the account to pay
creditors, UPB surely did not know, and should not be expected to know, that its
sweeps would violate a term in Machinery and GECC's security agreement that
GECC had not waived.

      The district court concluded that the subordination agreement "unlock[ed] the
mystery to this case," holding UPB could not avoid liability by claiming it did not
know that the funds it swept were encumbered by GECC's security interest. UPB
argued that GECC should have required Machinery to segregate the lease payments
on GECC-financed inventory from Machinery's other revenue, and that without such
segregation, there was no way for UPB to know that it was being paid with proceeds
of GECC-financed inventory. The court responded: "When . . . [UPB] gave up its

                                        -10-
rights to whatever [GECC] had, it should have been the party responsible for making
sure that it did not violate its contractual obligations." GECC takes this to mean that
the district court held that the subordination agreement imposed upon UPB an
implicit contractual duty to find and segregate any funds that were deposited in which
GECC may claim a security interest, and that in the face of that duty, UPB could not
claim a lack of knowledge. If that is what the district court meant, it erred. First, as
explained below, UPB did not give up all of its rights. Second, we will not imply a
duty to segregate a debtor's deposits. Sophisticated lenders like GECC and UPB are
fully able to bargain for such duties, and they know the risks associated with allowing
debtors to commingle funds in a single account that is used to pay various creditors
in the ordinary course of the debtor's business.

      Apparently, the district court concluded that the subordination agreement
meant that UPB agreed that it would not accept payment from Machinery if the funds
Machinery used were produced by leasing GECC-financed inventory. The terms of
the subordination agreement, however, are not that broad. UPB claimed that the
sweeps from the cash management system were the conduit through which Machinery
paid UPB on the line of credit. GECC did not present any evidence to the contrary,
and Machinery does not appear to have paid UPB on the line of credit in any other
way. Thus, UPB sufficiently established that the sweeps were payments.

       Therefore, the question becomes whether the subordination agreement barred
UPB from accepting such payments in the ordinary course of business if they were
traceable to funds in which GECC could have claimed an interest. It did not. While
UPB limited its ability to look to its security to satisfy Machinery's indebtedness by
subordinating its "security interest" to GECC's, it did not promise to forego
Machinery's payment of the substantial debt that Machinery owed. The cases GECC
cites do not support a contrary conclusion. In the Orix dissent, 4 F.3d at 1269-72,
Chief Judge Ervin based his analysis on the bank's express subordination of "any
interest," id. at 1271, it had in the crane and its proceeds, not simply the bank's

                                         -11-
subordination of its security interest. In Safeco Credit Co. v. U.S. Bancorp Leasing
& Fin., Inc., 833 F. Supp. 833 (D. Or. 1993), the court based its conclusion on the
bank's express subordination of "any security interest, lien, claim or right, now or
hereafter asserted . . . with respect to the [loader] or the cash or non-cash proceeds of
the [loader]." Id. at 834 (second and third alteration in original). And in HCC Credit
Corp. v. Spring Valley Bank & Trust, 712 N.E.2d 952, 958 (Ind. 1999), the court was
describing a situation in which a secondary lender subordinates its debt to the secured
party or otherwise excludes "the debtor's obligations to the secured lender in
computing the debtor's borrowing base." All are inapposite.

       At most, the subordination agreement in this case ensured that UPB was a
junior secured creditor4 and firmly established that UPB knew of GECC's security
interest in some of Machinery's inventory and its proceeds. But even a junior secured
creditor that knows of its junior status can be paid in the ordinary course of business.
GECC had to show more. See, e.g., Anderson, Clayton & Co. v. First Am. Bank of
Erick, 614 P.2d 1091, 1095 (Okla. 1980) (holding that notice of the superior security
interest provided by subordination agreement, depository bank's knowledge of
proceeds deposits, and depository bank's demand for payment on a note that was not
yet due took the payment outside of the ordinary course).

     We conclude the district court erred in holding that the payments from
Machinery to UPB were not in the ordinary course of Machinery's business. We

      4
        The subordination agreement also does not clearly make UPB junior with
regard to the funds at issue. For example, the language does not bind UPB to
subordinate future security interests it may obtain in the property or its proceeds. The
agreement was executed in March 2000, and GECC appears to claim that UPB
subordinated the security interest it obtained the next month in conjunction with the
line of credit. Also, despite an artful quotation by GECC— "cash . . . and non-cash
proceeds," App. Reply Br. at 2 (alteration in original)—the phrase, "cash, rents and
non-cash proceeds" from the subordination agreement does not use "cash" as an
adjective to modify "proceeds." It appears as a noun, like "rents."

                                          -12-
decline, however, to direct the district court to enter summary judgment in UPB's
favor. The district court based its conclusion on the subordination agreement, and we
have concluded that agreement does not carry the day. And while we have strong
doubts as to whether any other evidence establishes the requisite wrongdoing for
January and February, March is a closer question. In March, Machinery was in
default on its obligation to UPB, GECC contacted UPB and demanded that UPB turn
over all proceeds of GECC-financed inventory (albeit without mentioning the amount
or any way of identifying particular proceeds), and UPB had taken a much more
active role in Machinery's operations, requiring Machinery to justify its expenses to
UPB and sweeping a larger percentage of deposited funds in that month than in either
of the two preceding months. See Barber-Greene Co. v. Nat'l Bank of Minneapolis,
816 F.2d 1267, 1272 (8th Cir. 1987) (concluding that a depository bank's total control
over the account from which payment was made took the transfer out of the ordinary-
course language of Official Comment 2(c)). Because GECC may be able to prevail
at trial, at least for the March sweeps, we vacate the district court's grant of summary
judgment and remand the case for further proceedings.

             2.   How Equitable Tracing Works in this Case

       As indicated, GECC may be able to establish that some of UPB's sweeps
occurred outside of the ordinary course of business, enabling it to use equitable
tracing principles to establish that the funds UPB received were identifiable proceeds
of GECC-financed inventory. Because the district court ruled on how GECC may
trace deposited funds to UPB's sweeps, and because the parties have briefed the issue,
we address the matter.

      When funds from multiple sources are deposited to the same account and
subsequent payments are made from the account, it becomes difficult, if not
impossible, to determine whether the subsequent payments are traceable to the initial
deposits. Equity, though, can serve as a means of attributing rights in such a

                                         -13-
commingled account by tracing the subsequent payments to particular deposits. And,
as the district court held, Missouri law recognizes the use of equitable tracing
principles to identify a secured party's interest in a commingled deposit account.

       As an initial matter, we reject GECC's attempt to characterize the use of
equitable tracing principles as a way of measuring damages. The measure of damages
in a conversion action "is generally the fair market value of the property at the time
and place of the conversion." Bell, 85 S.W.3d at 54. Equitable tracing, on the other
hand, allows a plaintiff to establish that the credit created by the deposit of
encumbered funds was used to make a payment or a withdrawal. While tracing is a
"tool to permit the calculation of damages at the time of conversion," Meyer v.
Norwest Bank Iowa, 112 F.3d 946, 951 (8th Cir. 1997), it is not a measure of
damages. It is the primary means of demonstrating the plaintiff's rights, and therefore
the defendant's liability, in cases involving commingled accounts. This case
illustrates that premise. Without equitable tracing, GECC cannot make out a claim
for conversion because it cannot establish that the funds allegedly converted were
identifiable proceeds in which it had a security interest.

      In its summary-judgment order, the district court held that the lowest
intermediate balance rule could be applied to Machinery's parent account. But at the
damages trial, it concluded that a pro-rata methodology based on the total deposits,
withdrawals, and sweeps over the relevant period was more appropriate because the
lowest intermediate balance rule yielded a result of zero. Under its pro-rata rationale,
the district court concluded that GECC could recover 37.6% of the total GECC
proceeds deposited because UPB swept 37.6% of the total deposits.




                                         -14-
      The parties have cited no Missouri cases utilizing a pro-rata tracing
methodology like that employed in this case, and we have found none.5 Thus, we
conclude that the lowest intermediate balance rule is the only tracing method
available in this litigation.

       But the district court erred in concluding that a proper application of the lowest
intermediate balance rule yielded a result of zero. Because UPB received the funds
at different times over the course of the three months, and GECC's conversion claim
is based on UPB's sweeps, the analysis must look to those transactions. "Under the
lowest intermediate balance rule, it is assumed the traced proceeds are the last funds
withdrawn from a contested account. Once the traced proceeds are withdrawn,
however, they are treated as lost, even though subsequent deposits are made into the
account." Id. at 951 (citation omitted). The district court concluded that because the
account was zeroed out by UPB sweeps and other payments, the traced proceeds were
therefore gone. That conclusion would be appropriate if GECC's claim were based
on the account balance after UPB swept the account. But GECC's claim is based on
UPB's sweeps. Thus, Machinery's account balance at the time UPB swept it is the
relevant account balance. By the very occurrence of the sweep, we know the balance
of the account was not zero at that time. An appropriate application of the lowest
intermediate balance rule would therefore focus on attributing the account balance at
that time to preceding deposits of GECC proceeds.

      Of course, a zero balance in the parent account after a deposit of GECC
proceeds but before a UPB sweep would mean all of the credit that resulted from the
deposit of GECC proceeds had been exhausted and, thus, lost. So the time frame the
court must look to ends with a UPB sweep and begins with the immediately preceding

      5
        In fact, the only precedent we have found supporting the use of pro-rata
reasoning in a case like this required that the lowest intermediate balance be divided
pro rata. See Bombardier Capital, Inc. v. Key Bank of Maine, 639 A.2d 1065, 1067
(Me. 1994).

                                          -15-
zero balance. If GECC proceeds were deposited after the immediately preceding zero
balance, they may be traced to UPB's sweep through an ordinary application of the
lowest intermediate balance rule. Thus, the funds UPB swept on a given day will be
deemed identifiable proceeds of GECC-encumbered deposits to the extent post-
deposit withdrawals that precede the sweep didn't reduce the account balance below
the amount of those encumbered deposits.

       A hypothetical explains this proposition. If UPB swept the account on March
16 and received $20,000, then the court should look back to the immediately
preceding zero balance. If that event occurred on March 15 (either through a transfer
to the operating accounts or a previous UPB sweep), the court begins its application
of the lowest intermediate balance rule there. After the preceding zero balance,
assume that (1) $10,000 in GECC proceeds were deposited, (2) then $50,000 of other
funds were deposited, (3) then $55,000 were transferred to the operating accounts to
cover expenses, and (4) then $15,000 of other funds were deposited. The following
chart represents the deposits, withdrawals, and account balances during the relevant
time frame.


           GECC               Other         Withdrawals         Account
          Proceeds           Deposits                           Balance
          Deposits
          $10,000                                                $10,000
                             $50,000                             $60,000
                                               ($55,000)         $5,000
                             $15,000                             $20,000


       On these facts, GECC would be able to trace $5,000 of deposited proceeds in
which it had a security interest, through the account, to the funds UPB received. Its
other $5,000 interest in the account would be lost because after the $10,000 of GECC

                                        -16-
proceeds were deposited, the account balance dropped to $5,000 when $55,000 were
transferred to the operating accounts. The subsequent deposit of $15,000 did not
replenish GECC's interest in the account.

       We recognize that the facts upon which this analysis must proceed could be
difficult to establish. But that problem does not entitle a plaintiff to recover on a
conversion claim without establishing what property was converted.

III.   CONCLUSION

       We conclude the district court did not clearly err in holding that payments from
sixty-nine of Machinery's customers were funds in which GECC had a security
interest that were deposited in Machinery's parent account. However, we conclude
the district court erred in holding that UPB had as a matter of law swept the parent
account outside the ordinary course of Machinery's business. And we conclude that
the district court erred in using its pro-rata tracing methodology. We therefore affirm
in part, reverse in part, and remand the case for further proceedings consistent with
this opinion.
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