VFS Leasing Co. v. Cooper
MEMORANDUM OPINION AND ORDER: As further set out in order, 11 , Defendants' Motion for Partial Summary Judgment, is DENIED and 12 , Plaintiff' Motion for Partial Summary Judgment, is GRANTED IN PART. The parties are ORDERED to meet and co nfer to determine whether they can reach an agreement as to the proper damages award under the leases in light of the foregoing Memorandum Opinion. If the parties reach an agreement, they are to file a notice with the court detailing said stipulated damages award by April 12, 2013. If the parties are unable to reach an agreement, Plaintiff is to file supplemental evidence justifying its damages, being sure to account for interest, costs, and reasonable attorneys' fees by April 12, 2013. Defendants shall have until April 19, 2013 to respond to Plaintiffs proffer. At that time, the court will enter a final judgment in favor of Plaintiff in the appropriate amount. Signed by Magistrate Judge John E Ott on 03/29/13. (CVA)
2013 Mar-29 PM 03:14
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
VFS LEASING CO.,
S.T.I., Inc., et al.,
Case No.: 7:11-cv-00272-JEO
MEMORANDUM OPINION AND ORDER
This case is before the court on the parties’ cross motions for summary judgment,
specifically – Defendants’ Motion for Partial Summary Judgment (doc. 11) and Plaintiff’s
Motion for Summary Judgment (doc. 12). The motions have been fully briefed and are properly
under submission before the court. (Docs. 11-1, 13, 14, 15 & 18). Plaintiff’s Amended
Complaint seeks to recover damages stemming from Defendants’ default of their obligations
under two leases. (Doc. 22). Defendants admit they are liable for breaching the lease
agreements, but dispute the amount of damages. (Doc. 11-1 at 2). Specifically, Defendants
contest that the liquidated damages provision contained in the Master Lease is enforceable. (Id.)
The only question before the court is whether the liquidated damages provision should be used to
calculate the damages in this case. As explained more fully below, the court finds that it should.
TERMS OF THE LEASES
This case concerns two separate leases entered into by the parties – Plaintiff as Lessor and
Defendants as Lessee. The first lease (the “Schedule One Lease”), for ten tractor trailer trucks,
was entered into on June 12, 2007, and the second lease (the “Schedule Two Lease”), for five
additional tractor trailer trucks, was entered into on January 24, 2008.1 (Docs. 12-4, 12-7). Each
lease was made up of a Master Lease and a Terminal Rental Adjustment Schedule. (Docs. 12-3,
12-4, & 12-7). In early December 2009, both leases were modified to extend the terms of the
leases – the modification of the Schedule One Lease provided for 32 monthly rental payments in
the amount of $21,004.05 per month and the modification of the Schedule Two Lease provided
for 40 monthly rental payments in the amount of $10,565.94 per month. (Docs. 12-6, 12-8).
Thus, under the terms of the modified leases, Defendants agreed to pay $1,094,767.20 in
rent on both leases over the relevant lease terms.2 In addition to the rent owed on the trucks, the
leases also provide for the disposal of the trucks at the end of the lease term. (Docs. 12-4 at 2,
12-7 at 2). In part, the leases provide as follows:
5. Option to Purchase. So long as no Event of Default has occurred and is
continuing under the Agreement, Lessee shall have the right to purchase all, but
not less than all, of the Equipment on the Lease Termination Date. Lessee shall
give Lessor at least 90 days and not more than 180 days advance written
irrevocable notice of its intent to exercise such purchase option prior to the Lease
Termination Date. On or before the Lease Termination Date, Lessee shall
purchase all of the Equipment for a price equal to 25.00% of the Lessor’s Cost of
the Equipment (the “Purchase Price”), net of all costs and expenses of the
transaction (which costs and expenses, whether assessed to Lessor or Lessee, shall
be paid by Lessee). The Purchase Price shall be paid to Lessor in immediately
available funds on or before the Lease Termination Date....
6. Sales. If Lessee does not exercise the purchase option provided in Section 5
above, Lessor shall attempt to sell the Equipment. Lessor may reject any bid
obtained, the Net Sales Proceeds of which would be less than the Purchase Price
due upon exercise of the purchase option. Unless otherwise agreed by Lessor, all
such sales shall close and Lessor shall receive the New Sales Proceeds on or
before the Lease Termination Date....
Defendant Phillip Cooper personally guaranteed both leases. (Doc. 12-5).
Under the modified leases Defendants agreed to pay $672,129.60 over the term of the Schedule One Lease
and $422,637.60 over the term of the Schedule Two Lease. (Docs. 12-6, 12-8).
7. Re-Delivery. Lessee shall return all Equipment not purchased or sold in
accordance with Sections 5 and 6 above to Lessor on or before the Lease
Termination Date. The Equipment shall be in a condition satisfying all of the
requirements of the Agreement. If any item of Equipment is not returned in the
condition required under the Agreement, Lessee shall purchase such Equipment
for the Purchase Price with payment in full due on or before the Lease
8. Final TRAC Adjustment. If, on the completion of all purchase, sales and
sales of re-delivered Equipment described in Sections 5-7 above Lessor has not
received in cash a net amount in respect of such purchases and sales equal to the
Purchase Price of all of the Equipment plus all other amounts due under the
Agreement, Lessor may retain all payments previously made to it and Lessee shall
immediately pay any remaining balance of the Purchase Price, plus interest at a
rate of 18% per year from the Lease Termination Date to the date of such
payment, to Lessor. If, on such completion, Lessor has received Net Sales
Proceeds in excess of the Purchase Price of all Equipment and all other amounts
due under the Agreement, plus interest on the Purchase Price at the at the rate of
18% per year from the Lease Termination Date to the date of receipt of all of the
Purchase Price, Lessor shall pay the excess to Lessee. Lessee agrees that this
TRAC adjustment is not intended to give Lessee any equity or ownership interest
in the Equipment but is required so that Lessee will have a financial incentive to
maintain the Equipment in the condition by this Agreement at all times during the
(Docs. 12-4 at 2, 12-7 at 2). In other words, in addition to the monthly rent, the parties also
agreed that at the end of the lease term, Defendants would either buy the trucks from Plaintiff for
a price equal to 25% of the Lessor’s Cost for the Equipment (“Purchase Price”) or Plaintiff could
try to sell the trucks. (Id.) With respect to the sale of the trucks, if the sales amount was less than
25% of the Lessor’s Cost for the Equipment, Defendants would be obligated to make up the
difference between the sales price and the Purchase Price. (Id.) However, if the sales price
exceeded the Purchase Price, the difference would be paid to Defendants. In short, regardless of
whether Defendants purchased the trucks or they were sold to a third party, at the end of the lease
term, Plaintiff would receive a final payment in the amount of 25% of the Lessor’s Cost for the
The leases also contemplated what would occur if Defendants were to default on the
leases. Pursuant to the Master Lease: “Each of the following shall constitute an ‘Event of
Default’ which will allow Lessor to exercise all of its rights under this Agreement and applicable
law: (a) Lessee fails to make any payment in full when due under this Agreement or any
Schedule....” (Doc. 12-3 at 3). The Master Lease further provides that “whenever an Event of
Default has occurred under this Agreement, Lessor will have all the rights and remedies provided
by this Agreement, the UCC, and other applicable law.” (Id.) The remedies provided by the
agreement include the following:
At the option of Lessor, with or without notice, Lessee’s rights to the Equipment
may be canceled and all rental payment and other amounts then owing under this
Agreement will be immediately due and payable in full, together with all costs and
expenses, including attorneys’ fees.... Lessor may take possession of any item of
Equipment (with or without legal process) and, to the extent permitted by law,
may enter any locked or unlocked premises for that purpose. Lessor may, at its
option, sell, lease, or otherwise dispose of any or all of the Equipment after it
obtains possession. Upon the sale of any item of Equipment, Lessee will pay to
Lessor immediately, as liquidated damages for loss of bargain and not as a
penalty, the amount, if any by which the Stipulated Loss Value exceeds the net
sales proceeds of such Equipment in addition to all other amounts due....
(Doc. 12-3 at 3-4). “As of any applicable date, the Stipulated Loss Value for [any] Equipment is
the Lessor’s Cost as shown on the applicable Schedule multiplied by the Stipulated Loss Factor
as of the applicable date and as designated on Exhibit A to such Schedule.” (Id. at 2). The
relevant tables of Stipulated Loss Factors are attached as Exhibit A to each Lease Modification.
(Docs. 12-6 at 2, 12-8 at 2).
Shortly after the lease modifications, Defendants stopped making payments on the lease
as required by the agreements. On March 4, 2010, Plaintiff made a demand on Defendant S.T.I.
to pay the outstanding lease payments due under the Schedule One and Schedule Two Lease
Agreements. (Doc. 11-8). Despite the referenced demand, Defendants failed to pay the past due
lease payments. (See Doc. 12-10). Accordingly, on March 31, 2010, Plaintiff provided written
notice of cancellation of the Schedule One and Schedule Two Lease Agreements to the
Defendants. (Doc. 11-9).
Thereafter, the Plaintiff repossessed the trucks pursuant to the terms and conditions of the
leases. (See Doc. 12-10). On May 25, 2010, Plaintiff notified Defendants that, due to their
default in payment, the trucks would be sold at a private sale after June 6, 2010. (Doc. 11-10).
The sale of the Schedule One trucks resulted in proceeds in the gross amount of $393,500.00.
(Doc. 12-10). The sale of the Schedule Two trucks resulted in proceeds in the gross amount of
$235,000.00. ( Id.)
On September 22, 2010, and October 5, 2010, respectively, Plaintiff made demands for
payments of the Deficiency Balance in the amount of $903,626.35 ($594,388.49 owed on the
Schedule One Lease Agreement and $309,237.86 owed on the Schedule Two Lease Agreement).
(Doc. 11-11). Plaintiff filed suit to recover its damages on January 27, 2011. (Doc. 1).
STANDARD OF REVIEW
“Summary judgment is appropriate ‘if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show there is no
genuine [dispute] as to any material fact and that the moving party is entitled to judgment as a
matter of law.’” Greenberg v. BellSouth Telecomm., Inc., 498 F.3d 1258, 1263 (11th Cir. 2007)
(per curiam ) (citation to former rule omitted); FED. R. CIV. P. 56(a) (“The court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”).3 The party moving for summary
judgment “always bears the initial responsibility of informing the district court of the basis for its
motion, and identifying those portions of the [record, including pleadings, discovery materials
and affidavits], which it believes demonstrate the absence of a genuine issue [-now dispute-] of
material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The movant may meet this
burden by presenting evidence indicating there is no dispute of material fact or by showing that
the nonmoving party has failed to present evidence in support of some element of its case on
which it bears the ultimate burden of proof. Id. at 322–24. “[T]he judge’s function is not
himself to weigh the evidence and determine the truth of the matter but to determine whether
there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). A
judge’s guide is the same standard necessary to direct a verdict: “whether the evidence presents a
sufficient disagreement to require submission to a jury or whether it is so one-sided that one party
must prevail as a matter of law.” Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997)
(quoting Anderson, 477 U.S. at 251-52). However, the nonmoving party “must do more than
simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). If the evidence is merely colorable,
or is not significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 249;
Effective December 1, 2010, Rule 56 was “revised to improve the procedures for presenting and deciding
summary-judgment motions.” Fed. R. Civ. P. 56 Advisory Committee Notes. Under this revision, “[s]ubdivision (a)
carries forward the summary-judgment standard expressed in former subdivision (c), changing only one
word-genuine ‘issue’ becomes genuine ‘dispute.’ ‘Dispute’ better reflects the focus of a summary-judgment
determination.” Id. “‘Shall’ is also restored to express the direction to grant summary judgment.” Id. Thus,
although Rule 56 underwent stylistic changes, its substance remains the same and, therefore, all cases citing the prior
versions of the rule remain equally applicable to the current rule.
accord Spence v. Zimmerman, 873 F.2d 256 (11th Cir. 1989). Furthermore, the court must “view
the evidence presented through the prism of the substantive evidentiary burden” so there must be
sufficient evidence on which the jury could reasonably find for the plaintiff. Cottle v. Storer
Communication, Inc., 849 F.2d 570, 575 (11th Cir. 1988) (quoting Anderson, 477 U.S. at 254).
Nevertheless, “the evidence of the nonmovant is to be believed, and all justifiable inferences are
to be drawn in his favor.” Anderson, 477 U.S. at 255. The nonmovant need not be given the
benefit of every inference, but only of every reasonable inference. Brown v. Clewiston, 848 F.2d
1534, 1540 n.12 (11th Cir. 1988). “If reasonable minds could differ on the inferences arising
from undisputed facts, then a court should deny summary judgment.” Allen, 121 F.3d at 646.
The equipment leases at issue are governed by Article 2A of the Uniform Commercial
Code, as adopted in North Carolina.4 The question before the court is whether the liquidated
damages provision of the leases is enforceable. The relevant North Carolina statute provides:
(1) Damages payable by either party for default, or any other act or omission,
including indemnity for loss or diminution of anticipated tax benefits or loss or
damage to lessor’s residual interest, may be liquidated in the lease agreement but
only at an amount or by a formula that is reasonable in light of the thenanticipated harm caused by the default or other act or omission.
N.C. Gen. Stat. § 25-2A-504. In short, the question here is whether the liquidated damages
provision is reasonable in light of the then-anticipated harm caused by the default.
“The basic test of the reasonableness of an agreement liquidating damages is
whether the stipulated amount or amount produced by the stipulated formula
represents a reasonable forecast of the probable loss.” 3A Hawkland and Miller,
Uniform Commercial Code Series § 2A–504:02 (1993). However, “no court
The choice-of-law provisions of the Master Lease and the Guaranty state that they are governed by North
Carolina law. (Docs. 12-3, 12-5)
should strike down a reasonable liquidated damage agreement based on foresight
that has proved on hindsight to have contained an inaccurate estimation of the
probable loss....” Id. And, “the fact that there is a difference between the actual
loss, as determined at or about the time of the default, and the anticipated loss or
stipulated amount or formula, as stipulated at the time the lease contract was
entered into ...,” does not necessarily mean that the liquidated damage agreement
is unreasonable. Id. This is so because “[t]he value of a lessor’s interest in leased
equipment depends upon ‘the physical condition of the equipment and the market
conditions at that time.’ ” Pacificorp Capital, Inc. v. Tano, Inc., 877 F.Supp. 180,
184 (S.D.N.Y.1995) (citation omitted).
Coastal Leasing Corp. v. T-Bar S Corp., 496 S.E.2d 795, 798 (N.C. Ct. App. 1998). The North
Carolina Court of Appeals further stated that
[A] court should keep in mind that the clause was negotiated by the parties, who
are familiar with the circumstances and practices with respect to the type of
transaction involved, and the clause carries with it a consensual apportionment of
the risks of the agreement that a court should be slow to overturn.
Id. (quoting 3A Hawkland and Miller, Uniform Commercial Code Series § 2A–504:02 ) (internal
quotation marks omitted).
Here, Defendants argue that the liquidated damages clause is not reasonable in light of the
then-anticipated harm caused by the default because the damages amount calculated using the
Stipulated Loss Value, as provided for in the leases, is significantly higher than “The Actual
Deficiency Balance,” as calculated by Defendants. According to Defendants, they owe Plaintiff
$465,767.20, or as they call it, the Actual Deficiency Balance. This number is determined by
subtracting the total sales proceeds of the trucks ($629,000.00) from the total amount of the
accelerated, unpaid rent owed ($1,094.767.20).5 (Doc. 11-1 at 17). Presumably, this figure is
After the modification of the leases, the Schedule One lease called for 32 monthly payments of
$21,004.05 equaling $672,129.60 and the Schedule Two lease called for 40 monthly payments of $10,565.94
equaling $422,637.60. (Docs. 12-6, 12-8). However, Plaintiff represents that Defendants made a partial payment on
the Schedule One lease of $1,632.36, and one month’s payment on the Schedule Two lease after the modification.
(Doc. 14 at 10-11). Accounting for these two payments, the outstanding rent owed would be $1,082,568.90.
However, the discrepancy in these numbers is immaterial.
designed to represent the loss caused by the default. However, in reaching this number,
Defendants have overlooked a critical portion of the lease. Had Defendants performed their
obligations under the lease, at the end of the lease term, Plaintiffs would also have been entitled
to the equivalent of 25% of the Lessor’s Cost for the Equipment, in this case a total of an
additional $476,866.25.6 (Docs. 12-4, 12-7). In other words, absent the default, Plaintiff would
have received both the remaining rent of $1,094,767.20 and a sum of money equal to 25% of the
Lessor’s Cost for the Equipment, for a total of $1,571,633.45.
Thus, the actual loss caused by Defendants’ default in this case is $1,571,633.45. This
total greatly exceeds liquidated damages amount of $903,626.35, which was calculated by
Plaintiff. (Doc. 12-10 at 5). In light of the fact that the actual harm to Plaintiff exceeds the
amount of damages as calculated by the liquidated damages provision, it is clear that the
liquidated damages provision is reasonable “in light of the then-anticipated harm caused by the
default.” Accordingly, the liquidated damages provision of the leases is enforceable against
Thus, all that is left for the court is to determine is the precise amount of liquidated
damages owed. Plaintiff contends that Defendants owe $903,626.35, plus interest, attorneys’
fees, and costs as allowed by the Lease, Guaranty, and applicable law. (Doc. 13 at 14). Pursuant
to the liquidated damages provision of the lease: “Upon the sale of any item of Equipment,
Lessee will pay to Lessor immediately, as liquidated damages for loss of bargain and not as a
penalty, the amount, if any by which the Stipulated Loss Value exceeds the net sales proceeds of
Lessor’s cost on the Schedule One Equipment was $1,271,545.00 and its cost on the Schedule Two
Equipment was $635,920.00 for a total cost of $1,907,465.00. (Docs. 12-4, 12-7). One quarter of $1,907,465.00 is
such Equipment in addition to all other amounts due.” (Doc. 12-3 at 3-4). The Stipulated Loss
Value is calculated by multiplying the “Lessor’s Cost as shown on the applicable Schedule ... by
the Stipulated Loss Factor as of the applicable date and as designated on Exhibit A to such
Schedule.” (Id. at 2).
Here, Plaintiff has submitted the affidavit of Gregory Robinson for the contention that the
operative Stipulated Loss Factor is 73.94% for the Schedule One trucks and 83.95% for the
Schedule Two trucks. (Doc. 12-10 at 3). However, in the affidavit, there is no discussion of
what lease payments were missed or how many rental payments had previously been made.7
Without this information, the court cannot determine which Stipulated Loss Factor to correctly
apply to the calculation. As such, the court cannot make a final determination of the liquidated
damages amount at this time.
For the reasons discussed in detail above, the court finds that Plaintiff has demonstrated
that it is entitled to judgement as a matter of law on its claims. The court further finds that the
liquidated damages provision contained in the leases is enforceable and is the appropriate method
for calculating damages in this case. However, based upon the record currently before the court,
the undersigned cannot accurately calculate damages. Accordingly, Defendants’ Motion for
Partial Summary Judgment (doc. 11) is DENIED and Plaintiff’s Motion for Summary Judgment
(doc. 12) is GRANTED IN PART, as set forth herein.
The parties are ORDERED to meet and confer to determine whether they can reach an
The court recognizes that Plaintiff’s Response in Opposition to Defendants’ Motion for Partial Summary
Judgment (doc. 14 at 10-11) discusses this information. However, this information is not contained in Mr.
Robinson’s affidavit or the other evidence before the court.
agreement as to the proper damages award under the leases in light of the foregoing
Memorandum Opinion. If the parties reach an agreement, they are to file a notice with the court
detailing said stipulated damages award by April 12, 2013. If the parties are unable to reach an
agreement, Plaintiff is to file supplemental evidence justifying its damages, being sure to account
for interest, costs, and reasonable attorneys’ fees by April 12, 2013. Defendants shall have until
April 19, 2013 to respond to Plaintiff’s proffer. At that time, the court will enter a final
judgment in favor of Plaintiff in the appropriate amount.
DONE this 29th day of March, 2013.
JOHN E. OTT
Chief United States Magistrate Judge
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