General Electric Capital Corporation v. FPL Service Corp.

Filing 15

MEMORANDUM OPINION AND ORDER re 9 MOTION for Summary Judgment filed by General Electric Capital Corporation. GECCs motion for summary judgment is granted as to FPLs liability for defaulting under the parties contract. I will defer ruling on whether GECC is entitled to summary judgment as to its damages until after the parties have the opportunity to present additional evidence regarding whether GECC resold the copiers in a commercially reasonable manner. Both parties have 30 days fro m the date of this order to submit no more than 10 pages of additional evidence establishing, or refuting, that GECC resold the copiers in a commercially reasonable manner. I will rule on whetherGECC is entitled to summary judgment on the issue of damages after reviewing theparties submissions. Signed by Judge Mark W Bennett on 12/3/13. (djs)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
CEDAR RAPIDS DIVISION
GENERAL ELECTRIC CAPITAL
CORPORATION, a Delaware
Corporation,
No. C 13-59-MWB
Plaintiff,
vs.
FPL SERVICE CORP.,
Defendant.

MEMORANDUM OPINION AND
ORDER REGARDING PLAINTIFF’S
MOTION FOR SUMMARY
JUDGMENT
___________________________
TABLE OF CONTENTS

I. 

INTRODUCTION........................................................................... 2 
A. 
Factual Background ............................................................... 2 
B. 
Procedural Background ........................................................... 5 

II. 

ANALYSIS ................................................................................... 5 
A. 
Summary Judgment Standards ................................................... 5 
B. 
Default ................................................................................ 7 
C. 
Disposition of Collateral......................................................... 12 
1. 
Is this a lease or a secured transaction? ............................. 13 
2. 
Did GECC comply with Article 9 in disposing of the
copiers?..................................................................... 16 
a. 
Did GECC dispose of the copiers in a
commercially reasonable manner? ........................... 17 
b. 
Did GECC give proper notice? ................................ 20 
D. 
Damages ............................................................................ 23 

III. 

CONCLUSION ............................................................................ 23 
In late October and early November of 2012, Hurricane Sandy devastated the

East Coast, causing 186 deaths and billions of dollars in damage to the states,

businesses, and homes caught in its path.1 The defendant, FPL Services Corporation
(FPL), was one of the businesses destroyed by the storm. In particular, flood waters
from Hurricane Sandy destroyed two of FPL’s industrial copiers, which it leased from
the plaintiff, General Electric Capital Corporation (GECC). Because the copiers were
destroyed, FPL stopped making lease payments to GECC. GECC repossessed and
resold the copiers, and now seeks damages, claiming that FPL breached the parties’
lease contract. FPL claims, among other things, that Hurricane Sandy excuses FPL
from performing.
This case is now before me on GECC’s motion for summary judgment (docket
no. 9). In its motion, GECC claims that FPL is liable under the parties’ contract
despite Hurricane Sandy, and requests $258,424.39, plus attorney’s fees and costs. For
the reasons discussed below, GECC’s motion is granted as to FPL’s liability, but I will
defer ruling on the issue of damages until after the parties submit additional evidence as
discussed below.
I.

INTRODUCTION

Because GECC moves for summary judgment, I recite the following facts in the
light most favorable to FPL, the non-moving party. Wells Fargo Fin. Leasing, Inc. v.
LMT Fette, Inc., 382 F.3d 852, 855 (8th Cir. 2004).
A.

Factual Background

This case is about the enforceability of a contract between GECC and FPL.
GECC is a Delaware corporation that does business in Iowa. FPL is a New York
direct-marketing corporation located near the southern shore of Long Island, in
Oceanside, New York. On June 14, 2011, GECC and FPL entered into a contract,

1

Hurricane Sandy Fast Facts, CNN (July 13, 2013, 2:37
http://www.cnn.com/2013/07/13/world/americas/hurricane-sandy-fast-facts.
2

PM),

which is entitled “Lease Agreement.”2 Under the contract, GECC agreed to provide
FPL with two Ricoh Pro C901 copiers (the copiers), and related equipment. In return,
FPL agreed to make 60 rental payments of $6,229.30 to GECC. For over a year, the
parties performed under the contract without incident. But, in late October of 2012,
Hurricane Sandy struck Long Island, destroying nearly all of FPL’s equipment,
including the two copiers it leased from GECC.
After the hurricane, FPL stopped making its rental payments. To this day, FPL
has made only 19 of the 60 payments it agreed to make. In addition to FPL’s rental
payments, the parties’ contract describes FPL’s options if the copiers were to be
damaged:
If any item of Equipment is . . . damaged, [FPL] will (and
Rental Payments will continue to accrue without abatement
until [FPL]), at [FPL’s] option and cost, either (a) repair the
item or replace the item with a comparable item reasonably
acceptable to [GECC], or (b) pay [GECC] a sum equal to
(1) all Rental Payments and other amounts then due and
payable under the Lease, and (2) the present value of (i) all
Rental Payments to become due during the remainder of the
Lease term, and (ii) the Purchase Option amount set forth in
this Lease, each discounted at . . . (y) the lease charge rate
(as determined pursuant to Section 16) if this Lease provides
for A dollar Purchase Option . . . [GECC] will then transfer
to [FPL] all [of GECC’s] rights, title, and interest in the
Equipment “AS-IS, WHERE IS” WITHOUT ANY
REPRESENTATION OR WARRANTY WHATSOEVER,
Insurance proceeds will be applied toward repair or
replacement of the Equipment or payment hereunder, as
applicable.

2

The parties dispute whether the contract is actually a lease, or is, instead, a secured
transaction. Thus, I will refer to the agreement generally as “the parties’ contract.”
3

(Docket no. 9-3, at 7). Though the copiers were damaged after Hurricane Sandy, FPL
never paid to replace or repair them, nor did it pay GECC a sum equal to its then-due
rental payments plus the present value of its future rental payments.
In January of 2013, GECC repossessed one of the copiers from FPL.3 The
repossession cost GECC $600.

On February 28, 2013, GECC sent FPL a

“Notification of Disposition” letter, stating that “one or more events of default have
occurred under the Loan Agreement,” and that GECC intended to “sell the Collateral
privately sometime after 10:00 am on March 11, 2013” (docket no. 9-3, at 10). The
letter defines the “Collateral” as “the equipment described on the attachment.” The
attachment to the letter only describes one of the two copiers GECC leased to FPL.
FPL never responded to GECC’s letter.
On May 6, 2013, GECC’s law firm sent a letter to FPL demanding “immediate
payment of the entire outstanding balance due on the Lease . . . together with interest
and other charges” (docket no. 9-3, at 19). On May 13, 2013, FPL’s attorney wrote a
reply letter to GECC’s attorney disputing GECC’s demand and stating that “[t]he other
[copier] is still available should [GECC] wish to take it” (docket no. 14-2, at 10). On
June 5, 2013, GECC repossessed the second copier. After repossessing the copiers,
GECC resold them in June and July of 20134 with the help of Remarketing Solutions
International, Inc. (Remarketing), a third-party remarketer that resells equipment like
the copiers.
I will discuss additional facts as they become relevant to my analysis below.
3

The parties do not provide any evidence of the exact date that GECC repossessed the
first copier. I presume it was in January of 2013 because the record contains an invoice
for the cost of repossession dated 1/31/2013 (docket no. 14-2, at 16).
4
Again, the parties do not provide the exact dates on which the copiers were resold. I
surmise that they were resold in June and July of 2013 based on two invoices in the
record documenting the sales, which are dated 6/14/2013 and 7/11/2013 (docket no.
14-2, at 17-18).
4

B.

Procedural Background

On June 6, 2013, GECC filed a Complaint in this court alleging that FPL
breached its lease agreement with GECC (docket no. 1).

On July 8, 2013, FPL

answered the Complaint, denying the substance of GECC’s allegations and asserting a
number of affirmative defenses (docket no. 5). On September 30, 2013, GECC moved
for summary judgment, claiming that there are no material factual disputes and that
GECC is entitled to damages for FPL’s breach of contract as a matter of law (docket
no. 9). On October 24, 2013, FPL resisted GECC’s motion (docket no. 11), and on
November 7, 2013, GECC filed a reply (docket no. 14). I must now decide whether
GECC is entitled to summary judgment, or whether this case should instead proceed to
trial.
II.
A.

ANALYSIS
Summary Judgment Standards

Summary judgment is only appropriate “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.” Fed R. Civ. P. 56(a); see also Woods v. DaimlerChrysler Corp., 409
F.3d 984, 990 (8th Cir. 2005) (“Summary judgment is appropriate if viewing the
record in the light most favorable to the nonmoving party, there are no genuine issues
of material fact and the moving party is entitled to judgment as a matter of law.”);
Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). The Eighth Circuit Court of
Appeals has explained:
The movant “bears the initial responsibility of informing the
district court of the basis for its motion,” and must identify
“those portions of [the record] . . . which it believes
demonstrate the absence of a genuine issue of material fact.”
Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct.
2548, 91 L.Ed.2d 265 (1986). If the movant does so, the
nonmovant must respond by submitting evidentiary materials
5

that set out “specific facts showing that there is a genuine
issue for trial.” Id. at 324, 106 S.Ct. 2548, quoting Fed. R.
Civ. P. 56(e)(2). “On a motion for summary judgment,
‘facts must be viewed in the light most favorable to the
nonmoving party only if there is a genuine dispute as to
those facts.’” Ricci v. DeStefano, 557 U.S. 557, 586, 129
S.Ct. 2658, 2677, 174 L.Ed.2d 490 (2009) quoting Scott v.
Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d
686 (2007) (internal quotations omitted). “Credibility
determinations, the weighing of the evidence, and the
drawing of legitimate inferences from the facts are jury
functions, not those of a judge.” Reeves v. Sanderson
Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097,
147 L.Ed.2d 105 (2000), quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91
L.Ed.2d 202 (1986). The nonmovant “must do more than
simply show that there is some metaphysical doubt as to the
material facts,” and must come forward with “specific facts
showing that there is a genuine issue for trial.” Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–
87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “‘Where the
record taken as a whole could not lead a rational trier of fact
to find for the nonmoving party, there is no genuine issue
for trial.’” Ricci, 557 U.S. at 586, quoting Matsushita, 475
U.S. at 587, 106 S.Ct. 1348.
Torgerson v. City of Rochester, 643 F.3d 1031, 1042-43 (8th Cir. 2011) (en banc).
Summary judgment is particularly appropriate when only questions of law are involved,
rather than factual issues that may or may not be subject to genuine dispute. See, e.g.,
Cremona v. R.S. Bacon Veneer Co., 433 F.3d 617, 620 (8th Cir. 2006).
The parties agree that I should apply Iowa law in resolving GECC’s summary
judgment motion. In fact, their contract contains a choice-of-law clause, which states
that “this lease will be governed by the laws of the State of Iowa” (docket no. 9-3, at
20). Neither party contests this clause, and both parties cite to Iowa law in support of

6

their arguments.

Thus, I will apply Iowa law in determining whether summary

judgment is appropriate.
B.

Default

GECC argues that FPL defaulted under the parties’ contract by making only 19
of the 60 payments required under the contract. Accordingly, GECC claims that it is
entitled to “$258,424.39, plus its attorneys’ fees and costs,” which represents GECC’s
calculation of damages under the contract (docket no. 14, at 5). FPL does not dispute
that it stopped making payments to GECC after Hurricane Sandy struck. Instead, FPL
argues that, because Hurricane Sandy could not have been anticipated, FPL is excused
from performing under the contract.
FPL relies on two sections from the Restatement (Second) of Contracts to
support its argument: section 261, which discusses supervening impracticability, and
section 265, which discusses frustration of purpose. Iowa law recognizes both sections
as defenses in breach-of-contract cases. Mel Frank Tool & Supply, Inc. v. Di-Chem
Co., 580 N.W.2d 802, 805-06 (Iowa 1998). The supervening-impracticability defense
provides:
Where, after a contract is made, a party’s performance is
made impracticable without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption
on which the contract was made, his duty to render that
performance is discharged, unless the language or the
circumstances indicate the contrary.
Restatement (Second) of Contracts § 261. Similarly, the frustration-of-purpose defense
provides:
Where, after a contract is made, a party’s principal purpose
is substantially frustrated without his fault by the occurrence
of an event the non-occurrence of which was a basic
assumption on which the contract was made, his remaining
7

duties to render performance are discharged, unless the
language or the circumstances indicate the contrary.
Restatement (Second) of Contracts § 265. Both defenses allow courts to discharge a
party’s contractual obligations as a matter of law. Mel Frank Tool & Supply, 580
N.W.2d at 806.
But, while both defenses involve a number of elements, one common element
resolves FPL’s argument. Sections 261 and 265 apply “unless the language [of the
contract] or the circumstances indicate the contrary.”

Restatement (Second) of

Contracts §§ 261, 265 (emphasis added). The last clause of both sections allows that
“[a] party may, by appropriate language, agree to perform in spite of impracticability
that would otherwise justify his non-performance” such that “[h]e can then be held
liable for damages although he cannot perform.” Restatement (Second) of Contracts §
261, cmt. c. Thus, the principles in sections 261 and 265
yield[] to a contrary agreement by which a party may
assume a greater as well as a lesser obligation. By such an
agreement, for example, a party may undertake to achieve a
result irrespective of supervening events that may render its
achievement impossible, and if he does so his nonperformance is a breach even if it is caused by such an
event.
Id. cmt. a; Restatement (Second) of Contracts § 265, cmt. b (“The rule stated in [§
265] is subject to limitations similar to those stated in § 261 . . . and it does not apply if
the language or circumstances indicate the contrary.”).
Here, the parties’ contract contains express language obligating FPL to perform
in spite of events that might otherwise justify FPL’s non-performance. The contract
provides:

8

 “[FPL’s] payment obligations hereunder are absolute and unconditional and are
not subject to cancellation, abatement, reduction, recoupment, defense or setoff
for any reason whatsoever”;
 “If any item of Equipment is lost, stolen or damaged . . . Rental Payments will
continue to accrue without abatement”; and
 “[FPL is] responsible for loss and damage to the Equipment from any cause
whatsoever on and after delivery thereof” (emphasis added).
(Docket no. 9-3, at 6-7). Thus, the contract explicitly assigns to FPL the risk of loss
from “any cause whatsoever” and requires FPL to make monthly payments regardless
of whether the copiers get damaged.

Taken together, the provisions quoted above

amount to a “hell-or-high-water” clause—“[a] clause in a personal-property lease
requiring the lessee to continue to make full rent payments to the lessor even if the
thing leased is unsuitable, defective, or destroyed.” C & J Vantage Leasing Co. v.
Wolfe, 795 N.W.2d 65, 75 (Iowa 2011) (quoting Black’s Law Dictionary 742 (8th ed.
2004)). As is discussed below, the parties dispute whether their contract constitutes a
lease or a secured transaction.

But, Iowa law enforces hell-or-high-water clauses

regardless of whether they are found in a lease or a secured transaction.5 See id. at 77

5

I recognize that “[h]ell or high water provisions are common in the commercial
leasing industry, and [that] they have been uniformly upheld by both state and federal
courts, including the Iowa Supreme Court.” Greatamerica Leasing Corp. v. DavisLynch, Inc., No. 10-CV-13-LRR, 2011 WL 167248, at *3 (N.D. Iowa Jan. 19, 2011).
But, if I were deciding the issue in the first instance, I would not enforce a hell-or-highwater clause against a party claiming an otherwise valid act-of-God defense, unless the
parties specifically bargained for the hell-or-high-water clause. As a practical matter,
hell-or-high-water clauses are rarely, if ever, specifically bargained for:
In standard form contracts or leases, no real negotiation
about the printed clauses takes place. One party simply
presents the other with a standard form. The other party
9

(“Courts have consistently enforced [hell-or-high-water] clauses in the financial leasing
context.”); id. at 78 (“[W]hen a secured transaction contains an express hell-or-highwater clause, courts must grant the provision full effect.”).

Because the parties’

contract makes FPL’s performance unconditional and assigns the risk of loss to FPL,
FPL cannot rely on supervening impracticability or frustration of purpose to discharge
its duty to perform.
must either buy or lease the goods under the contract terms
or forego the transaction. He probably cannot get better
terms elsewhere, because all standard form contracts usually
contain similar terms favoring the stronger party. Thus, no
real negotiation or choice exists in these contract or lease
situations.
Donald B. King, Major Problems with Article 2a: Unfairness, “Cutting Off” Consumer
Defenses, Unfiled Interests, and Uneven Adoption, 43 Mercer L. Rev. 869, 870-71
(1992); see also Barry S. Marks & James M. Johnson, Look Before You Lease: Pitfalls
and Opportunities in Leasing Business Equipment, Bus. L. Today, Dec. 1999, at 26, 28
(“Virtually all equipment leases contain a hell or high water clause stating that the
lessee must make payments in all events, even if the equipment fails to function
properly. The hell or high water clause is never negotiable.”). Because hell-or-highwater clauses are both ubiquitous and non-negotiable, presumptively enforcing these
clauses creates a default rule that a commercial lessee bears the risk of an act of God. I
think the default rule should be the opposite: The party best able to bear the risk of an
act of God should, by default, bear that risk. For commercial leases, the lessor—here
GECC—is better able to bear the risk of an act of God because that risk is diluted by
the sheer number of leases that commercial lessors typically hold. The risk of an act of
God should only shift to the lessee—here FPL—if the parties specifically bargain to
assign the risk to the lessee.
The rationale for presumptively enforcing hell-or-high-water clauses is “that
these clauses are essential to the equipment leasing industry” and “[t]o deny their effect
as a matter of law would seriously chill business in this industry . . . .” In re O.P.M.
Leasing Servs., Inc., 21 B.R. 993, 1007 (Bankr. S.D.N.Y. 1982). I am aware of no
opinion citing empirical evidence supporting that rationale. If parties were required to
specifically bargain for hell-or-high-water clauses, the commercial leasing industry
would likely not collapse. Rather, the price of a lease would likely rise, unless the
lessee agreed to bear the risk of an act of God.
10

Still, FPL argues that it could not have assumed the risk of loss because
Hurricane Sandy was not reasonably foreseeable and, thus, FPL cannot be expected to
have insured against it. FPL also argues that insuring the copiers against damage from
“any cause whatsoever” is an impossible and illusory task. These arguments seem to
conflate what are actually two separate obligations under the parties’ contract: (1)
FPL’s obligation to pay GECC despite damage to the copiers, and (2) FPL’s obligation
to insure the copiers. As I noted above, the parties’ contract obligated FPL to make
payments to GECC regardless of damage to the copiers. The contract also requires
FPL to “keep the Equipment insured against all risks of physical loss or damage for its
full replacement value, naming [GECC] as loss payee” (docket no. 9-3, at 7).
Even assuming that FPL could not have anticipated the need to insure the copiers
against flood damage, FPL’s arguments are inapposite for two reasons. First, GECC
does not appear to claim any damages based on FPL’s failure to insure the copiers
against flood damage. Rather, GECC calculates—and FPL contests—damages based on
the formula in the “Loss or Damage” section of the parties’ contract, which is unrelated
to FPL’s insurance obligation. See Part I.A (quoting the formula).
Second, FPL bases its argument on a misapplication of Restatement (Second) of
Contracts § 261, comment c. To support its argument that it did not assume the risk of
flood damage, FPL quotes the following:
If the supervening event was not reasonably foreseeable
when the contract was made, the party claiming discharge
can hardly be expected to have provided against its
occurrence. However, if it was reasonably foreseeable, or
even foreseen, the opposite conclusion does not necessarily
follow. Factors such as the practical difficulty of reaching
agreement on the myriad of conceivable terms of a complex
agreement may excuse a failure to deal with improbable
contingencies.
11

Restatement (Second) of Contracts § 261, comment c. But, this commentary does not
apply to the contract in this case. The part of the comment FPL cites discusses when a
party may be excused for “a failure to deal with improbable contingencies.”

The

contract at issue here does not fail to deal with improbable contingencies. To the
contrary, it expressly deals with improbable contingencies by assigning the risk of those
contingencies to FPL: “[FPL is] responsible for loss and damage to the Equipment
from any cause whatsoever” (docket no. 9-3, at 7). Were the contract here silent on
which party bears the risk of flood damage, the commentary FPL cites would be in
play. But the contract is not silent and, thus, FPL is not excused from its obligation to
perform.
Because the parties’ contract contains enforceable hell-or-high-water provisions
and assigns to FPL the risk of all loss or damage to the copiers, FPL cannot claim that
it is excused from performance because of Hurricane Sandy. Thus, GECC’s motion for
summary judgment is granted on issue of liability. Liability, however, is only one of
the contested issues before me.

The parties alternatively contest whether GECC

properly disposed of the repossessed copiers, and whether GECC is entitled to damages
in the amount it claims. I will address these issues below.
C.

Disposition of Collateral

FPL alternatively argues that there is a genuine issue of material fact as to how
GECC disposed of the two copiers after repossessing them. Specifically, FPL argues
(1) that the parties’ contract is a secured transaction governed by Article 9 of Iowa’s
Uniform Commercial Code (UCC), and (2) that, under Article 9, GECC failed to show
that it properly disposed of the repossessed copiers. GECC argues that the parties’
contract is an Article 13 lease, not an Article 9 secured transaction, and, thus, GECC
need not comply with Article 9’s disposition requirements.

But, even if Article 9

applies, GECC argues that FPL waived its rights under Article 9, and that, in any
12

event, GECC complied with Article 9’s requirements. I will address these arguments
in turn.
1.

Is this a lease or a secured transaction?

GECC’s obligations to FPL in disposing of the two copiers depend, in large part,
on whether the parties’ contract is a lease or a secured transaction. If it is a lease,
Article 13 of Iowa’s UCC applies; if it is a secured transaction, Article 9 applies. FPL
argues that Article 9 applies and that GECC failed to comply with it when it resold the
copiers. In particular, FPL suggests that GECC cannot show that it resold the copiers
in a commercially reasonable manner, and that GECC did not properly notify FPL of
the resale, as is required under Article 9. See Iowa Code § 554.9610(2) (requiring a
commercially reasonable disposition); id. § 554.9611 (requiring notice of disposition).
GECC argues that the parties’ contract is a lease and, thus, GECC need not comply
with these Article 9 requirements, which only apply to secured transactions. Id. §
554.9109 (providing that Article 9 applies to secured transactions); id. § 554.13103
(providing that a lease cannot be a secured transaction).
GECC relies on language in the parties’ contract describing the agreement as a
lease.

The contract reads:

“This lease constitutes a ‘finance lease’ as defined in

Article 2A of the Uniform Commercial Code” (docket no. 9-3, at 6). Article 2A of the
UCC is found at Article 13 of Iowa’s UCC. Based on this clause, GECC argues that
FPL voluntarily agreed that its contract with GECC was a lease, and that FPL cannot
now claim that Article 9 applies.
Whether a contract constitutes a lease or a security agreement, however, does
not depend on whether the parties call it a “lease” or a “security agreement.” Rather,
the nature of a contract depends “objectively on the economic reality of the
transaction.” Wolfe, 795 N.W.2d at 76. More specifically,

13

[w]hether an agreement creates a security interest depends
not on whether the parties intend that the law characterize
the transaction as a security interest but rather on whether
the transaction falls within the definition of “security
interest” in Section 1-201. Thus, an agreement that the
parties characterize as a “lease” of goods may be a “security
agreement,” notwithstanding the parties’ stated intention that
the law treat the transaction as a lease and not as a secured
transaction.
Iowa Code § 554.9102, cmt. 3(b). Parties may, however, agree to treat a general lease
as a more specific “finance lease.” See id. § 554.13103, cmt. (g) (“If a transaction
does not qualify as a finance lease, the parties may achieve the same result by
agreement . . . .”); but see id. (“For a transaction to qualify as a finance lease it must
first qualify as a lease.”). Parties may not agree to treat a secured transaction as a
lease. See Wolfe, 795 N.W.2d at 76 (“[W]hile Lake MacBride and Frontier could have
agreed to treat a lease as a finance lease, they could not agree to treat a sale with a
security interest as a lease.”).
“[T]o determine whether the lease agreement is properly considered a finance
lease or a secured transaction, we must first consider whether the agreement retained or
created a security interest.” Id. at 74 (citing C & J Vantage Leasing Co. v. Outlook
Farm Golf Club, LLC, 784 N.W.2d 753, 757 (Iowa 2010)). “If so, the agreement
cannot qualify as a lease or a finance lease because an agreement retaining or creating a
security interest is specifically excluded from the definition of a lease.” Id. (citing
Iowa Code § 554.13103(1)(j)). Iowa Code § 554.1203 governs whether a contract in
the form of a lease actually creates a lease or a security interest. It provides:
A transaction in the form of a lease creates a security
interest if the consideration that the lessee is to pay the
lessor for the right to possession and use of the goods is an
obligation for the term of the lease and is not subject to
termination by the lessee, and:
14

a. the original term of the lease is equal to or greater
than the remaining economic life of the goods;
b. the lessee is bound to renew the lease for the
remaining economic life of the goods or is bound to
become the owner of the goods;
c. the lessee has an option to renew the lease for the
remaining economic life of the goods for no
additional consideration or for nominal additional
consideration upon compliance with the lease
agreement; or
d. the lessee has an option to become the owner of the
goods for no additional consideration or for nominal
additional consideration upon compliance with the
lease agreement.
Iowa Code § 554.1203(2). By its text, § 554.1203(2) creates a two-part, bright-line
test. Under the test, the contract in this case creates a security interest, not a lease, “if
it: (1) prohibits [FPL] from terminating the obligation to pay [GECC] for the right to
possess and use the [copiers], and (2) meets one of the four independent criteria listed
in [§ 554.1203(2)(a)-(d)].” Wolfe, 795 N.W.2d at 74 (citations omitted).
The contract at issue here satisfies § 554.1203(2)’s two-part test.

First, it

prohibits FPL from terminating its obligation to pay GECC for the copiers when it
states that “[FPL’s] payment obligations hereunder are absolute and unconditional and
are not subject to cancellation, abatement, reduction, recoupment, defense or setoff for
any reason whatsoever” (docket no. 9-3, at 6).

Second, it meets one of the four

independent criteria—namely, subpart (d)—because it gives FPL the option to own the
copiers for nominal consideration—$1.00—if it complies with the agreement.
Specifically, the first page of the contract provides an “End of Lease Purchase Option”
of “$1.00 Purchase Out” (docket no. 9-3, at 5). Later, the contract states that, “[i]f
this lease provides for a Dollar Purchase Option and [FPL is] not in default, [GECC]
15

will release any security interest we have in the Equipment at the end of the Lease
Term” and that, “[u]pon payment of the applicable amount, [GECC] will transfer the
Equipment to [FPL] ‘as is, where is’ . . .” (docket no. 9-3, at 7). Because the contract
here satisfies § 554.1203(2), it constitutes a secured transaction, rather than a lease,
regardless of the language used in the contract.
Moreover, after GECC repossessed the copiers, it sent FPL a “Notification of
Disposition of Collateral” letter, which makes clear that the parties’ contract was a
secured transaction (docket no. 9-3, at 10-11).

The letter describes the parties’

agreement using mostly secured-transaction terms. For instance, GECC describes itself
as the “Secured Party” and FPL as the “Debtor.” GECC notes that it has a “security
interest” in “collateral” equipment—i.e., the copiers. And, while the parties’ contract
is titled “Lease Agreement,” GECC’s notification letter calls it a “Loan and Security
Agreement.”

These descriptions bolster what the application of § 554.1203(2)

confirms—that the parties’ contract created a security interest in favor of GECC.
Because the parties’ contract is a secured transaction, Article 9 applies. Thus, I
will address below whether GECC complied with Article 9’s requirements for disposing
of the repossessed copiers.
2.

Did GECC comply with Article 9 in disposing of the copiers?

FPL argues that there is a genuine factual dispute as to whether GECC complied
with Article 9’s requirement that GECC sell the repossessed copiers in a commercially
reasonable manner. FPL also notes that GECC only gave FPL explicit notice that it
was reselling one of the repossessed copiers. Although FPL makes no argument based
on this fact, it too bears on whether GECC complied with Article 9. GECC claims
that, under the parties’ contract, FPL waived GECC’s obligation to resell the collateral
or notify FPL of any resale. GECC quotes a number of contract clauses, the most
relevant of which states that “[GECC] may, but will have no obligation to, sell or
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otherwise dispose of the [copiers], with or without notice to [FPL], at a public or
private sale, and without any duty to account to [FPL] with respect to such action or
inaction or for any proceeds with respect thereto” (docket no. 9-3, at 7). Alternatively,
GECC argues that it resold the copiers in a commercially reasonable manner.
GECC’s argument that FPL waived its Article 9 rights is unavailing. A debtor
cannot waive the UCC’s requirement that secured parties dispose of repossessed
collateral in a commercially reasonable manner. See Iowa Code § 554.9602(7) (noting
that a debtor cannot waive its rights under Iowa Code § 554.9610(2)); id. §
554.9610(2) (requiring that “[e]very aspect of a disposition of collateral, including the
method, manner, time, place, and other terms, must be commercially reasonable”).
Also, “[a] debtor . . . may waive the right to notification of disposition of collateral
under section 554.9611 only by an agreement to that effect entered into and
authenticated after default.” Id. § 554.9624(1). The record contains no evidence of
such a post-default agreement.

Thus, FPL could not have waived its rights to a

commercially reasonable copier resale, or to notice of that resale.
The questions remain whether there is a material factual dispute regarding the
reasonableness of GECC’s resale and whether GECC properly notified FPL of the
resale. I will address these questions in turn.
a.

Did GECC dispose of the copiers in a commercially
reasonable manner?

Iowa Code § 554.9610(2) provides:
Every aspect of a disposition of collateral, including the
method, manner, time, place, and other terms, must be
commercially reasonable. If commercially reasonable, a
secured party may dispose of collateral by public or private
proceedings, by one or more contracts, as a unit or in
parcels, and at any time and place and on any terms.

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The UCC provides examples of commercially reasonable dispositions. For instance,
“[a] disposition of collateral is made in a commercially reasonable manner if the
disposition is made . . . in conformity with reasonable commercial practices among
dealers in the type of property that was the subject of the disposition.”

Id. §

554.9627(2)(c). “The burden of proving commercial reasonableness [is] on . . . the
secured party.”

John Deere Leasing Co. v. Fraker, 395 N.W.2d 885, 888 (Iowa

1986); see also Iowa Code § 554.9626(1)(b) (“[I]f the secured party’s compliance is
placed in issue, the secured party has the burden of establishing that the collection,
enforcement, disposition, or acceptance was conducted in accordance with this part.”).
FPL argues that “GECC has not provided any facts to show it disposed of the
collateral in a commercially reasonable manner” (docket no. 11, at 5). In fact, GECC
has offered evidence that it disposed of both copiers in a commercially reasonable
manner. GECC offers an affidavit of Rick Tyler (Tyler), the bookkeeper in charge of
maintaining GECC’s records regarding its contract with FPL, who states that GECC
resold both repossessed copiers through Remarketing, a third-party remarketer that
“GECC customarily and regularly engages” to remarket inventory, such as the two
copiers (docket no. 14-2, at 5). According to Tyler, Remarketing
emailed approximately 2500 potential buyers identified as
those that customarily purchase this type of equipment.
Two bids were made for the First Copier and Remarketing
accepted the highest bid ($2200).
Remarketing then
contacted the same buyer to see if it was interested in
purchasing the Second Copier for $2200. That offer was
accepted and Remarketing charged GECC a $946.00
commission for the sale of both copiers.
(Docket no. 14-2, at 5-6).

GECC also produced two invoices from Remarketing,

which show that it resold both copiers for $2,200 (docket no. 14-2, at 17-18). Taken at
face value, a reasonable fact finder could rely on this evidence to conclude that GECC
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resold the copiers “in conformity with reasonable commercial practices among dealers
in the type of property that was the subject of the disposition.”

Iowa Code §

554.9627(2)(c).
I cannot rely on Tyler’s statements, however, because most of them are not
admissible evidence, at least in their current form. At the summary judgment stage,
“[a]n affidavit or declaration used to support or oppose a motion must be made on
personal knowledge, set out facts that would be admissible in evidence, and show that
the affiant or declarant is competent to testify on the matters stated.” Fed. R. Civ. P.
56(c)(4). As it stands, Tyler’s affidavit does not state how he has personal knowledge
of the way in which Remarketing resold the copiers. I am left to wonder: How does
he know who Remarketing e-mailed? How does he know who bid on the copiers?
How does he know that Remarketing contacted the first copier’s buyer about buying the
second copier? These questions are central to whether GECC resold the copiers in a
commercially reasonable manner. But, without knowing the basis for Tyler’s personal
knowledge, I can only conclude that his assertions are inadmissible hearsay. Because I
cannot rely on inadmissible evidence in granting summary judgment, I must conclude
that GECC has failed to meet its burden to show that it resold the copiers in a
commercially reasonable manner.
I note, however, that if GECC had offered admissible evidence supporting
Tyler’s affidavit, I would likely conclude that GECC’s sale of the copiers was
commercially reasonable as a matter of law. “The commercial reasonableness of a sale
of collateral is ordinarily a question of fact.” Fraker, 395 N.W.2d at 887. Yet, in this
case, FPL does not dispute the substance of GECC’s claims. FPL offers no evidence
that GECC failed to resell the copiers in a commercially reasonable manner; FPL only
that argues that GECC has no evidence that the resale was commercially reasonable.
Thus, had GECC produced admissible evidence of commercial reasonableness, that
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evidence would be undisputed on this record and summary judgment would be
appropriate.
But, because GECC offers no admissible evidence that it resold the copiers in a
commercially reasonable manner, I cannot grant summary judgment in favor of GECC
on the issue of damages. This is because the amount of damages GECC is entitled to
will depend on whether it resold the copiers in a commercially reasonable manner. See
Iowa Code § 554.9626(1)(c) (limiting damages in cases where collateral disposition is
not commercially reasonable). Still, with a little more evidence, it may be possible to
resolve GECC’s damages on summary judgment. Rule 56(e)(1) provides that, “[i]f a
party fails to properly support an assertion of fact or fails to properly address another
party’s assertion of fact as required by Rule 56(c), the court may . . . give an
opportunity to properly support or address the fact.” Thus, I will allow both parties 30
days from the date of this order to present additional declarations or other admissible
evidence solely on the question of whether GECC resold the copiers in a commercially
reasonable manner. Any additional submissions must be made in 10 pages or less.
b.

Did GECC give proper notice?

In addition to its arguments about whether GECC resold the copiers in a
commercially reasonable manner, FPL notes that GECC never gave FPL notice that it
planned to resell the second copier. Although FPL makes no argument based on this
observation, I will address it because it bears on whether GECC complied with Article
9’s requirements.
Under Article 9, GECC, the secured party, was required to send FPL, the
debtor, “a reasonable authenticated notification of disposition” before GECC disposed
of the copiers. See Iowa Code § 554.9611(2)-(3). Here, GECC sent FPL a disposition
notification on February 28, 2013, stating, among other things, that GECC “intends to
sell the Collateral privately sometime after 10:00 am on March 11, 2013” (docket no.
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9-3, at 16). This notification was timely because GECC sent it “after default and ten
days or more before the earliest time of disposition set forth in the notification . . . .”
Iowa Code § 554.9612(2). It also provided sufficient information for a private sale
notification, as outlined in Iowa Code § 554.9613(5).
But, as FPL notes, GECC’s notification only listed one of the two copiers that
GECC ended up reselling. The record contains no evidence that GECC ever notified
FPL that it planned to resell the second repossessed copier. In fact, GECC does not
claim to have notified FPL of the second sale. Rather, GECC argues that “FPL waived
its rights to receive notice when [FPL] requested GECC pick up the second copier”
(docket no. 14, at 4). As I noted above, however, FPL could only have waived its
right to notification under Article 9 by signing a post-default waiver, which it did not
do. Iowa Code § 554.9624(1). Thus, the record contains evidence that GECC failed to
comply with Article 9’s notice requirements.
Like the issue of whether GECC’s disposition was commercially reasonable,
GECC’s failure to properly notify FPL about reselling the second copier may affect the
damages GECC can collect. “[I]f the secured party’s compliance [with Article 9’s
disposition rules] is placed in issue, the secured party has the burden of establishing that
the collection, enforcement, disposition, or acceptance was conducted in accordance
with this part.” Id. § 554.9626(1)(b). If the secured party fails to meet its burden,
the liability of a debtor . . . for a deficiency is limited to an
amount by which the sum of the secured obligation,
expenses, and attorney’s fees exceeds the greater of:
(1) the proceeds of the collection, enforcement,
disposition, or acceptance; or
(2) the amount of proceeds that would have been
realized had the noncomplying secured party
proceeded in accordance with the provisions of this
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part relating to collection, enforcement, disposition,
or acceptance.
Id. § 554.9626(1)(c).

Iowa Code § 554.9626(1)(d) provides that “the amount of

proceeds that would have been realized is equal to the sum of the secured obligation,
expenses, and attorney’s fees unless the secured party proves that the amount is less
than that sum.”
Thus, Iowa law applies a “rebuttable presumption rule for transactions other than
consumer transactions.” Id. § 554.9626, cmt. 3. Under the rebuttable presumption
rule,
[u]nless the secured party proves that compliance with the
relevant provisions would have yielded a smaller amount, . .
. the amount that a complying collection, enforcement, or
disposition would have yielded is deemed to be equal to the
amount of the secured obligation, together with expenses
and attorney’s fees. Thus, the secured party may not recover
any deficiency unless it meets this burden.
Id. Here, GECC has failed to meet its burden to prove that it complied with Article 9’s
notice requirements. The rebuttable presumption rule, then, sets GECC’s deficiency
damages to zero, unless GECC can prove that it would have received $2,200 for the
second copier even if it had properly notified FPL. GECC’s evidence that the second
copier was sold to the same buyer and for the same price as the first copier, though
FPL only received notice about the first, suggests that GECC would have received
$2,200 if it had given FPL notice of the second sale. FPL offers no evidence to the
contrary.

But, again, GECC’s evidence describing the second copier’s sale is not

admissible on the current record, and, thus, cannot support GECC’s motion for
summary judgment.
Whether GECC’s deficient notice affects its damages will depend on whether
GECC can prove, with admissible evidence, that it resold the copiers in a commercially
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reasonable manner.

I will therefore wait until after the parties submit additional

evidence on whether GECC resold the copiers in a commercially reasonable manner. If
GECC offers admissible evidence that it resold the copiers in a commercially
reasonable manner, and FPL offers no evidence to the contrary, then GECC may be
entitled to summary judgment on the issue of damages. If FPL offers evidence refuting
the claim that GECC resold the copiers in a commercially reasonable manner, then the
issue of damages will proceed to trial.
D.

Damages

Finally, FPL raises a number of issues related to GECC’s damages calculations.
FPL argues (1) that GECC did not apply the proceeds from reselling the copiers to
FPL’s deficiency balance, and (2) that GECC incorrectly calculated its damages under
the parties’ contract. Ordinarily, calculating damages based on a contractual formula is
a question of law. See Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174, 179 (Iowa
2010) (“If the court finds that no ambiguity exists, contract interpretation and its legal
effect are questions of law for the court.” (quoting Pillsbury Co. v. Wells Dairy, Inc.,
752 N.W.2d 430, 439 (Iowa 2008))). But, in this case, there is a prior fact question
that may render FPL’s remaining arguments on damages moot. Specifically, if GECC
cannot prove, as a matter of law, that it resold the copiers in a commercially reasonable
manner, then it is not entitled to summary judgment on the question of damages. If
GECC cannot prove that same fact at trial, then GECC’s damages are zero and I will
not need to address FPL’s damages arguments. Thus, I will wait to address FPL’s
damages arguments until after the parties present additional evidence about whether
GECC resold the copiers in a commercially reasonable manner.
III.

CONCLUSION

GECC’s motion for summary judgment is granted as to FPL’s liability for
defaulting under the parties’ contract. I will defer ruling on whether GECC is entitled
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to summary judgment as to its damages until after the parties have the opportunity to
present additional evidence regarding whether GECC resold the copiers in a
commercially reasonable manner. Both parties have 30 days from the date of this order
to submit no more than 10 pages of additional evidence establishing, or refuting, that
GECC resold the copiers in a commercially reasonable manner. I will rule on whether
GECC is entitled to summary judgment on the issue of damages after reviewing the
parties’ submissions.
IT IS SO ORDERED.
DATED this 3rd day of December, 2013.

______________________________________
MARK W. BENNETT
U.S. DISTRICT COURT JUDGE
NORTHERN DISTRICT OF IOWA

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