General Electric Capital Corporation v. FPL Service Corp.
Filing
18
ORDER granting in full 9 Motion for Summary Judgment. The Clerk shall enter judgment in favor of General Electric Capital Corporation, and against FPL Service Corp, for $258,424.39, plus attorneys fees and costs. If plaintiff plans to seek attorneys fees and costs not already accounted for, it should proceed according to Federal Rule of Civil Procedure 54(d) and Local Rule 54.1. Signed by Judge Mark W Bennett on 2/3/2014. (des)
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.
SUPPLEMENTAL MEMORANDUM
OPINION AND ORDER REGARDING
PLAINTIFF’S MOTION FOR
SUMMARY JUDGMENT
FPL SERVICE CORP.,
Defendant.
___________________________
TABLE OF CONTENTS
I.
INTRODUCTION........................................................................... 1
II.
ANALYSIS ................................................................................... 2
A.
Can GECC recover deficiency damages in this case? ....................... 3
B.
Did GECC correctly calculate its deficiency damages?...................... 9
III.
CONCLUSION ............................................................................ 13
I.
INTRODUCTION
This case is again before me on plaintiff General Electric Capital Corporation’s
(GECC’s) motion for summary judgment (docket no. 9). This is the second part of a
two-part opinion. On December 3, 2013, I issued the first part of my opinion (docket
no. 15). See Gen. Elec. Capital Corp. v. FPL Serv. Corp., No. C 13-59-MWB, 2013
WL 6238484 (N.D. Iowa Dec. 3, 2013). There, I introduced the facts of this case and
the legal issues involved, which I will not repeat in detail here. In short, I held that
defendant FPL Service Corporation (FPL) is liable for defaulting on its contract with
GECC, by which FPL leased two industrial copiers from GECC. I also held that the
contract between GECC and FPL was a secured transaction and, thus, GECC had to
comply with Article 9 of Iowa’s Uniform Commercial Code (UCC) when it repossessed
and resold the two copiers upon FPL’s default.
The amount of damages is the only remaining issue. GECC seeks $258,424.39,
plus attorneys’ fees and costs, as deficiency damages for FPL’s default. FPL claims
that the issue of damages should proceed to trial or, alternatively, that GECC
incorrectly calculated its damages under the parties’ contract. I deferred ruling on the
issue of damages in my first summary judgment ruling to give the parties additional
time to submit evidence relating to damages.
evidence.
Only GECC submitted additional
After reviewing GECC’s recent submission, I conclude that there is no
genuine dispute on the issue of damages.
Thus, for the reasons discussed below,
GECC’s motion for summary judgment is granted in full.
II.
ANALYSIS
FPL raises a number of arguments that affect if, and how much, GECC can
recover in deficiency damages under the parties’ contract. First, FPL suggests that
GECC cannot prove that it resold the two copiers in a commercially reasonable
manner. FPL also notes that GECC failed to give FPL notice that it planned to resell
the second copier.
These issues affect whether GECC can recover any deficiency
damages against FPL. Alternatively, FPL argues that GECC erred in calculating the
amount of damages owed under the parties’ contract. I will address these issues in
turn.
2
A.
Can GECC recover deficiency damages in this case?
“[I]f [a] secured party’s compliance [with Article 9] 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.” Iowa Code §
554.9626(1)(b). Here, FPL has placed GECC’s compliance with Article 9 at issue in
two ways. First, FPL argues that “GECC has not provided any facts to show that it
disposed of the collateral in a commercially reasonable manner” (docket no. 11, at 5),
as required by Iowa Code § 554.9610(2). Second, FPL notes that GECC never gave
FPL notice that it planned to resell the second copier, as required by Iowa Code §
554.9611.
Thus, under Iowa Code § 554.9626(1)(b), GECC bears the burden of
proving that it complied with Article 9 in repossessing and reselling the two copiers.
If GECC fails to meet its burden, then it can only recover deficiency damages
allowed under the “rebuttable presumption rule.”
The rebuttable presumption rule
provides:
[E]xcept as otherwise provided in section 554.9628, if a
secured party fails to prove that the collection, enforcement,
disposition, or acceptance was conducted in accordance with
the provisions of this part relating to collection,
enforcement, disposition, or acceptance, 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
part relating to collection, enforcement, disposition,
or acceptance.
3
[F]or purposes of . . . subparagraph (2), 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.
Id. § 554.9626(1)(c)-(d).
Stated differently, once the rebuttable presumption rule
applies,
[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. § 554.9626, cmt. 3. In short, if GECC cannot prove that it complied with Article 9
in disposing of the two copiers, then its deficiency damages are presumptively zero,
unless GECC proves that, had it complied with Article 9, its proceeds from reselling
the two copiers would have been less than the sum of FPL’s outstanding obligation,
GECC’s expenses, and GECC’s attorneys’ fees.
After reviewing the updated record, I conclude that GECC has presented
undisputed evidence that it disposed of the copiers in a commercially reasonable
manner. A secured party can prove that “[a] disposition of collateral [was] made in a
commercially reasonable manner” by showing that “the disposition [was] 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). Here, GECC disposed
of both copiers through a third-party remarketing business, Remarketing Solutions
International, LLC (Remarketing), which finds buyers for repossessed equipment like
the copiers. Originally, GECC attempted to prove that Remarketing disposed of the
copiers in a commercially reasonable manner by submitting the affidavit of Rick Tyler
4
(Tyler), GECC’s bookkeeper in charge of its records involving FPL. But, because
Tyler’s affidavit did not establish his personal knowledge of how Remarketing resold
the copiers, I held that I could not rely on it in granting summary judgment. Gen.
Elec. Capital Corp., 2013 WL 6238484, at *10.
GECC has since provided additional evidence establishing that Remarketing
resold the copiers in a commercially reasonable manner. On January 2, 2014, GECC
submitted the declaration of John O’Connor (O’Connor), the President of Remarketing,
who was responsible for creating and maintaining the records related to reselling the
copiers (docket no. 16). O’Connor’s declaration establishes the following:
In reselling repossessed copiers for GECC and similar clients, Remarketing
“contact[s] [its] potential buyers that [it] [has] cultivated through years of
previous transactions and marketing by emailing a listing of the particular copier
along with other re-sell inventory[,] . . . obtain[s] bids from the buyers for a
period of 30 days[,] . . . [and] accept[s] the highest bid” (docket no. 16, ¶ 3).
In reselling the copiers, “[Remarketing] emailed approximately 2500 potential
buyers which [Remarketing] identified from past transactions and marketing
efforts as those that customarily purchase this type of equipment for parts.
[Remarketing] identified potential buyers for the copiers by past purchases and
confidential and proprietary data fields in [Remarketing’s] confidential and
proprietary database regarding customers for used equipment.” (Docket no. 16,
¶ 6).
Remarketing sold the first copier to the highest bidder—a buyer named “Viet”—
for $2,200 (docket no. 16, ¶ 7).
O’Connor attached e-mail records of the
correspondence between Remarketing and Viet leading up to, and including, the
final sale price (docket no. 16, at 8-9). After repossessing the second copier,
Remarketing contacted Viet, who purchased the second copier for $2,200
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(docket no. 16, ¶ 8). O’Connor provided no documentation regarding the sale of
the second copier.
“Among dealers of used copiers, emailing potential buyers to bid on the copiers
is in conformity with the copier re-sale industry as [Remarketing] wants to obtain
the highest price available for the copier in order to maximize its commission
and profit” (docket no. 16, ¶ 9). “Likewise, contacting Viet to see if he was
interested in purchasing the Second Copier for the same price is in conformity
with the copier re-sale industry as [Remarketing] seeks to maximize its profits
from the resale of the Second Copier” (docket no. 16, ¶ 10).
O’Connor also referenced two invoices that GECC produced earlier, showing that
Remarketing sold both copiers for $2,200 (docket no. 14-2, at 17-18). Finally, GECC
attached to O’Connor’s declaration a portion of GECC’s contract with Remarketing,
showing that Remarketing was entitled to a percentage of the copiers’ resale price, thus
incentivizing Remarketing to resell the copiers for the highest possible price.
O’Connor’s declaration provides evidence, from a source with personal
knowledge, that the manner in which Remarketing resold the two copiers “conform[ed]
with reasonable commercial practices among dealers in the type of property that was
the subject of the disposition.” Iowa Code § 554.9627(2)(c). GECC has, therefore,
produced evidence that it disposed of the copiers in a commercially reasonable manner.
FPL offers no evidence to the contrary. Thus, GECC’s evidence that it resold the
copiers in a commercially reasonable manner is undisputed on this record. Because
there is no genuine dispute over the manner in which GECC disposed of the two
copiers, I find that GECC resold the copiers in a commercially reasonable manner. See
AKA Mgmt., Inc. v. Branch Banking & Trust Co., 621 S.E.2d 576, 580 (Ga. Ct. App.
2005) (“[W]hether a sale was commercially reasonable . . . may be determined as a
matter of law where the creditor offers prima facie, uncontradicted evidence that the
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sale was reasonable.” (citation omitted)); U.S. Bancorp Equip. Fin., Inc. v. DCC II
Aircraft Corp., Inc., No. CIV A 04-CV-4586, 2006 WL 4381496, at *5 (E.D. Pa. Feb.
1, 2006) (granting summary judgment in favor of plaintiff secured party where “there
[was] simply no evidence that plaintiff’s sale of the [collateral] was not commercially
reasonable”).
O’Connor’s declaration, however, does not directly resolve FPL’s second
argument—that GECC failed to give FPL notice of the second copier’s disposition.
GECC offers no evidence that it notified FPL of its plans to resell the second copier, as
required by Iowa Code § 554.9611. Thus, regardless of whether GECC disposed of
the copiers “in conformity with reasonable commercial practices,” it remains
undisputed that GECC failed to comply with Article 9’s notice requirements in reselling
the second copier.
GECC’s failure to notify FPL about reselling the second copier triggers the
rebuttable presumption rule.
I must presume that GECC’s deficiency damages are
zero, unless GECC proves that, had it properly notified FPL, its resale proceeds would
have been less than “the amount of the secured obligation, together with expenses and
attorney’s fees.”
Iowa Code § 554.9626, cmt. 3.
Here, GECC has produced
undisputed evidence rebutting the presumption that GECC’s deficiency damages are
zero. Specifically, GECC has produced undisputed evidence that it did notify FPL of
its plans to resell the first copier (docket no. 9-3, at 10-11). Based on the analysis
above, GECC resold the first copier in a commercially reasonable manner for $2,200.
GECC resold the second copier in exactly the same manner, and for exactly the same
price, as the first copier.
The only difference between the sales was that GECC
notified FPL of the first sale, but not the second. The fact that the second sale yielded
the same result as the first is evidence that GECC would have received the same $2,200
had it notified FPL of the second sale. Again, FPL offers no evidence to the contrary.
7
Thus, I conclude that GECC would be in the same position it is in today had it
complied with Article 9’s notice requirement regarding the sale of the second copier.1
Because GECC has rebutted the presumption that it is entitled to zero damages,
it is entitled to deficiency damages. Here, GECC’s deficiency damages are the
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
part relating to collection, enforcement, disposition,
or acceptance.
Iowa Code § 554.9626(1)(c). Subparts (1) and (2) above are identical in this case
because, as I noted earlier, the amount of proceeds GECC actually received is the same
amount it would have received had it fully complied with Article 9’s notice
requirements. I will address the exact amount of damages that this formula yields
below.
1
FPL cites C & J Leasing Corp. v. Beasley Investments, Inc., No. 08-0074, 2009 WL
777870 (Iowa Ct. App. Mar. 26, 2009), in support of its claim that this case should
proceed to trial on damages. In Beasley Investments, a secured party stipulated that it
failed to notify a debtor of its plans to dispose of collateral. Id. at *3. The Iowa Court
of Appeals noted that “lack of notice itself suggests [a creditor] did not act in a
commercially reasonable manner.” Id. (quoting Beneficial Fin. Co. v. Reed, 212
N.W.2d 454, 458 (Iowa 1973)). But, in Beasley Investments, the secured party’s
failure to notify the debtor was not dispositive of whether the secured party was entitled
to deficiency damages. Rather, the court in Beasley Investments applied the rebuttable
presumption rule to analyze whether the secured party was entitled to deficiency
damages. Id. at *5. That is the same methodology I apply here. Simply put, nothing
in Beasley Investments suggests that GECC is not entitled to summary judgment.
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B.
Did GECC correctly calculate its deficiency damages?
Given GECC is entitled to deficiency damages, one question remains: How
much? Here, the parties’ contract provides a formula for calculating damages. When a
contract’s terms are not ambiguous, I may decide questions of contact interpretation and
construction as a matter of law, and I must enforce the contract’s terms as written.
RPC Liquidation v. Iowa Dep’t of Transp., 717 N.W.2d 317, 321 (Iowa 2006).
Because the clauses governing damages in this case are not ambiguous, I will decide the
amount of damages allowed under the parties’ contract.
Under the parties’ contract, if FPL defaults, “[GECC] may, in [its] sole
discretion . . . require [FPL] to immediately pay [GECC] . . . a sum equal to the Net
Book Value” (docket no. 9-3, at 7). The contract defines the “Net Book Value” as
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 (x) 6% per
annum if this Lease provides for a Stated Purchase Option,
(y) the lease charge rate (as determined pursuant to Section
16) if this Lease provides for a dollar Purchase Option, or
(z) if such applicable rate is not permitted by law, then at the
lowest rate permitted by law . . . .
(Docket no. 9-3, at 7). Finally, the contract provides that “[FPL] agree[s] to pay all of
[GECC’s] costs of enforcing [GECC’s] rights against [FPL], including attorneys’ fees”
(docket no. 9-3, at 7). Based on these clauses, GECC claims that it is entitled to
“$258,424.39, plus attorneys’ fees and costs” (docket no. 14, at 5).
GECC also
submits a spreadsheet showing (what GECC claims are) FPL’s outstanding payments
(docket no. 14-2, at 15). The spreadsheet accounts for the net proceeds from reselling
the copiers and reflects an outstanding balance of $258,424.39.
9
FPL argues that GECC’s claimed damages are incorrect for two reasons. First,
FPL argues that GECC overstates the number of rental payments “then due and
payable” under the parties’ contract, improperly inflating the number of non-discounted
payments in the Net Book Value.
Second, FPL argues that GECC applied the wrong
interest rate in calculating the present value of future payments in the Net Book Value.
Specifically, FPL claims that GECC applied a 6% interest rate in calculating FPL’s
balance due, when it should have applied the “lease charge rate” applicable to contracts
with a dollar purchase option, like the parties’ contract here. I will address FPL’s
second argument first.
While FPL is correct that GECC originally applied the wrong interest rate in
calculating the Net Book Value, GECC has since fixed the error. Because the parties’
contract contains a dollar purchase option (docket no. 9-3, at 5), future payments used
in determining the Net Book Value must be “discounted at . . . the lease charge rate”
(docket no. 9-3, at 7). Originally, GECC calculated FPL’s outstanding balance using a
6% interest rate (docket no. 9-3, at 18), instead of the 8.2144% lease charge rate
(docket no. 14-2, at 13). But, after FPL raised this issue in its response to GECC’s
motion for summary judgment, GECC recalculated FPL’s balance using the 8.2144%
lease charge rate (docket no. 14-2, at 15), and now claims damages based on its more
recent calculation. Thus, GECC calculated the damages that it currently requests using
the correct discount rate.
FPL’s argument that GECC wrongly calculated the rental payments “then due
and payable” in determining the Net Book Value is more complicated. GECC admits
that the copiers were destroyed in late October of 2012 (docket no. 9-2, at ¶ 4). Thus,
FPL claims that, at most, the only rental payment “then due and payable” when the
10
copiers were destroyed was its November 1, 2012, payment.2
According to FPL,
under the Net Book Value formula, the only non-discounted rental payment should be
its November 1, 2012, payment, and all remaining rental payments should be
discounted by the lease charge rate. By contrast, GECC calculates the Net Book Value
using six non-discounted monthly rental payments—December 1, 2012, through May 1,
20133—rather than one. Because GECC’s calculation discounts fewer payments than
FPL’s, GECC’s calculation yields a higher—in FPL’s view, inflated—Net Book Value.
GECC’s calculation is correct. FPL’s argument incorrectly relies on language in
paragraph 8 of the parties’ contract, entitled “Loss or Damage” (docket no. 9-3, at 7).
That paragraph provides:
If any item of Equipment is lost, stolen or 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 [the Net Book Value].
Because the copiers were damaged in the final days of October of 2012, FPL reasons
that its November 1, 2012, rental payment was the only payment arguably “then due
and payable” when the copiers were destroyed.
But, GECC does not rely on paragraph 8 in its claim for damages.
While
paragraph 8 defines the term “Net Book Value,” GECC, in its reply brief, seeks
2
Though not explicitly stated by either party, documents in the record show that FPL’s
rental payments were due on the first of each month (docket no. 14-2, at 12-13, 15).
3
In its summary of FPL’s outstanding balance, GECC does not claim that FPL’s
November 1, 2012, rental payment is outstanding (docket no. 14-2, at 15). Neither the
documents in the record nor the parties’ briefs explain why GECC does not claim that
FPL owes a November 1, 2012, payment. Whatever the reason, GECC does not seek
damages for the supposedly outstanding November 1, 2012, rental payment. This
actually benefits FPL by lowering the number of rental payments used in calculating the
Net Book Value.
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damages under paragraph 11, entitled “Remedies” (docket no. 9-3, at 7).
That
paragraph provides, in part:
If an Event of Default occurs, [GECC] may, in [its] sole
discretion, do any or all of the following: . . . (b) require
[FPL] to immediately pay [GECC] . . . a sum equal to the
Net Book Value . . . (d) repossess the Equipment without
court order . . . . [FPL] agree[s] to pay all of [GECC’s]
costs of enforcing [GECC’s] rights against [FPL], including
attorneys’ fees.
An “Event of Default” occurs, among other ways, if “[GECC] do[es] not receive any
Rental Payment or other payment within 10 days of its due date” (docket no. 9-3, at 7).
Paragraph 11 also provides that, if GECC resells the repossessed copiers, “[FPL] will
remain responsible for any balance which may remain after [GECC] appl[ies] [the] net
proceeds” of the sale, and that “[GECC] will retain all rights and remedies even if
[GECC] do[es] not chose to enforce them at the time of [FPL’s] default” (docket no. 93, at 7).
Paragraph 11 allows GECC to demand that FPL pay GECC the Net Book Value
simply because FPL defaulted on one, or more, rental payments, regardless of whether
the copiers are damaged. Here, FPL has defaulted on every rental payment since at
least December 1, 2012. In its contractually granted discretion, GECC waited until
May 6, 2013, to demand that FPL pay the Net Book Value (docket no. 9-3, at 19-20).
At that time, there were six rental payments “then due and payable.”4 Thus, GECC
correctly calculated the number of non-discounted payments used in determining the
Net Book Value under paragraph 11.
4
On May 6, 2013, FPL’s May 1, 2013, rental payment was technically not in default
because it had not yet been due for more than ten days. It was, however, “due and
payable,” which is the term used to distinguish non-discounted and discounted rental
payments in calculating the Net Book Value.
12
Moreover, even if GECC had relied on paragraph 8, FPL’s argument would still
fail. Paragraph 8 makes clear that, if the copiers were damaged, “Rental Payments
[would] continue to accrue without abatement until [FPL]” paid the Net Book Value.
Using FPL’s logic, if the copiers were damaged, the only non-discounted rental
payments in the Net Book Value would be those currently due at the moment the
damage occurred. The rest would be discounted at the lease charge rate. In essence,
the Net Book Value would be forever fixed at the moment the copiers were damaged.
This interpretation would render ineffective the clause stating that “Rental Payments
will continue to accrue” until FPL pays the Net Book Value.
That clause plainly
contemplates that FPL’s rental payments will continue to accrue after, and independent
of, the moment the copiers are damaged. I may not interpret the parties’ contract in a
way that gives no effect to one of its clauses. Iowa Fuel & Minerals, Inc. v. Iowa State
Bd. of Regents, 471 N.W.2d 859, 863 (Iowa 1991). Thus, I would have rejected FPL’s
argument even if GECC had relied on paragraph 8 in calculating its damages.
Because GECC calculated the Net Book Value using the correct number of nondiscounted payments and the correct discount rate, I find that GECC is entitled to
damages in the amount it requested.
III.
CONCLUSION
For the reasons discussed above, GECC’s motion for summary judgment is
granted in full. The Clerk shall enter judgment in favor of GECC, and against FPL,
for $258,424.39, plus attorneys’ fees and costs. If GECC plans to seek attorneys’ fees
and costs not already accounted for, it should proceed according to Federal Rule of
Civil Procedure 54(d) and Local Rule 54.1.
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IT IS SO ORDERED.
DATED this 3rd day of February, 2014.
______________________________________
MARK W. BENNETT
U.S. DISTRICT COURT JUDGE
NORTHERN DISTRICT OF IOWA
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