AXIS Capital, Inc. v. Groninger Insurance Agency, LLC et al
Filing
54
MEMORANDUM AND ORDER - Plaintiff's motion for a protective order (filing 41 ) is denied. Defendants' Rule 56(d) motion (filing 44 ) is granted, as follows: a. On or before October 25, 2013, Plaintiff may file a supplemental brief and supp lemental index of evidence in support of its motion for summary judgment (filing 38 ); b. On or before November 15, 2013, Defendants shall respond to Plaintiffs' motion for summary judgment (filing 38 ); and c. Plaintiff may reply to Defendants' response within the time prescribed by rule.The court's final progression order (filing 34 ) shall remain in full force and effect. Ordered by Senior Judge Richard G. Kopf. (AOA)
AXIS Capital, Inc. v. Groninger Insurance Agency, LLC et al
Doc. 54
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
AXIS CAPITAL, INC.,
Plaintiff,
v.
GRONINGER INSURANCE
AGENCY, LLC;
JAMES E. GRONINGER, II; and
JONATHAN H. GRONINGER,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
8:12CV227
MEMORANDUM
AND ORDER
This diversity action involves a lease agreement that was entered into in April
2009 between Noreast Capital Corporation (“Noreast”), as lessor, and Groninger
Insurance Agency, LLC (“GIA”), as lessee. GIA’s obligations under the lease were
personally guaranteed by James Groninger and Jonathan Groninger.1 In March 2011,
Noreast assigned the lease to Axis Capital, Inc. (“Axis”).2
Axis has alleged that the purpose of the agreement was to “provide[ ] financing
for a transaction between GIA and a vendor, Astonish Results, LP (‘Astonish’), for
a ‘Customized Software, Website & Digital Marketing Program’ (‘Program’)” (filing
1, ¶ 1). According to the complaint, “Noreast paid the purchase price for the Program
to Astonish, and then leased the Program to GIA in exchange for a series of monthly
payments” (filing 1, ¶ 1). Axis claims GIA breached the lease by failing to make any
payments since October 2011.
1
GIA is a Pennsylvania corporation, and the Groningers reside in Pennsylvania
(filing 1, ¶¶ 3-5; filing 14, ¶¶ 3-5). GIA and the Groningers are Defendants.
2
Axis (Plaintiff) is alleged to be a Nebraska corporation (filing 1, ¶ 2).
Dockets.Justia.com
Three motions are pending: (1) On May 30, 2013, Axis filed a motion for
summary judgment (filing 38). (2) On June 3, 2013, Axis filed a motion for a
protective order staying all discovery (filing 41). (3) On June 4, 2013, Defendants
filed a motion for an extension of time or continuance (filing 44).
On June 10, 2013, I entered an order (filing 47) temporarily continuing the
deadline for Defendants to respond to the summary judgment motion, as well as the
deadline for Axis responding to Defendants’ outstanding discovery requests.3 Now
that the competing motions filed on June 3 and 4 have been fully briefed, and
evidence submitted by both sides, I find and conclude that Defendants have made a
sufficient showing under Federal Rule of Civil Procedure 56(d) for a continuance,4
while Axis has not made a sufficient showing under Federal Rule of Civil Procedure
26(c)(1)(A) for a stay of discovery.5 I will briefly explain the reasons for my ruling.
Axis argues that the lease agreement qualifies as a “finance lease” under Article
2A of the Uniform Commercial Code,6 and, consequently, Defendants are precluded
3
Axis’s motion for a protective order indicated it had been served with requests
for production of documents on April 30, 2013. Despite the entry of the standstill
order on June 10, Axis served its responses on June 20, 2013 (filing 50).
4
“If a nonmovant shows by affidavit or declaration that, for specified reasons,
it cannot present facts essential to justify its opposition [to a motion for summary
judgment], the court may . . . (1) defer considering the motion or deny it; (2) allow
time to obtain affidavits or declarations or to take discovery; or (3) issue any other
appropriate order.” Fed. R. Civ. P. 56(d).
5
“The court may, for good cause, issue an order to protect a party or person
from annoyance, embarrassment, oppression, or undue burden or expense, including
. . . forbidding the disclosure or discovery[.]” Fed. R.Civ. P. 26(c)(1)(A).
6
The agreement expressly states that the lease “qualifies as a statutory finance
lease under Article 2A of the UCC” and that GIA agrees it is “absolutely and
unconditionally obligated to pay all lease payments and other amounts due for the
entire lease term no matter what happens, even if the equipment is damaged or
-2-
as a matter of law from raising any affirmative defenses. The argument, which also
forms the basis for Axis’s motion for summary judgment, goes something like this:
Because this is a finance lease, “[GIA’s] promises under the lease contract bec[a]me
irrevocable and independent upon [GIA’s] acceptance of the goods.” Neb. Rev. Stat.
U.C.C. § 2A-407(1).7 “A promise that has become irrevocable and independent under
subsection (1): (a) is effective and enforceable between the parties, and by or against
third parties including assignees of the parties; and (b) is not subject to cancellation,
termination, modification, repudiation, excuse, or substitution without the consent of
the party to whom the promise runs.” Neb. Rev. Stat. U.C.C. § 2A-407(2). Also,
“because the lease is a finance lease, no warranty of fitness or merchantability [was]
extended by [Noreast] to [GIA]. Sections 2A-212(1) and 2A-213. Absent an express
provision in the lease agreement, . . . or application of the principles of law and equity,
including the law with respect to fraud, duress, or the like (sections 1-103 and
2A-103(4)),8 [GIA] has no claim against [Noreast]” and “[GIA’s] obligation to pay
rent to [Noreast and its assignee, Axis] continues as the obligation became irrevocable
and independent when [GIA] accepted the [Program] (section 2A-407(1)).9 [GIA] has
destroyed, if it is defective or if you no longer can use it” (filing 1 at 7 (uppercase
typeface omitted)).
7
The lease agreement provides that it “will be governed by the laws of the State
of Maryland (or the state of Lessor’s Assignee, if different) . . .” (filing 1 at 6). In this
case, “Lessor’s Assignee” is Axis and Axis is alleged to be a Nebraska corporation.
8
“Unless displaced by the particular provisions of the Uniform Commercial
Code, the principles of law and equity, including the law merchant and the law
relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation,
duress, coercion, mistake, bankruptcy, or other validating or invalidating cause
supplement its provisions.” Neb. Rev. Stat. U.C.C. § 1-103(b). “[A]rticle 1 contains
general definitions and principles of construction and interpretation applicable
throughout this article 2A].” Neb. Rev. Stat. U.C.C. § 2A-103(4).
9
The agreement contains the following “delivery and acceptance” provision
which was signed by James Groninger on behalf of GIA:
-3-
no right of setoff with respect to any part of the rent still due under the lease. Section
2A-508(6). However, [GIA] may have another remedy. Despite [any] lack of privity
between [GIA] and [Astonish], [GIA] may have a claim against [Astonish]. Section
2A-209(1).” Neb. Rev. Stat. U.C.C. § 2A-407, comment 5.
It will be noted that even if the agreement is a finance lease,10 GIA is not barred
from claiming that the agreement was the result of “fraud, duress, and the like.” Id.
At least some of the affirmative defenses alleged by Defendants concern the formation
of the contract and are of this nature.11
By Your signature below, You certify that (a) You have received
and accepted all the Equipment listed on this Lease and the Equipment
Schedule “A”, if any; (b) The Equipment conforms with all of Your
requirements; (c) You acknowledge that We are not the manufacturer,
distributor or Vendor of the Equipment; (d) There are no side agreements
with Us or anyone else; (e) You were not induced to sign this by any
assurance from Us or anyone else; (f) You have reviewed and accepted
all of the terms and conditions of this Lease; (g) Your promises herein
will be irrevocable and unconditional in all respects; (h) You understand
and agree that we have purchased the equipment from the Vendor, and
you may contact the above Vendor for your warranty rights, if any,
which we transfer to you for the terms of this Lease; (i) Your approval
as indicated below of our purchase of the equipment from the Vendor is
a condition precedent to the effectiveness of this Lease.
(Filing 1 at 6). The “Equipment” is described as “customized software, website &
digital marketing program” (filing 1 at 6 (uppercase type omitted)).
10
This is a disputed issue because Defendants deny leasing any “goods.” See
Neb. Rev. Stat. U.C.C. § 2A-103(1)(h) (defining “goods” to mean “all things that are
movable at the time of identification to the lease contract”).
11
Eleven paragraphs of Defendants’ answer are identified by them as alleging
affirmative defenses:
24. Defendants plead that Plaintiff is not entitled to recover due to
a lack of, insufficiency of, or failure of consideration.
-4-
However, because the lease was assigned to Axis, another provision of the
agreement must be considered. Paragraph 18 of the lease agreement states that all of
Noreast’s rights under the lease can be assigned without notice to GIA, and further
provides: “You understand that Our assignee (“Assignee”) will have the same rights
and benefits but they do not have to perform any of Our obligations and You agree to
timely pay Assignee all amounts owed under this Lease notwithstanding any defense
or claim You have or assert against Us” (filing 1 at 7, ¶ 18).12
25. Defendants plead that Plaintiff is not entitled to recover due to
Plaintiff’s fraud.
26. Defendants plead that Plaintiff is not entitled to recover due to
the doctrine of illegality.
27. Defendants plead that Plaintiff is not entitled to recover due to
payment.
28. Defendants plead that Plaintiff is not entitled to recover due to
Plaintiff’s failure to mitigate damages.
29. Defendants plead that Plaintiff is not entitled to recover due to
mutual mistake.
30. Defendants plead that Plaintiff is not entitled to recover due to
rescission.
31. Defendants plead that Plaintiff is not entitled to recover due to
the doctrine of unconcsionability [sic].
32. Defendants plead that Plaintiff is not entitled to recover
because the Lease is a contract of adhesion and its enforcement would
offend public policy.
33. Defendants plead that Plaintiff is not entitled to recover
because the Lease is so indefinite, vague, or ambiguous that it is
unenforceable in whole or part.
34. Defendants plead that Plaintiff is not entitled to recover
because there was no meeting of the minds, thus no enforceable contract
existed.
(Filing 14 at 2-3).
12
Consistent with this clause, a “master agreement” governing the assignment
from Noreast to Axis provided: “All obligations, duties, responsibilities and liabilities,
if any under the lease agreements which exist, accrue and/or are incurred, as the case
-5-
The enforceability of this “waiver of defenses” clause must be determined with
reference Neb. Rev. Stat. U.C.C. § 9-403, which provides that “an agreement between
an account debtor13 and an assignor not to assert against an assignee any claim or
defense that the account debtor may have against the assignor is enforceable by an
assignee that takes an assignment: (1) for value;14 (2) in good faith;15 . . . and (4)
without notice of a defense or claim in recoupment of the type that may be asserted
against a person entitled to enforce a negotiable instrument under section 3-305(a).”16
may be, prior to the effective date of each schedule, or arise by our acts or omissions
prior or subsequent to such date, shall remain with us and continue to be our
obligations, and nothing herein shall be construed to constitute a transfer to, or an
assumption by, you of such obligations” (filing 22-4 at 1, ¶ 2.2 (uppercase typeface
omitted)).
13
“Account debtor” means “a person obligated on an account, chattel paper,
or general intangible.” Neb. Rev. Stat. U.C.C. § 9-102(a)(3).
14
“In this section, ‘value’ has the meaning provided in section 3-303(a)
[relating to negotiable instruments].” Neb. Rev. Stat. U.C.C. § 9-403(a).
15
“Good faith” means “honesty in fact in the conduct or transaction concerned.”
Neb. Rev. Stat. U.C.C. § 1-201(b)(20).
16
Neb. Rev. Stat. U.C.C. § 3-305 provides, in part:
(a) Except as stated in subsection (b), the right to enforce the
obligation of a party to pay an instrument is subject to the following:
(1) a defense of the obligor based on (i) infancy of the
obligor to the extent it is a defense to a simple contract, (ii) duress,
lack of legal capacity, or illegality of the transaction which, under
other law, nullifies the obligation of the obligor, (iii) fraud that
induced the obligor to sign the instrument with neither knowledge
nor reasonable opportunity to learn of its character or its essential
terms, or (iv) discharge of the obligor in insolvency proceedings;
(2) a defense of the obligor stated in another section of this
article or a defense of the obligor that would be available if the
-6-
“[T]his section is designed to put the assignee in a position that is no better and no
worse than that of a holder in due course of a negotiable instrument under article 3.”
Id., comment 3.
I realize that I previously dismissed Defendants’ counterclaims for fraud,
misrepresentation, and breach of contract, see Memorandum and Order entered on
January 30, 2013 (filing 30), but that ruling was based on the insufficiency of
Defendants’ pleading, and, in particular, their conclusory allegations that “[i]n
accepting the assignment of the Lease from Noreast, Axis stepped into Noreast’s
shoes and assumed all of Noreast’s liability in connection with the Lease” (filing 14,
¶¶ 35, 38, 41). I did not hold that the terms and conditions of the lease prohibit
Defendants from raising any defenses as a matter of law.
person entitled to enforce the instrument were enforcing a right to
payment under a simple contract; and
(3) a claim in recoupment of the obligor against the original
payee of the instrument if the claim arose from the transaction that
gave rise to the instrument; but the claim of the obligor may be
asserted against a transferee of the instrument only to reduce the
amount owing on the instrument at the time the action is brought.
(b) The right of a holder in due course to enforce the obligation of
a party to pay the instrument is subject to defenses of the obligor stated
in subsection (a)(1), but is not subject to defenses of the obligor stated
in subsection (a)(2) or claims in recoupment stated in subsection (a)(3)
against a person other than the holder.
Former UCC § 9-206(1) provided, more simply, that a “waiver of defenses” clause in
a sales contract or lease “is enforceable by an assignee who takes his assignment for
value, in good faith and without notice of a claim or defense, except as to defenses of
a type which may be asserted against a holder in due course of a negotiable instrument
under the Article on Commercial Paper (Article 3).”
-7-
Defendants requested Axis to produce documents that were identified in Axis’s
initial disclosures, that reflected payments received by Axis, that related to Axis’s
acquisition of the lease, and that involved communications between Axis and Astonish
(filing 43-1 at 5), all of which seem relevant to the issues presented by the motion for
summary judgment. Although Axis initially sought to prevent discovery of these
documents by filing the motion for a protective order, it has since responded to the
requests and apparently has produced the documents without objection. Axis takes
the position that no further discovery is needed at this time, but, for the reasons
explained above, I do not accept its premise that “[t]he only factual matter raised in
Axis’s motion for summary judgment is whether [GIA] failed to make payments
pursuant to the terms of . . . [its] financing lease[ ]” (filing 42 at 5). I also find that
Defendants have not had a sufficient opportunity to conduct discovery.
The purpose of Rule 56(d) “‘is to provide an additional safeguard
against an improvident or premature grant of summary judgment.’” U.S.
ex. rel. Bernard Casino Magic Corp., 293 F.3d 419, 426 (8th Cir. 2002)
(quoting 10B Charles Alan Wright et al., Federal Practice and Procedure:
Civil 3d § 2740 (1998)). Although Rule 56(d) “is not a shield that can be
raised to block a motion for summary judgment without even the
slightest showing by the opposing party that his opposition is
meritorious,” Wilmar Poultry Co. v. Morton–Norwich Prods., Inc., 520
F.2d 289, 297 (8th Cir.1975) (citing Fed.R.Civ.P. 56(f)), it “should be
applied with a spirit of liberality.” U.S. ex. rel. Bernard, 293 F.3d at 426
(citing 10B Charles Alan Wright et al., Federal Practice and Procedure:
Civil 3d § 2740 (1998)).
Generally, the party seeking relief under Rule 56(d) must, by
affidavit, describe “(1) what facts are sought and how they are to be
obtained; (2) how these facts are reasonably expected to raise a genuine
issue of material fact; (3) what efforts the affiant has made to obtain
them; and (4) why the affiant’s efforts were unsuccessful.” Johnson v.
United States, 534 F.3d 958, 965 (8th Cir. 2008) (citing Gualandi v.
Adams, 385 F.3d 236, 244 (2d Cir. 2004)).However, “these requirements
are not inflexible and . . . district courts are vested with considerable
discretion in their administration.” Resolution Trust Corp. v. North
Bridge Assocs., Inc., 22 F.3d 1198, 1203 (1st Cir. 1994); see also
-8-
Stanback v. Best Diversified Food Prods., 180 F.3d 903, 910 (8th Cir.
1999) (citing Nat’l Bank of Commerce v. Dow Chem. Co., 165 F .3d 602,
606 (8th Cir. 1999)) (“In analyzing whether a claim is ripe for summary
judgment, a district court has discretion to determine whether the parties
have had adequate time for discovery, and that determination is reviewed
for abuse of discretion.”). As a result, district courts may relax, or even
excuse, one or more of those requirements. North Bridge Assocs., Inc.,
22 F.3d at 1203.
Jacobs v. PT Holdings, Inc., No. 8:11CV106, 2012 WL 705772, at *2 (D.Neb. Mar. 2,
2012) (footnotes omitted).
Although this case was filed on June 29, 2012, the parties’ Rule 26(f) report
was not completed until February 15, 2013 (filing 32), and the court did not enter a
progression order establishing a discovery schedule until February 28, 2013 (filing
34). That order, which remains in effect, set a deadline of December 13, 2013, for
completion of written discovery and taking depositions. Defendants have presented
evidence that, by informal agreement of counsel, discovery was deferred in the hope
that a settlement could be reached once a lawsuit filed in a Rhode Island court by GIA
against Astonish was resolved; that because the Rhode Island litigation is still
ongoing, the parties began settlement discussions in April 2013; and that on April 13,
2013, Axis rejected Defendants’ settlement offer and advised that it would be filing
a motion for summary judgment rather than making a counteroffer (filing 46 at 1-2;
filing 45-1; filing 45-2).
Under the totality of the circumstances, I conclude that Defendants’ request for
a 90-day extension of time to respond to Axis’s motion for summary judgment is
reasonable, and that a stay of discovery is not appropriate. If Axis wishes to expand
upon its motion for summary judgment, however, I will permit it do so.
Accordingly,
IT IS ORDERED that:
-9-
1.
Plaintiff’s motion for a protective order (filing 41) is denied.
2.
Defendants’ Rule 56(d) motion (filing 44) is granted, as follows:
a.
b.
On or before November 15, 2013, Defendants shall respond to
Plaintiffs’ motion for summary judgment (filing 38); and
c.
3.
On or before October 25, 2013, Plaintiff may file a supplemental
brief and supplemental index of evidence in support of its motion
for summary judgment (filing 38);
Plaintiff may reply to Defendants’ response within the time
prescribed by rule.
The court’s final progression order (filing 34) shall remain in full force
and effect.
August 12, 2013.
BY THE COURT:
Richard G. Kopf
Senior United States District Judge
* This opinion may contain hyperlinks to other documents or Web sites. The U.S. District Court for the
District of Nebraska does not endorse, recommend, approve, or guarantee any third parties or the services or
products they provide on their Web sites. Likewise, the court has no agreements with any of these third
parties or their Web sites. The court accepts no responsibility for the availability or functionality of any
hyperlink. Thus, the fact that a hyperlink ceases to work or directs the user to some other site does not affect
the opinion of the court.
-10-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?