TFG-Illinois v. United Maintenance et al
MEMORANDUM DECISION granting in part and denying in part 64 Plaintiff's Motion for Summary Judgment on all claims; denying 67 Defendants' Motion to Dismiss for Lack of Subject-Matter Jurisdiction; denying 70 Defendants' Motion fo r Partial Summary Judgment on the Nature of the Lease Agreement; denying 72 Motion for Summary Judgment on the Issue of the Guaranties; denying as moot 82 Plaintiff's Motion to Exclude Opinion of Derk Rasmussen; denying 86 Plaintiff's Motion to Strike Defendant's <ptopm for Partial Summary Judgment on the Nature of the Parties Agreement and in the alternative Plaintiff's Motion for Additional Discovery; denying 120 Motion to Strike Footnote; (Settlement Conference set for 11/18/2011 09:00 AM in Room 477 before Magistrate Judge Paul M. Warner). Signed by Judge Ted Stewart on 11/01/2011. (tls)
IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
TFG-ILLINOIS, L.P., a Utah limited
MEMORANDUM DECISION AND
ORDER ON ALL PENDING
UNITED MAINTENANCE COMPANY,
INC., an Illinois corporation, UNITED
SECURITY SERVICES, INC., a Nevada
corporation, UNITED SUPPLY SERVICES,
INC., a Nevada corporation, UNITED
TEMPS, INC., a Nevada corporation,
UNITED NATIONAL MAINTENANCE,
INC., a Nevada corporation, RICHARD A.
SIMON, a citizen of Illinois, and CAROL D.
STEIN-STERLING, a citizen of Illinois,
Case No. 2:09-CV-1122 TS
This matter is before the Court on several motions: (1) Defendants United Maintenance
Company, Inc., United Security Services, Inc., United Supply Services, Inc., United Temps, Inc.,
United National Maintenance, Inc., Richard A. Simon, and Carol D. Stein Sterling's (collectively
"United") Motion to Dismiss for Lack of Subject-Matter Jurisdiction Pursuant to Rule 12(b)(1)1;
(2) Plaintiff TFG-Illinois’s (“TFG”) Motion for Summary Judgment on All Claims2; (3) United’s
Motion for Partial Summary Judgment on the Issue of the Guaranties3; (4) United’s Motion for
Partial Summary Judgment on the Nature of the Lease Agreement4; (5) TFG’s Motion to Exclude
Opinion of Derk G. Rasmussen5; (6) TFG’s Motion to Strike United’s Motion for Partial
Summary Judgment on the Nature of the Parties’ Agreement and in the alternative Plaintiff’s
Rule 56(f) Motion for Additional Discovery6; and (7) TFG’s Motion to Strike Footnote No. 5 to
Defendants’ Reply in Support of Their Motion to Dismiss.7
On January 3, 2006, TFG entered into a Master Lease Agreement (“the Lease Agreement”
or “the Lease”) with United. The subject of the Lease was computer accounting software,
hardware, and the consulting services needed to install that software (“the Leased Equipment”).8
The Lease was to consist of three terms: the Delivery Term, the Acceptance Term, and the Base
Docket No. 67.
Docket No. 64.
Docket No. 72.
Docket No. 70.
Docket No. 82.
Docket No. 86.
Docket No. 120.
Docket No. 65 Ex. I, at 1.
Term.9 The Delivery Term would begin once United took delivery of the Leased Equipment, and
would end when the Acceptance Term began.10 The Acceptance Term commenced on the
Acceptance Date, which was to be the earlier of either “(i) the date as set forth in the Acceptance
Certificate, or (ii) if Lessee does not, for any reason, sign an Acceptance Certificate the date shall
be the date Lessee received the Equipment.”11 Under the terms of the Lease, the Base Term was
to extend for 36 months and United was to pay $854,285.71 over that time.12 At the end of the
Base Term, United had three options: (1) purchase the Leased Equipment at a price to be agreed
upon; (2) return the Leased Equipment and enter into a new transaction with TFG; or (3) have the
Lease renew automatically for another 12 months.13 United was required to notify TFG which
option United intended to choose by certified mail at least 180 days before the conclusion of the
Base Term.14 If United failed to do so, or if United and TFG could not reach an agreement on
either the purchase terms or the terms for a new agreement when the equipment was returned, the
Lease would automatically renew.15
Id. Ex. D ¶ 2(a).
Id. Ex. K.
Id. Ex. D ¶ 19(d).
United claims to have received delivery of all equipment before the Lease Agreement was
signed.16 On March 29, 2006, United signed a Partial Acceptance and Authorization No. 1 for
Progress Payments (“the Partial Acceptance”).17 Then, on October 23, 2006, United signed an
Acceptance Certificate to Amended and Restated Lease Schedule No. 1 (“the Final
At the same time United signed the Lease, Richard Simon and Carol Stein-Sterling signed
guaranty agreements.19 United signed the Lease Schedule No. 1 in conjunction with the Lease
Agreement, which contained a provision releasing the guarantors from liability after 18 months
of the Base Term, provided there was no ongoing event of default.20 Later this schedule was
superseded by the Amended and Restated Lease Schedule No. 1, which contained an identical
Before United signed the Final Acceptance in October 2006, United paid roughly
$149,000 to TFG. These payments were classified as pro rata rental payments and were not
applied to the Lease balance.22 Under the Lease, United was to pay pro rata rental fees to TFG
“from the date each Item of Equipment [was] delivered (such delivery to be confirmed by
Docket No. 89, lxxii.
Docket No. 65 Ex. G.
Id. Ex. I.
Id. Ex. BB.
Id. Ex. E ¶ 11.
Id. Ex. I ¶ 10.
Docket No. 48, at 23.
Lessee) (the ‘Partial Acceptance Date’) through the Acceptance Date.”23 TFG classified these
payments as rental payments rather than lease payments because it did not think the Acceptance
Date had occurred.24
On November 16, 2006, TFG sold all its “right, title and interest in the Property in the
Lease” to Republic Bank (“Republic”) via a Sales and Assignment Agreement (“Sales
Agreement”).25 The Sales Agreement gave TFG a “unilateral right to repurchase the stream of
the lease payments and leased assets from [Republic] at their fair market value.”26 The agreement
also appointed TFG as Republic’s agent to “perform all [Republic’s] obligations under the
Lease” in exchange for $120 dollars a year.27
United continued to make lease payments through the Base Term. Midway through the
Lease, United’s CFO, Mr. Gerald Tack, left the company and was replaced by Ms. Linda Wolf.
When Ms. Wolf arrived, she tried to inform herself about the Lease, but apparently remained
unaware of the end of term options specified in paragraph 19(d) of the Lease Agreement.28
In October 2009, United sent TFG an email asking if United’s latest payment on the
Lease (October) was the final payment.29 TFG responded that the Lease had been extended
Docket No. 65 Ex. D ¶ 2(b).
Docket No. 107, at 21.
Docket No. 69 Ex. B, at 1.
Id. at 2.
Id. at 2.
Docket No. 89 Ex 14, at 84:14.
Docket No. 65 Ex. U (filed under seal).
because TFG had not received written notice of United’s end of term election.30 Soon after, Ms.
Wolf contacted Mr. Johnson at TFG and argued with him about whether the automatic extension
was proper.31 Mr. Johnson maintained his position that the Lease had been extended, and
rejected an offer from Ms. Wolf to purchase the equipment at $25,000.32
After disagreeing with Mr. Johnson, Ms. Wolf cancelled the November 2009 lease
payment.33 United has made no payments since. During a November 2009 phone call on an
unspecified date, TFG claims to have exercised its right to repurchase the lease payments and
Leased Equipment from Republic Bank.34
TFG filed suit for breach of contract against both United and the guarantors on December
21, 2009,35 and United answered with counterclaims.36 TFG has moved for summary judgment
on all claims. United has moved to dismiss TFG’s suit for lack of standing and for summary
judgment on two issues. TFG has responded to United’s motions with various motions to strike.
Each motion will be dealt with in turn.
Id. Ex. T, at 65-70.
Id. at 70:1-15.
Id. at 77:8-23.
Docket No. 78 ¶ 16.
Docket No. 2.
Docket No. 48.
II. MOTION TO DISMISS
“[T]he party invoking the federal court’s jurisdiction bears the burden of proof.”37 Thus it
is TFG’s obligation as plaintiff to demonstrate that it had standing at the time this action was
A Rule 12(b)(1) motion can challenge the substance of a complaint’s
jurisdictional allegations in spite of its formal sufficiency by relying on affidavits
or any other evidence properly before the court. “It then becomes necessary for the
party opposing the motion to present affidavits or any other evidence necessary to
satisfy its burden of establishing that the court, in fact, possesses subject matter
In considering whether jurisdiction exists, the Court must
accept as true all material allegations of the complaint, and must construe the
complaint in favor of the complaining party. At the same time, it is within the
trial court’s power to allow or to require the plaintiff to supply, by amendment to
the complaint or by affidavits, further particularized allegations of fact deemed
supportive of plaintiff’s standing. If, after this opportunity, the plaintiff’s standing
does not adequately appear from all materials of record, the complaint must be
To establish standing, a party must show “(1) she has suffered injury in fact (2) there is a
causal connection between the injury and the conduct complained of, and (3) it is likely that the
injury will be redressed by a favorable decision.”41 Only the first element is in dispute here.
Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974).
Nova Health Sys. v. Gandy, 416 F.3d 1149, 1154 (10th Cir. 2005) (“Standing is
determined as of the time the action is brought.”).
New Mexicans for Bill Richardson v. Gonzales, 64 F.3d 1495, 1499 (10th Cir. 1995)
(quoting St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989)).
Warth v. Seldin, 422 U.S. 490, 501 (1975) (citations omitted).
United States v. Colo. Supreme Court, 87 F.3d 1161, 1164 (10th Cir. 1996) (citing
Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-61 (1992)).
An injury in fact is “an invasion of a legally protected interest that is concrete,
particularized, and actual or imminent, not conjectural or hypothetical.”42 To have standing, TFG
must have sustained such an injury “as of the time the action is brought.”43 If TFG’s repurchase
of the Lease from Republic was valid at the time this suit was filed, then any alleged breach of
the Lease would clearly constitute direct injury to TFG. TFG maintains that the repurchase was
valid, but United disagrees. Because the repurchase was agreed to orally, United claims that the
assignment was ineffective under Utah’s statute of frauds. United also argues that Republic did
not comply with the requirements of the Sales Agreement that governed the repurchase
transaction, and thus the assignment was invalid. Finally, United argues that, even if the
assignment was valid, it did not become effective until after TFG had paid Republic for the Lease
in full, which did not occur until well after this suit was filed.
In the alternative, if TFG is correct that a servicer of a loan has standing to sue when a
loan contract it was servicing is breached, then TFG can show direct injury as a servicer.
Accordingly, the Court will consider both whether the transfer of the Lease was valid and if
TFG’s alleged status as servicer of the loan confers standing.
VALIDITY OF AN ORAL ASSIGNMENT
As a threshold matter, it appears that United is not permitted to raise a statute of frauds
challenge to the validity of the repurchase because United was not a party to the contract between
TFG and Republic. The Restatement of Contracts notes: “[statute of frauds] provisions . . .
cannot ordinarily be asserted by third persons, including the obligor of an assigned right.
Id. at 1164-65.
Nova Health Sys., 416 F.3d at 1154.
Notwithstanding noncompliance with the Statute, therefore, the assignment is effective against
the obligor.”44 The Restatement bases this assertion on the more general principle that “only a
party to a contract or a transferee or successor of a party to the contract can assert that the
contract is unenforceable under the Statute of Frauds.”45
This principle was essentially adopted in Utah in Garland v. Fleischmann.46 In Garland,
the Utah Supreme Court considered a creditor’s objection to an oral modification of a contract
between creditor’s debtor and another party. The creditor sought to invalidate the modification
(thereby protecting her interests as creditor) based on the statute of frauds. The court held that
the creditor’s argument “must fail because she is not entitled to raise the defense of the statute of
frauds . . . . She was not a party to the contract, nor was she in privity with a party to the
contract.”47 The court went on to quote Professor Williston with approval: “It is the intent and
purpose of the Statute of Frauds to give to the party to an oral contract against whom the
enforcement of the contract is sought by the other party the right to avail himself of the
provisions of the Statute as a defense to his liability.”48 The court also found that this principle
was supported in case law.49
Restatement (Second) of Contracts: Mode of Assignment in General § 324 cmt. b
Id. Effect of Unenforceable Contracts as to Third Parties § 144 (1981).
831 P.2d 107 (Utah 1992).
Id. at 109.
Id. (quoting 3 Samuel Williston, A Treatise on the Law of Contracts § 530 (3d ed. 1960)
Id. (collecting cases).
Though United is not a creditor of Republic or TFG, it is also not a party to the contract
assigning the Lease from Republic to TFG, nor is United in privity with either in regards to that
contract. Thus, even if the statute of frauds were applicable to this assignment, the claim is not
United’s to raise.
However, even if United were permitted to raise a statute of frauds challenge in this case,
it appears that such a challenge would fail. Utah’s statute of frauds requires “lease contracts” to
be in writing if the total payments under the lease will amount to more than $1000.50 Because the
lease in question is for considerably more than $1000, United contends that if the assignment
from Republic to TFG constitutes a lease contract, then the assignment must be memorialized by
a writing and signed by Republic.
A lease is defined by the Utah code as “a transfer of the right to possession and use of
goods for a term, in return for consideration.”51 A lease contract is “the total legal obligation that
results from the lease agreement,” and a lease agreement is “the bargain of the lessor and the
lessee.”52 Thus, whereas the agreement between United and TFG or Republic is properly
characterized as a lease contract—United receiving the right to possess and use software in return
for consideration paid to the lessor—the transfer of the rights to receive payment from a lease is
not a lease contract itself. TFG received no right to possess and use any goods from Republic
when it repurchased the right to receive lease payments. Accordingly, the repurchase transaction
is not a lease contract and does not fall under Utah’s statute of frauds for leases.
Utah Code Ann. § 70A-2a-201(1) (West 2011).
Id. § 70A-2a-103(j).
Id. § 70A-2a-103(k)(l).
Instead, the transaction is more accurately characterized as an assignment. An
assignment “operates to transfer to the assignee all the right, title, or interest of the assignor in the
thing assigned.”53 According to the language of the sales agreement, TFG has the right to
repurchase (as opposed to lease) from Republic both the leased assets (here the software) and the
stream of lease payments from United. Once the assignment was made, TFG owned all of
Republic’s right, title and interest in the thing assigned. Neither Utah’s specific provisions on
leases54 nor assignments55 require that an assignment of lease payments be in writing.
“As a general rule, in the absence of a statute to the contrary, any valid right . . . may be
assigned orally regardless of whether it is evidenced by a writing.”56 Though case law on the
validity of oral assignments in Utah is scant, some cases have addressed the issue. In Merchants’
Credit Bureau v. Robinson, which considered the assignment of an account for collection, the
Supreme Court of Utah noted that “[a]n assignment may be made by parol.”57 In Lone Mountain
Production Co. v. Natural Gas Pipeline Co. of America, this Court, applying Utah law, reiterated
6A C.J.S. Assignments § 87 (2011); accord Restatement (First) of Contracts: Oral and
Written Assignments § 157 (1932) (“A right can be effectively assigned either orally or by a
See Utah Code Ann. § 70A-2a-201.
Id. § 70A-2-210.
6A C.J.S. Assignments § 64 (2011).
251 P. 10, 10 (Utah 1926).
that “no particular form is necessary to effect a valid assignment.”58 Thus, if TFG has shown that
an assignment did occur, the fact that it was made orally will not prevent it from being effective.
TFG has put forward evidence tending to show that an oral assignment took place.
Jordan Greenwell, a TFG employee, reported in a sworn declaration that he contacted Republic’s
Chief Credit Officer, Mark Carpenter, in November and notified Mr. Carpenter that TFG would
be exercising its unilateral right to repurchase the Lease.59 Mr. Carpenter, also in a sworn
declaration, indicates that he received Mr. Greenwell’s call and agreed to sell back the Lease.60
TFG has also provided financial records showing seven payments of $25,748.17 to Republic as
consideration for the sale of the Lease.61 These payments are recorded on the financial records
documenting payments from United to Republic, indicating that the payments from TFG were
meant as consideration for the Lease. TFG has also submitted emails indicating payments were
made from TFG to Republic.62 In short, it appears clear that Republic intended to assign the
Lease to TFG and that TFG intended to receive that assignment in exchange for payments
totaling $180,237.29. The fact that the parties expressed their intentions orally rather than in a
writing does not make the transaction invalid.
710 F. Supp. 305, 309 (D. Utah 1989) (citing Commodore v. Armour & Co., 441 P.2d
815 (Kan. 1968)). In Lone Mountain Prod., a written assignment was at issue.
Docket No. 78 Ex. A §§ 15-17.
Id. at Ex. B §§ 5-7.
Docket No. 104 Ex. B, at 8.
Docket No. 79 Exs. D & E (filed under seal).
United has produced some cases, none from this jurisdiction, that adopt the principle that
assignments of leases cannot be oral. United’s first case, Garr v. Winn, comes from
Oklahoma.63 In that case, the Supreme Court of Oklahoma noted that when a lease was required
to be in writing under the state statute of frauds, any assignment of that lease was also required to
be in writing.64 This principle was established by a long line of Oklahoma case law.65 However,
Oklahoma law is not binding on this Court, and is especially irrelevant given that it contradicts
Utah case law. The same must be said for United’s other citations.66
REQUIREMENTS OF THE SALES AGREEMENT
United also argues that TFG did not comply with the terms of the Sales Agreement in
repurchasing the Lease, and thus contends the transaction either didn’t occur or was invalid.
United’s first argument is that, based on the Sales Agreement between TFG and Republic,
Republic was required to produce a bill of sale if TFG did repurchase the Lease and that
Republic did not produce one. To make this argument, United has essentially poached an
unrelated requirement from a preceding paragraph in the Sales Agreement, which requires
272 P.2d 408 (Okla. 1954).
Id. at 5 (citing Woodworth v. Franklin, 204 P. 452 (Okla. 1921)).
Woodworth, 204 P. at 458 (collecting cases).
Plaintiff cites C&H P’ship v. Shaw Indus. Group, 2006 WL 1229001 (M.D.N.C. May 4,
2006) and Diers, Inc. v. Whited, 2001 WL 708914 (Neb. Ct. App. June 26, 2011). C&H P’ship
comes from North Carolina, where it has “long been the law . . . that assignments of leases fall
under the statue of frauds.” 2006 WL 1229001, at *3. Diers, an unpublished decision from a
Nebraska state court, concerned the sale of goods, a situation clearly addressed by Nebraska
statutory law, and thus is entirely irrelevant here.
Republic to give TFG a bill of sale, and introduced it into the clause governing TFG’s right to
repurchase. The preceding paragraph reads:
Upon Bank’s receipt of all Assigned Rental Payments, all of Bank’s right, title
and interest in the Property and Lease shall automatically transfer to [TFG] for no
additional consideration, free and clear of all liens, claims and encumbrances
caused or permitted by or through Bank, whereupon Bank agrees to deliver to
Seller a bill of sale for the Property and the Lease and reassign to Seller any
Lessor/Lessee financing statements earlier assigned to Bank in connection with
This section contemplates the roles of both TFG and Republic after the Lease has come to an end
and all payments have been made. When that occurs, title is automatically returned to TFG and
Republic is to give TFG a bill of sale. This paragraph is separate, however, from the paragraph
governing TFG’s right to repurchase the Lease at any time. Though one precedes the other, they
contemplate two different situations: the natural conclusion of the Lease period and the right of
TFG to repurchase the Lease at any time before that conclusion. The repurchase paragraph reads:
The parties to this Agreement hereby agree that during the entire period of time
for which Bank will receive lease payments under the term of this Agreement,
[TFG] will have a unilateral right to repurchase the stream of lease payments and
leased assets from Bank at their fair market value. The parties agree that fair
market value will be defined as the net book value of the lease on Bank’s records
of accounting at the time a unilateral demand to repurchase is made.68
It is clear from this language of the contract that Republic is under no obligation to give TFG a
bill of sale in connection with a repurchase occurring before the end of the Lease. Thus, United’s
argument that the repurchase was invalid because no bill of sale was produced fails.
Docket No. 69 Ex. B, at 3 (emphasis added).
Id. (emphasis added).
The same must be said of United’s contention that TFG’s position on whether a bill of
sale was required in a repurchase transaction contradicts Republic’s interpretation of the contract,
which, according to United, “is controlling since Republic actually held the lease at the time.”69
United claims that Boyd Lindquist, the president of Republic, stated in his deposition that a bill
of sale was required to effectuate TFG’s repurchase.70 Even if Mr. Lindquist’s interpretation
were controlling, United has misrepresented his testimony. Focusing on one statement and
disregarding its context, United quotes Mr. Lindquist as saying “the document says we would
give a bill of sale back. That’s typically what we would do.”71 When the context of the
statement is explored, however, it becomes clear that Mr. Lindquist was responding to questions
relating to the paragraph setting out the end of lease procedures:
Q: But in terms of the automatic transfer back to the seller, the condition in this
statement is that the bank must first receive all of the assigned rental payments as
that term is defined in this document, correct?
Q: And then the last clause of that sentence says, “whereupon the bank agrees to
deliver to seller a bill of sale for the property and the lease and reassign to seller
any lessor/lessee financing statements assigned to bank in connection with the
lease.” Do you see that statement?
Q: My question to you is has the bank ever delivered a bill of sale for the property
and the lease in this particular case?
A: I don’t know.
Q: If that document existed, would it have been among the documents that you
would have produced in connection with the subpoena?
Docket No. 113, at 6.
A: Well we provided everything we had. All I can say is that the document says
we would give a bill of sale back. That’s typically what we would do.72
Mr. Lindquist was explicitly restricting his testimony to what the Sales Agreement itself said (as
opposed to an opinion about what it meant), and was responding to a line of questioning
addressing the automatic transfer, not the repurchase provision. Accordingly, his testimony does
not support United’s claim.
Finally, United highlights the difference between the words describing what TFG receives
from Republic during an automatic reversion and a repurchase situation.73 When the Lease
automatically reverts at the end of the Lease term, United notes, the language of the agreement
specifies that TFG receives all of Republic’s “‘right, title and interest in the Property and [the
Lease].’”74 In contrast, when TFG exercises its repurchase option, TFG receives only the
“‘stream of the lease payments and leased assets from Bank.75’” Citing the well established
principle of interpretation that when different words are used different meanings are intended,
United argues that the differences here are meaningful.76 Essentially, United proposes that in a
repurchase situation, TFG gets some rights but “not the lease itself.”77
Docket No. 69 Ex. 5, at 111:5-112:5 (emphasis added).
Docket No. 113, at 6 n.3.
Id. (quoting Docket No. 69 Ex. B, at 2).
However, regardless of whether United is correct that some unidentified remainder of the
Lease stayed with Republic after the assignment, United is not correct that such a situation would
destroy TFG’s standing, as United is presumably implying in this argument. As an assignee of a
right to collect payments on a lease, TFG would clearly be injured by a breach of that lease, even
if it did not own the Lease in its entirety.78 Thus United’s contention is irrelevant.
EFFECTIVE DATE OF ASSIGNMENT
The next issue the Court must resolve is when the assignment became effective. TFG
argues that the assignment was made during the November 2009 phone call. United contends
that even if an assignment transaction was initiated then, it was not effective until TFG
completed its payments to Republic in August of 2010.
Generally, “[o]nce a valid assignment is made, the assignee stands in the shoes of the
assignor.”79 Thus, when addressing the question of standing, the relevant point in time is when
the assignment was made, not necessarily when it was paid off. An assignment is made when the
transferor “confers a complete and present right on the transferee. The assignor must not retain
control over the property assigned, the authority to collect, or the power to revoke.”80 Thus, the
An assignor can assign “any valid right.” 6A C.J.S. Assignments § 64. “A valid
assignment generally operates to vest in the assignee the same right, title, or interest the assignor
has in the thing assigned.” Id. § 87. Thus, even if the only “thing” Republic was assigning was
the right to collect lease payments (as opposed to the Lease itself), as long as the right was valid
and the assignment effective, TFG “stands in the shoes of the assignor.” Lone Mountain Prod.,
710 F. Supp. at 309. Standing in the shoes of Republic as to the right to collect payments, TFG
would have constitutional standing to sue any party who purportedly injured that right, just as
Lone Mountain Prod., 710 F. Supp. at 309.
Purco Fleet Servs., Inc. v. Idaho State Dep’t. of Fin., 90 P.3d 346, 351 (Idaho 2004)
(quoting 6 Am. Jur. 2d Assignments § 98)).
pertinent question here is whether Republic intended to retain any of the rights subject to the
assignment until the assignment was paid off.
As has been discussed above, what TFG was seeking to repurchase were the rights to the
“stream of lease payments” and the “leased assets.”81 According to TFG, the repurchase was “an
effort to realize the residual economic value in the end-of-term options contained in the lease.”82
Essentially, TFG seems to have been paying Republic for the value of the payments that TFG
thought United was obligated to make on the Lease beyond the Base Term. Accordingly, it
seems unlikely that either party intended the effective date of the assignment to be delayed. After
the repurchase agreement was made, TFG began to pay Republic the same monthly payment
United had been paying.83 It seems reasonable that from the time the agreement was made, TFG
(as opposed to Republic) was entitled to any lease payments that United made. If Republic were
to retain the right to payments from United while simultaneously receiving payments from TFG
the arrangement would make little sense.
United offers Thinking Machines Corp. v. Board of Trustees of the University of Illinois,
an unpublished case from the Court of Claims of Illinois, to support its proposition that the
assignment was not effective until all payments were made.84 The Court notes that this case is
not binding authority and, at any rate, is clearly distinguishable.
Docket No. 69 Ex. B ¶ 3.
Docket No. 78 Ex. A ¶ 19.
Docket No. 104 Ex. B.
1998 WL 1758269 (Ill. Ct. Cl. Sept. 28, 1998).
In Thinking Machines, as in the instant case, plaintiff had entered into a lease with
defendant, assigned its interests in the lease to a third party bank by a written instrument, and
then claimed to have recovered that interest by means of an oral assignment from the bank.85 The
defendant challenged the plaintiff’s standing. The court considered whether the alleged
assignment was effective as of the date the suit was commenced, which the court noted was a
matter of the parties’ intent. Because there was no writing to scrutinize, the court looked to “the
surrounding circumstance and acts of the parties to ascertain their intentions.”86 Plaintiff offered
a letter drafted by its counsel and acknowledged by the bank as proof of the party’s intent. In that
letter, the bank noted that it had incurred attorney’s fees in relation to the lease during the years
previous to the reassignment of the lease back to plaintiff.87 The letter also acknowledged that
the lessee had paid the bank the final amount owing on the lease before the commencement of
the suit, and at the time of payment “except for the attorney’s fees and costs . . . [the bank’s]
interest in the Assignment terminated.”88 Unfortunately for plaintiff, however, the letter also
contained a statement that after plaintiff paid the bank for the attorney’s fees incurred, a
transaction that took place after the filing of the suit, the bank “terminated its security interest” in
the leased equipment and that “effective with the termination of the security interest . . . [the
bank] possesses no right, title or interest, either legal or equitable, in the [Lease] Agreement.”89
Id. at *1-2.
Id. at *3.
Id. at *4.
The court concluded that because this complete termination of interest in the agreement did not
occur until after the plaintiff filed suit, plaintiff was not an assignee at the time suit was brought,
and accordingly had no standing.90
The case before the Court is distinguishable. Plaintiffs in Thinking Machines were not
intending to “repurchase” the lease from bank. Instead, plaintiff was trying to get back title to the
assets after the lease had concluded. However, the bank was apparently unwilling to relinquish
all claim on the title until the money it had spent on attorney’s fees was reimbursed. The court’s
focus was not, as United suggests, on the day the amount owed between plaintiff and the bank
was paid. Rather, it was on the point at which the bank no longer had any interest in the leased
equipment. Conversely, in the case before this Court, TFG has allegedly sought to repurchase a
lease that was still active. The distinction is relevant because, as discussed above, the exchange
of money indicates TFG’s present desire to obtain rights to the lease payments immediately.
Regardless of whether Republic might have intended to retain an interest in the Leased
Equipment until the balance of the Lease was paid off, it would make no sense for Republic to
retain an interest in the lease payments from United while simultaneously taking money from
TFG as compensation for the sale of those payments. Accordingly, Republic makes no claim, as
the third party bank in Thinking Machines did, that it retained any interest in the lease payments.
At oral argument, United’s counsel again referenced a portion of Mr. Lindquist’s
deposition, which United claims establishes that it was not Republic’s intent to transfer the Lease
back to TFG until TFG had paid for it. The relevant portion of the deposition reads: “What I say
to you is you look at the documents, the sales and assignment. That equipment is transferred to
Id. at *4-5.
Republic Bank. When it’s paid off, we return it back. And that’s – I think that’s clear in the
documentation.”91 The preceding page of the deposition is not included in United’s exhibit,
rendering it somewhat unclear what the line of questioning is focusing on. However, it appears
that once again Mr. Lindquist is referring to the automatic re-transfer provision rather than the
repurchase provision. It is not clear, at any rate, in the documentation that Republic would have
only given the lease rights back to TFG after TFG had paid the full repurchase price. It is clear,
on the other hand, that the documentation requires the Lease to be fully paid off before the
Leased Equipment is automatically re-transferred to TFG.
LOAN SERVICER STANDING
TFG contends that even if it was not properly in possession of the Lease at the time this
suit was filed, TFG still has standing to sue for breach of contract based on its role as servicer of
the Lease. Under the terms of the Sales Agreement, TFG is designated as
[Republic’s] agent to perform all of [Republic’s] obligations as successor lessor
under the Lease, including without limitation, billing all rental payments and
applicable sales/use tax and property tax, and filing all sales/use and property tax
returns and remitting the tax due thereon to the applicable taxing authority. . . .
In consideration of [TFG’s] performance of the foregoing services, [Republic]
shall pay to [TFG] a fee of $10.00 per month, payable each year in advance, on
the commencement or anniversary date of this Agreement.92
TFG reasons that it was entitled to fees as a servicer of the contract, which fees were lost to it
upon United’s breach, and thus TFG has been harmed.93 TFG cites some case law supporting
this proposition, all of which comes from bankruptcy proceedings and relates to the right of a
Docket No. 69 Ex. D, at 141:20-25.
Id. Ex. B, at 2.
Docket No. 78, at 13.
mortgage servicer to sue in its own name based on its pecuniary interest in continuing to service
a defaulted loan.94
United responds that TFG is not a mortgage servicer, and that even if it were, the cases
TFG cites set forth two requirements for mortgage servicer standing: “(1) the servicer held a
‘pecuniary interest in collecting payments under the terms of the note and mortgage,’ and (2) the
servicer has actual ‘possession of the promissory note.’”95 Because, according to United, TFG
neither collected payments nor held the lease documents, TFG cannot qualify for servicer
standing as set forth in these cases.
The test United gleans from the cases cited by TFG is somewhat inaccurate. Neither case
requires that both factors be present in order for a servicer to have standing.96 Furthermore,
servicer standing has been granted beyond the context of bankruptcy proceedings and does not
seem to require anything more than that a servicer have a pecuniary interest that is harmed by a
borrower’s default. In CW Capital Asset Management, LLC. v. Chicago Properties, LLC., the
Seventh Circuit had “no doubt about the Article III standing” of a mortgage servicer: “though the
[servicer] may not be an assignee, it has a personal stake in the outcome of the lawsuit because it
Id. at 12-14 (citing In Re O’Kelley, 420 B.R. 18, 23 (Bankr. D. Haw. 2009); In re Eads,
417 B.R. 728 (Bankr. E.D. Tex 2009); In re Kang Jin Hwang, 396 B.R. 757 (Bankr. C.D. Cal.
Docket No. 113, at 8.
E.g., In Re O’Kelley, 420 B.R. 18, 23 (D. Haw. 2009) (“Courts have found that ‘a
mortgage servicer has standing to participate in a debtor’s bankruptcy case by virtue of its
pecuniary interests . . . . Courts have also found that a servicer’s possession of the note (as
opposed to being its legal ‘holder’) is sufficient to establish standing.”) (citations omitted); In re
Eads, 417 B.R. at 739 n.12 (“Many courts have held that a mortgage servicer has standing to
participate in a debtor’s bankruptcy case by virtue of its pecuniary interest in collecting payments
under the terms of the note and mortgage.”) (collecting cases).
receives a percentage of the proceeds of a defaulted loan that it services.”97 Though a mortgage
servicer is not a lease servicer, the difference does not seem to be relevant for purposes of
determining standing.98 The key inquiry is whether TFG as servicer of the loan can be said to
suffer a direct injury from United’s alleged breach. Because TFG, like a mortgage servicer, has a
pecuniary interest in performing its duties, any default by United threatens pecuniary loss.
Though the loss is admittedly much smaller than that which could be sustained by the lessor, the
size of the injury is not at issue. As TFG notes, the injury requirement is satisfied so long as a
party shows an “identifiable trifle” of injury.99 Thus, as long as TFG had a pecuniary interest in
performing its role as servicer of the Lease, a default on the Lease harms that interest and
constitutes an injury in fact.
United has contended that TFG does not actually collect the rent from United on behalf of
Republic.100 But how TFG has performed its duties under the Sales Agreement does not affect
the standing inquiry. What matters is whether TFG had a pecuniary interest in servicing the
Lease. Under the Sales Agreement, TFG was entitled to receive compensation for its role as
610 F.3d 497, 501 (7th Cir. 2010).
See id. at 500 (explaining that “every mortgage needs someone to collect the borrower’s
monthly payments of principal and interest; make sure the property is properly insured; attend to
any default, either by suing the borrower and if necessary foreclosing the mortgage or by
modifying the mortgage to make its terms less onerous to the borrower; and discharge the
mortgage when it is paid off.”). These ministerial duties seem largely analogous to those
belonging to TFG pursuant to the Sales Agreement.
Docket No. 78, at 12 (citing Otero v. Mesa Cnty. Valley Sch. Dist. No. 51, 568 F.2d
1312, 1314 (10th Cir. 1977)).
Docket 113, at 8.
servicer. Whether it performed that role well has no bearing on whether or not TFG suffered
injury attributable to United’s alleged breach of the Lease.
The Court finds that TFG has standing to bring this action because the assignment
between TFG and Republic was valid. Furthermore, even if there were some statute of frauds
deficiency in the assignment, United, as a third party obligor, would not have standing to
challenge that deficiency. Finally, even if the assignment was invalid, TFG would have standing
as a servicer of the Lease. Accordingly, the Court will deny the Motion to Dismiss.
III. TFG’S MOTION FOR SUMMARY JUDGMENT
Summary judgment is proper if the moving party can demonstrate that there is no genuine
issue of material fact and it is entitled to judgment as a matter of law.101 The party seeking
summary judgment bears the initial burden of demonstrating an absence of a genuine issue of
material fact.102 “Once the moving party has properly supported its motion for summary
judgment, the burden shifts to the nonmoving party to go beyond the pleadings and set forth
specific facts showing that there is a genuine issue for trial.”103 “An issue is genuine ‘if the
evidence is such that a reasonable jury could return a verdict for the nonmoving party.’”104
TFG moves for summary judgment on all its claims, as well as United’s counterclaims.
TFG alleges breach of contract against United and United’s guarantors Richard A. Simons and
See Fed.R.Civ.P. 56(a).
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Sally Beauty Co., Inc., v. Beautyco, Inc., 304 F.3d 964, 971 (10th Cir. 2002).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Carol D. Stein-Sterling. TFG contends that United breached in three ways: (1) by failing to pay
the amount owing under the Lease during the extension period, which United automatically
entered into by failing to provide notice of its end of term election, (2) by failing to pay for the
month of November, 2009, which was purportedly the last payment owed on the Base Term, and
(3) by failing to notify TFG of deficiencies in the Leased Equipment and actions that United took
in response to those deficiencies. United responds that, though it did not provide notice by
certified mail, it did provide TFG with oral notice that United would be purchasing the Leased
Equipment, which TFG subsequently acknowledged via email. United also claims that Plaintiff
committed fraud and that this was a breach on TFG’s part excusing all further performance from
United. Finally, United argues that under the terms of the Lease Agreement, United was not
required to inform TFG of flaws in the software.
United counterclaims with four causes of action: (1) breach of contract; (2) breach of the
implied covenant of good faith and fair dealing; (3) unjust enrichment; and (4) fraud in the
EXTENSION TERM PAYMENTS
TFG’s first breach claim focuses on the end of term options found in section 19(d) of the
Lease Agreement. TFG contends that 19(d) allows TFG to extend the Lease, that TFG did so in
accordance with 19(d), and that United breached the contract by refusing to pay lease payments
for the extension term. Section 19(d) reads:
(i) purchase all, but not less than all, of the Items of Equipment for a price to be
agreed upon by both [TFG] and any applicable Assignee and [United], (ii) extend
the Lease for twelve (12) additional months at the rate specified on the respective
Schedule, or (iii) return the Equipment to [TFG] . . . . In the event Lessor and
Lessee have not agreed to either option (i) or (iii) by the end of the Base Term or
if Lessee fails to give written notice of its election vias certified mail at least one
hundred eighty (180) days prior to the termination of the Base Term, then option
(ii) shall apply at the end of the Base Term.105
“Where [contract] language is unambiguous, the parties’ intentions are determined from
the plain meaning of the contractual language.”106 The Court finds that section 19(d) is not
ambiguous and that it clearly states that if United failed to elect an option within 180 days of the
end of the Lease by certified mail the Lease would be automatically extended. The Court also
finds that United did not comply with the contractual requirements for exercising the option to
purchase the Leased Equipment. United admits as much, but contends that because there is proof
that TFG knew that United wanted to buy the Leased Equipment, and that TFG knew this long
before the 180 day cut off, the Court should apply the doctrine of substantial compliance and
hold that the notice requirement of 19(d) was satisfied.
In response, the Court notes that both TFG and United are sophisticated parties well
versed in the vicissitudes of contractual obligations. Furthermore, United was assisted by
counsel throughout the bargaining process. “Freedom of contract prevails in an arm's length
transaction between sophisticated parties such as these, and in the absence of countervailing
public policy concerns there is no reason to relieve them of the consequences of their bargain. If
they are dissatisfied with the consequences of their agreement, the time to say so was at the
bargaining table.”107 Despite the unambiguous language of 19(d) and the sophistication of the
Docket No. 65 Ex. D ¶ 19(d).
Glenn v. Reese, 225 P.3d 185, 188-89 (Utah 2009) (internal quotation marks and
Oppenheimer & Co., Inc. v. Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415, 421
(N.Y. 1995) (internal quotation marks and citation omitted).
contracting parties, United asks the Court to excuse United’s failure to send notice by applying
the doctrine of substantial performance.
“[S]ubstantial performance is an equitable doctrine which should be sparingly employed
as it defeats the bargained-for legal rights of the parties.”108 United’s only evidence suggesting it
provided notice to TFG of its election is (1) an email written by Mr. Dave Johnson of TFG that
was forwarded by Mr. Wes Hales, also of TFG, to Mr. Gerald Tack, United’s CFO (“2006
Email”)109; and (2) two email chains between Mr. Mark Jackson of United and Mr. Johnson in
2008 and 2009 (“the Jackson-Johnson Emails”).110
Apparently in response to requests from Mr. Tack to make alterations to the lease
documents, Mr. Johnson informed Mr. Tack in the 2006 Email that TFG could not eliminate a
certain section from the Lease Agreement. After explaining why, Mr. Johnson wrote: “keep in
mind that this paragraph only applies if equipment is returned–you will be purchasing the
equipment so it is really a non-issue.”111 At best, the 2006 Email shows that at some time during
negotiations, someone from United told someone from TFG that United wanted to purchase the
equipment. Furthermore, the 2006 Email itself shows that, at the time it was written, United and
TFG were still dickering over Lease terms. An oral expression of desire to purchase that is only
documented by inference and communicated before the Lease was finalized by some unknown
person is simply not substantial enough to be substantial performance.
Cache Cnty. v. Beus, 978 P.2d 1043, 1050 (Utah Ct. App. 1999).
Docket No. 64 Ex. 5.
Docket No. 89 Exs. 16 & 17.
Docket No. 64 Ex. 5.
Nor can the Jackson-Johnson Emails be seen as an election without an excess of
creativity. In the first chain, Mr. Jackson asks for a statement showing the “buyout cost of the
[remainder] of the lease.”112 This language is certainly not a clear indication of United’s
intentions. If anything, it shows that United was simply looking for more information.
Furthermore, Mr. Jackson asks in the same email whether United could extend the Lease in order
to lower its payments. This is confusing notice at best, and the uncertainty it creates speaks to
why TFG may have bargained for a formal notice process in the first place.
The second email chain is even less clear. In it, Mr. Jackson simply asks to know the
balance because “auditors are here and they need to know.”113 Perhaps if there was evidence that
United had expressed in some official, authoritative way an unequivocal desire to purchase the
equipment at the end of the Base Term the Court would be able to find that a failure to use
certified mail was not fatal. But where United has done very little to communicate its election to
TFG, and what little it has done is ambiguous at best, the performance cannot be said to be
substantial. Granting United’s request based on so little performance could hardly be
characterized as applying the doctrine of substantial performance “sparingly.”
Based on the foregoing, the Court finds that United cannot be excused from its failure to
provide notice by certified mail to TFG by application of the doctrine of substantial performance.
It follows that, based on the undisputed facts, United is responsible for the extension term
payments and has breached the Lease by failing to make them.
Docket No. 89 Ex. 16.
Id. Ex. 17.
B. THE NOVEMBER PAYMENT
It is undisputed that United did not remit the November 2009 payment.114 TFG contends
that this failure to pay is a clear breach of the Lease Agreement. United claims that this was not a
violation of the Lease Agreement because TFG “first breached the lease agreement and its
covenant of good faith and fair dealing by taking the position that United had not made an
election to purchase the equipment at the end of the base term of the lease and that the lease had
As set forth above, the Court finds that TFG’s extension of the Lease was valid. It
follows that United’s failure to pay the November 2009 payment is without excuse. Accordingly,
summary judgment is granted for TFG on the November payment.
C. FAILURE TO NOTIFY AND ABANDONMENT
TFG has also claimed breach based on (1) United’s failure to notify TFG of problems
with implementation of the software; and (2) United’s abandonment of the Leased Equipment.
There is no dispute that the software did not work the way United wanted it to. It is also
undisputed that United reached a settlement agreement with the software company and the
implementation consultants on September 24, 2007, concerning the failure of the Leased
Equipment.116 After that settlement was reached, the Leased Equipment was apparently
See Docket No. 65 Ex. X (letter from United’s counsel informing TFG that he is
“prepared to authorize United to release the final payment provided TFG’s unreasonable claim
that the Lease was renewed is cancelled. United has fully paid all obligations under the Lease
except for the one month payment”).
Docket No. 89, at lvii.
Docket No. 66 Ex. Y.
abandoned such that United did not have any of it when United cancelled its November 2009
The Court notes that TFG has provided no evidence of damages stemming from United’s
failure to communicate issues with the software, and therefore the Court will not grant summary
judgment on that claim.
The Lease Agreement required United to “at all times keep the Equipment in its sole
possession and control.”118 Accordingly, TFG argues that United breached the Lease Agreement
by abandoning the Leased Equipment. United responds that this provision is superseded by
paragraphs 6(f) and 6(g), which “cover the same subject matter but which are specific to leases
involving software.”119 Thus, United asks the Court to apply the rule of interpretation that “‘if
[there is an] apparent inconsistency . . . between a clause that is general and broadly inclusive in
character and one that is more limited and specific in its coverage, the latter should generally be
held to operate as a modification and pro tanto nullification of the former.’”120 TFG responds
that 6(f) and 6(g) are not inconsistent with 6(b) and that, accordingly, the Court need not elevate
the specific provisions over the general.
To the extent United is arguing that all provisions governing the use of “Equipment” in
the Lease are superseded by the provisions governing use of the software, the Court disagrees.
Id. Ex. V (“[T]here is no equipment, software or other lease assets in the possession of
Docket No. 65 Ex. D ¶ 6(b).
Docket No. 89, at xxxii.
Id. (quoting 3 Arthur L. Corbin, Corbin on Contracts § 547, at 176 (1960)).
The Lease specifically defines “Equipment” to include software.121 Thus, the parts of the Lease
applicable to “Equipment,” such as 6(b), are equally applicable to software. While it may be
correct that specific provisions supersede general provisions when they are in tension with each
other,122 the Court sees nothing in either 6(f) or 6(g) that conflicts with the language in 6(b)
requiring United to “keep the Equipment in its sole possession and control.” Accordingly, there
is no reason for the Court to ignore 6(b) in the context of software.
The Court notes that because United no longer has the Leased Equipment, TFG is
damaged by the abandonment of the Leased Equipment to the extent that it had any value at the
end of the extension period. This value depends on what United and TFG’s rights and
responsibilities were with respect to the Leased Equipment at the end of the extension term.
In contrast to the provision governing the conclusion of the Base Term, Section 19(d) of
the Lease Agreement does not specify what is to happen to the Leased Equipment at the
conclusion of the extension period. However, sections (6)(e) and (g) spell out the procedure to
be followed upon conclusion of the Lease generally. Section 6(e) applies to all Leased
Equipment, and 6(g) applies specifically to software. The Leased Equipment was comprised of
both software and hardware.123
Docket No. 65 Ex. D ¶ 6(f).
Cogswell v. Merrill Lynch, 78 F.3d 474, 480 (10th Cir. 1996).
Docket No. 89 Ex. 9, at 3.
Section 6(e) requires United to “at the termination of the Lease . . . de-install, pack and
return the Equipment to [TFG].”124 Because United no longer has the hardware,125 TFG is
entitled to the value of that hardware at the end of the extension period.
Section 6(g) requires that
at the expiration . . . of [the] Lease, [United] shall (i) delete from its systems all
Software then installed; (ii) destroy all copies or duplicates of the Software which
were not returned to [TFG]; and (iii) cease using the Software altogether. Upon
its receipt from [United], [TFG] shall be responsible to destroy the Software or
render it unusable, or to return the Software to the owner/vendor/licensor . . . .126
Though TFG would likely also have been able to attempt to sell the software to United at end of
the extension term if it had not been abandoned, it is clear that United would not have bought it.
Thus, even if the software had not been abandoned, TFG would have received no value from it at
the end of the extension period. This loss of value is attributable to the failure of the software to
work as planned, not to United’s subsequent abandonment of the software. Accordingly, TFG’s
damages for the abandonment of equipment are limited to the value of any hardware as of the
time the Lease ended.
Since damages may be proved, the Court will grant TFG’s Motion for Summary
Judgment and allow the finder of fact to determine the amount of damages at trial.
Docket No. 65 Ex. D.
Id. Ex. V (“[T]here is no equipment, software or other lease assets in the possession of
Id. Ex. D.
United makes four counterclaims: (1) breach of contract; (2) breach of the implied
covenant of good faith and fair dealing; (3) unjust enrichment; and (4) fraud in the inducement.
1. BREACH OF CONTRACT
United contends that TFG breached the Lease Agreement by (1) refusing to permit United
to purchase the Leased Equipment at the end of the lease term; (2) by extending the lease term;
and (3) by classifying United’s payments from March to October 2006 as rental payments rather
than lease payments.127 As noted above, the Court is persuaded that TFG complied with section
19(d). United cannot accuse TFG of a breach simply because United is not pleased with the
results of that compliance. Thus, United’s first and second theories of breach are denied.
The Court will also deny United’s third theory of breach. The Lease Agreement clearly
requires United to “pay to [TFG] a daily pro rata rental fee” from the time United received the
Leased Equipment until the Acceptance Date.128 The Acceptance Date was to be “the earlier of
either (i) the date as set forth in the Acceptance Certificate, or (ii) if Lessee does not, for any
reason, sign an Acceptance Certificate the date shall be the date the Lessee received the
equipment.”129 Because the Final Acceptance that United signed listed the Acceptance Date as
October 23, 2006, all payments prior to that date were properly classified as rental payments.
Accordingly, the Court will deny the claim, but will discuss in a subsequent section United’s
Docket No. 48, at 21.
Docket No. 65 Ex. D ¶ 2(b).
claim that TFG breached the covenant of good faith and fair dealing by classifying the payments
as rental payments.
2. UNJUST ENRICHMENT
As a separate claim, United argues that TFG would be unjustly enriched if it was
permitted to retain the $149,000 as rental payments rather than apply them to the lease payments
owed.130 “It is settled in Utah that ‘the law will not imply an equitable remedy when there is an
adequate remedy at law. Moreover, when seeking an equitable remedy, a plaintiff ‘must
affirmatively show a lack of an adequate remedy at law on the face of the pleading.’”131 Thus,
even if United can show that TFG’s retention of the $149,000 was improper, United has not
persuasively alleged a lack of adequate legal remedy.132 Accordingly, the Court refuses to apply
3. FRAUD IN THE INDUCEMENT
United claims that TFG induced United by fraudulent misrepresentation to enter into the
Lease Agreement. This claim is based on a belief that TFG’s “contemporaneous representations
to Defendants that they could terminate lease [sic] and buy the equipment at the end of the 36
months were knowingly false and made for the sole purpose of inducing Defendants to enter into
the lease . . . .”133 To prove fraudulent misrepresentation, United must show:
Docket No. 48, at 23.
Thorpe v. Washington City, 243 P.3d 500, 507 (Utah Ct. App. 2010) (citations
Docket No. 48, at 25.
(1) That a representation was made; (2) concerning a presently existing material
fact; (3) which was false; (4) which the representor either (a) knew to be false or
(b) made recklessly, knowing that he had insufficient knowledge upon which to
base such representation; (5) for the purpose of inducing the other party to act
upon it; (6) that the other party, acting reasonably and in ignorance of its falsity;
(7) did in fact rely upon it; (8) and was thereby induced to act; (9) to his injury and
For the Court to grant summary judgment to TFG on this claim, the Court must be persuaded that
no reasonable fact finder could conclude that TFG harbored an intent not to sell the equipment to
The Court will grant summary judgment in favor of TFG on this claim because United
has failed to show that there was a misrepresentation at all, much less an intentional one. As
proof for its assertion that TFG had an intent not to sell, United refers to the Sales Agreement
between TFG and Republic Bank. Shortly after entering into the Lease, TFG sold the Lease to
Republic. Pursuant to the Sales Agreement, Republic bought the right to collect 43 lease
payments from United.135 Because the Base Term of the Lease was only 36 payments, United
contends that the Sales Agreement shows that TFG always intended to force United into
extending the Lease.
This Court dealt with this same issue in Republic Bank v. Ethos Environmental Inc., a
case with nearly identical facts to those in the instant case.136 In Ethos, Mazuma, a finance
company, leased equipment to Ethos Environmental for a 24 month term.137 The lease contained
Pace v. Parrish, 247 P.2d 273, 274-5 (Utah 1952).
Docket No. 89, Ex. 24.
Republic v. Ethos Envtl., Inc., 2011 WL 587772 (D. Utah Feb. 9, 2011).
Id. at *1.
end of term options equivalent to those in the TFG-United Lease.138 Soon after the lease was
signed, Mazuma sold the lease to Republic Bank, which bought the lease at a price that exceeded
the value of the 24 monthly base term payments.139 In the context of a bad faith claim, Ethos
argued that this was evidence of Mazuma’s intent to force Ethos into extending the lease.140 The
Court rejected Ethos’s argument, noting that there was some value in the end of term options that
added to the face value of the base term lease payments.141 In other words, the end of term
options promised the chance of additional profits for Republic—either through extension of the
lease, sale of the leased equipment, or a new lease for new equipment—and that the sale price
merely reflected that chance. Thus, the Court found that the “fact that Republic paid more than
what Ethos may have for these options, does not per se, demonstrate bad faith.”142
In the instant case, the price Republic paid for the Lease is merely an indication that there
was some value in the Lease beyond the Base Term. Thus, the transaction does not expose a
secret intent not to sell. If anything, it stands as an indication that Republic/TFG would likely
only sell the equipment at a price that would bridge the gap between the value of the Base Term
payments and the sale price that Republic paid. Though the price may be high in United’s mind,
even unreasonable,143 for purposes of United’s fraud claim the price is not pertinent. TFG may
Id. at *3.
Id. at *1.
Id. at *5.
Id. at *6.
United claims that TFG intentionally concealed the six extra payments sold because if
United discovered that TFG would not have sold the equipment for less than the value of those
have planned all along to ask a high price for the Leased Equipment, but it never appears to have
represented that it would offer a low price, or any particular price (which would provide grounds
for fraudulent misrepresentation). Instead, the language of the agreement provides that the
equipment can be purchased “at a price to be agreed upon” and also vests both parties with
unlimited discretion in accepting or rejecting purchase terms. Thus, as long as TFG did not
intend to prohibit United from purchasing the equipment at any price, TFG’s representation that
United could repurchase the equipment was not fraudulent. United has advanced no evidence
showing that TFG would not have sold at any price.
These facts stand in contrast to those in House of Flavors, INC. v. TFG Michigan, L.P.,144
which United relies on heavily to support its fraud claim. In House of Flavors, a federal district
court applying Utah law found that TFG-Michigan had fraudulently induced House of Flavors,
an ice cream company, to enter into a lease equivalent to the one at issue in the instant case.145
The court’s holding was based in large part on oral communications and a “side letter,” which
represented to House of Flavors that TFG had estimated the buyout price of the leased equipment
at somewhere around 12% of the original cost.146 When the time for purchase came, TFG
six payments, United would not have entered the contract. Id. at lxxii. While this may speak to
bad faith, it does not relate to fraud, which requires a misrepresentation from a party that is
intentionally false. TFG does not appear to have represented that it would sell for less than the
amount of the six payments.
719 F. Supp. 2d 100 (D. Me. 2010). TFG-Michigan is apparently related to the TFG of
the instant case, though neither party explains how.
Id. at 111.
Id. at 107-08.
attempted to charge House of Flavors approximately 40% of the original cost.147 The lease
agreement did not specify a purchase price, and the side letter included a clause stating that the
letter was not binding.148 But the court found that TFG’s statement that it had run an estimate
and predicted a 12% buyout was a representation of a material fact.149 Upon investigation, it
became clear that the TFG employee who had informed House of Flavors of the 12% estimate
had not, in reality, done any work towards a real estimate—he had simply sent House of Flavors
a copy of a letter written for another matter with the names changed.150 It was also clear that
TFG was trying to win House of Flavor’s business over finance company competitors, and knew
that House of Flavors was comparing bids to decide which company to go with, and thus made
this false representation in the hopes of inducing reliance.151 Accordingly, the court found that
TFG had committed fraud.152
United’s case is quite different. United is not alleging that TFG’s actions were fraudulent
because TFG suggested it had estimated a buyout price and United relied on it to United’s
detriment. Instead, United is alleging that TFG pretended it would sell the equipment at the 36
month mark when it never intended to do so.153 Nothing TFG has done has indicated that it was
Id. at 106.
Id. at 104-05.
Id. at 108.
Id. at 108.
Id. at 111.
Here, no evidence has been presented that TFG made any representations that a buyout
cost had been estimated. Though Mr. Tack did apparently try to negotiate for a 7% buyout price
categorically unwilling to sell at that time. Without such evidence, United’s fraud claim must
4. GOOD FAITH AND FAIR DEALING
Finally, United argues that TFG breached the implied covenant of good faith and fair
dealing in three ways: (1) by not informing United that its notice of election was insufficient; (2)
by “attempting to impose an extension on the Master Lease when United had elected otherwise”;
and (3) by classifying the original $149,000 as rental payments instead of lease payments.154
The implied covenant of good faith and fair dealing requires parties to “refrain from
actions that will intentionally ‘destroy or injure the other party’s right to receive the fruits of the
contract.’”155 “To determine the legal duty a contractual party has under this covenant, a court
will assess whether ‘a party’s actions [are] consistent with the agreed common purpose and the
at the outset, Mr. Tack’s own testimony confirms that TFG neither agreed to that price, nor
indicated that it estimated the buyout price to be around that amount. Mr. Tack’s deposition
reads as follows:
Q: [H]e never agreed to the 7 percent, right?
A: He said he would have to take it up with his superiors.
Q: The 7 percent is nowhere in 19(d)?
A: No it’s not.
Q: So you didn’t have an agreement on the 7 percent number?
A: No. Because he stated that the tax accountants, their auditors would not allow
it because they needed it for a tax purpose . . . .
Q: The answer to my question is no, right? You did not have an agreement that
there would be a 7 percent end of term purchase price; is that correct?
A: I don’t remember an agreement that he said, yes, it would be, because he said
he would have to take it up with other–his superiors.
Docket No. 48, at 22-23.
Oakwood Vill. LLC v. Albertsons, Inc., 104 P.3d 1226, 1239 (Utah 2004) (quoting St.
Benedict’s Dev. Co. v. St. Benedict’s Hosp., 811 P.2d 194, 199 (Utah 1991)).
justified expectations of the other party.’”156 In Utah, courts determine “the ‘purpose, intentions,
and expectations’ by considering the contract language and the course of dealings between and
conduct of the parties.”157
Here the contract imposed no duty on TFG to tell United that the notice provision of
19(d) had not been complied with, such that United could reasonably expect TFG to do so.158
The covenant of good faith and fair dealing does not create “new, independent rights or duties to
which the parties did not agree ex ante.”159 The Court will not use the doctrine to foist an unbargained-for duty of paternalism onto sophisticated contracting parties.
United’s second claim, that TFG violated the covenant of good faith and fair dealing by
extending the Lease, is not viable in light of the Court’s finding that the extension of the Lease
was proper under the Lease Agreement. Again the Court must note that simply because a party
dislikes contractual consequences does not mean the opposing party has misbehaved by
Finally, United alleges TFG acted in bad faith by categorizing $149,000 of payments as
rental payments instead of lease payments (thereby giving United no credit for them towards the
lease debt). Specifically United claims that TFG misrepresented the requirements of the Lease in
Id. 1239-40 (quoting St. Benedict’s Dev. Co., 811 P.2d at 200).
Id. at 1240 (quoting St. Benedict’s Dev. Co., 811 P.2d at 200).
Geisdorf v. Doughty, 972 P.2d 67, 70 (Utah 1998) (“[Lessor] had no duty to remind
[Lessee] of the necessity to exercise the option by written notice. Lessee was responsible to keep
himself informed about the continuing provisions under the Lease Agreement and to protect his
interests, both current and future, in the lease property.”).
Id. (quoting Brehany v. Nordstrom, Inc., 812 P.2d 49, 55 (Utah 1991)).
order to induce United to sign the Final Acceptance, which in turn allowed TFG to classify the
first several months of payments from United as rental payments rather than lease payments.
At the outset, the claim seems to depend on United’s ignorance of the plain terms of the
Lease. As noted above, the Lease Agreement clearly states that the Base Term does not begin
until the Acceptance Date.160 The Acceptance Date was to be “the earlier of either (i) the date as
set forth in the Acceptance Certificate, or (ii) if Lessee does not, for any reason, sign an
Acceptance Certificate the date shall be the date the Lessee received the equipment.”161 If United
was in any doubt about whether it needed to sign the Final Acceptance to commence the Base
Term, it merely had to refer to the Lease Agreement.
Generally, “[i]gnorance of the contents of an instrument does not . . . affect the liability of
one who signs it.”162 This may not be the case, however, if the signor “is . . . misled as to its
contents.”163 Utah courts have refused to adopt a rule that allows “a person to defend against
willful, deliberate fraud by stating, ‘You should not have trusted or believed me’ or ‘Had you not
been so gullible you would not have been [so] deceived.’”164 “A man may perhaps be able to
discover for himself what he ought to know if left to his own devices, but where he is induced by
Docket No. 65 Ex. B ¶ 2(a).
Garff Realty Co. v. Better Bldgs., 234 P.2d 842, 844 (Utah 1951) (quoting 12 Am. Jur.
Contracts § 137).
Berkeley Bank for Coops. v. Meibos, 607 P.2d 798, 805 (Utah 1980) (quoting Johnson
v. Allen, 108 P.2d 134, 137 (Utah 1945)).
the artifice of another not to use his opportunities it would seem hardly fair that the one using the
trick or misrepresentation should remain protected.”165
United claims that it was told by TFG that “the base term would not commence until
[United] signed [the Final Acceptance Certificate],” and that when TFG provided this
information “it knowingly omitted and concealed . . . the fact that if Mr. Tack did not sign the
Final Acceptance Certificate, the Acceptance date would be deemed under the lease agreement to
be the date United received the leased equipment.”166 TFG apparently does not dispute that it
represented that United had to sign a Final Acceptance in order to commence the Base Term, but
it denies that this was a misrepresentation. TFG argues that United’s execution of the Partial
Acceptance rendered void the provision date allowing the Acceptance Date to relate back to the
Delivery Date. Indeed, the provision is constructed in the disjunctive—the date is either the
Delivery Date or the date an acceptance certificate is signed. TFG contends that “[a]t that time,
Section 2(a) of the Lease Agreement was no longer applicable because United had already
executed ‘an Acceptance Certificate,’ as defined by Section 2(a) of the Lease Agreement.”167
However, TFG’s interpretation of the contract is not consistent with the language of the
Partial Acceptance itself. That document makes explicit that it “does not constitute an
Acceptance Certificate as defined in the Lease.”168 It follows that the signing of the Partial
Acceptance did not, in fact, void the provision allowing the Acceptance Date to relate back to the
Allen, 108 P.2d at 154.
Docket No. 89, at lxxii.
Docket No. 107, at 21.
Docket No. 65 Ex. G, at 1.
delivery date. As such, TFG’s representation that United had to sign a Final Acceptance to
commence the Base Term was a false representation. No facts are presented as to whether the
falsity was knowing or reckless. Furthermore, “[t]he issue of actual reliance and the
reasonableness of the reliance is, of course, for the [finder of fact] to determine. It is also for the
[finder of fact] to determine whether the representations were of such a character and made under
circumstances that they were likely to deceive.”169 Accordingly, summary judgment is denied as
to this claim.170
IV. UNITED’S MOTIONS FOR PARTIAL SUMMARY JUDGMENT
United has submitted two motions for summary judgment. The first asks the Court to
determine that the Lease between TFG and United is actually a security agreement. The second
asks the Court to grant judgment in favor of the guarantors on TFG’s breach of contract claim
LEASE OR SECURITY INTEREST
Utah Code Ann. § 70A-1a-203 sets forth guidelines for distinguishing between a lease
and a security interest. The statute provides that if the lease is not voidable by the lessee and one
of four conditions is satisfied, a transaction that purports to be a lease is actually a security
Berkeley, 607 P.2d at 801 (citations omitted).
TFG would have the Court bar United’s claim by application of the economic loss
doctrine. The doctrine requires that “[a]ll contract duties, and all breaches of those duties— no
matter how intentional—must be enforced pursuant to contract law.” Digecor, Inc. v. E. Digital
Corp., 2007 WL 185477, at *5 (D. Utah 2007) (internal quotation marks omitted). It is unclear
why TFG thinks United is pursuing its fraud claim under tort as opposed to contract law. It is
certainly not the case that United is simply forbidden to pursue fraud claims against TFG because
there is a contract. Regardless, to the extent that United is pursuing fraud damages under the
contract, as opposed to in a separate tort law action, the economic loss doctrine does not bar
agreement.171 The parties only address the first condition: “the original term of the lease is equal
to or greater than the remaining economic life of the goods.”172 In other words, the items
purportedly leased will have no economic value at the time the lease concludes. It is undisputed
that United was not permitted to cancel the Lease at any time. United contends, via expert
testimony, that the economic life of the goods was exhausted during the lease period. Adding
these two propositions together, United reasons that this Court must conclude that TFG and
United entered into a security agreement rather than a lease. TFG disagrees that the term of the
Lease was equal to or greater than the remaining economic life of the software and equipment.
TFG also attacks the qualifications of United’s expert.
The relevant time for determining whether an agreement is a lease or a security agreement
is at the time the agreement is made.173 The focus must be on whether, at the time the agreement
was made, the software and equipment could be said to have had any economic life at the
conclusion of the lease period. The standard is not subjective, however. The question of
whether there is value left in the leased goods is one of “economics, not the intent of the
“Remaining economic life” is not defined in the code. Nor is it clear whether the relevant
point of view is the lessor or the lessee’s. There seems to be no Utah case law directly on point,
Utah Code Ann. § 70A-1a-203.
Id. § 70A-1a-203(2)(a).
Id. § 70A-1a-203(5) (“The ‘remaining economic life of the goods’ . . . must be
determined with reference to the facts and circumstances at the time the transaction is entered
U.C.C. § 1-203 Lease Distinguished from Security Interest, Official Comment 2.
and the official comments to the UCC section upon which Utah’s section is modeled sheds little
light. Several cases from other states and bankruptcy courts have adopted the position that the
focus should be on residual value from the lessor’s point of view: “If the lessor retains a
meaningful residual interest in the leased property at the end of the lease term, the lease is a true
lease. If, however, the lessor cannot reasonably expect to receive anything of value at the end of
the lease, then the lease creates a security interest.”175 Commentators agree:
The central feature of a true lease is the reservation of an economically
meaningful interest to the lessor at the end of the lease term. Ordinarily this means
two things: (1) at the outset of the lease the parties expect the goods to retain some
significant residual value at the end of the lease term; and (2) the lessor retains
some entrepreneurial stake (either the possibility of gain or the risk of loss) in the
value of the goods at the end of the lease term.176
If economic life or value to the lessor is the proper focus, then the Court must determine whether
TFG could be said to have retained any valuable residual interest in the Leased Equipment at the
time TFG leased the equipment to United.
In arguing that the Leased Equipment had no remaining economic life after the Base
Term, United relies on a report prepared by Derk Rasmussen, a forensic accountant. Two of Mr.
Rasmussen’s observations, provided in a report to United in which he answered several specific
questions about the Lease, indicate that a reasonable fact-finder could find that TFG retained a
Addison v. Burnett, 41 Cal. 4th 1288, 1296 (Cal. Ct. App. 1996) (quoting Kimco
Leasing, Inc. v. State Bd. of Tax Comm’rs, 656 N.E.2d 1208, 1218 (Ind. T.C. 1995)); accord
B&S Mktg. Enters, LLC v. Consumer Prot. Div., 835 A.2d 215, 234 (Md. Ct. Spec. App. 2003)
(“The central feature of a true lease is the reservation of an economically meaningful interest to
the lessor at the end of the lease term.”) (quoting Edwin E. Huddleson, Old Wine in New Bottles:
UCC Article 2A Leases, 39 Ala. L. Rev. 615, 625 (1988)); In re Warne, 2011 WL 1303425, at *3
(Bankr. D. Kan. 2011) (quoting Huddleson); In re WorldCom, 339 B.R. 56, 71 (Bankr. S.D.N.Y.
4 White & Summers UCC § 30-3 (6th ed.) (quoting Huddleson, supra note 175, at
valuable residual interest in the Leased Equipment that extended beyond the life of the Lease.
First, Mr. Rasmussen notes that “while used computer equipment may have little value on the
open market, it could have value in use because if the equipment is functioning properly, it may
be more cost effective to use existing equipment than to incur costs to replace such
equipment.”177 It follows that at the close of a lease of computer equipment, though the
equipment may not have transferrable value, it can still be valuable to the lessee. It also follows
that this value to the lessee can be extracted by the lessor, who has retained a possessory interest
in the leased property. Mr. Rasmussen refers to this value as “leverage.” He calculates that the
cost to United of replacing the software and equipment at the end of the Lease would have been
around $22,000.178 It follows that by retaining title to the software at the outset, TFG would have
leverage to extract more value out of it, up to the amount it would cost United to replace the
software. Mr. Rasmussen claims that “in this particular case . . . [it] is not necessarily true” that
there was economic value left in the software because “[t]here is evidence in the record that
suggests implementation of the leased accounting system was a failure, and that the vast majority
of the property, including the software implementation and costs incurred, were [sic] never used
by United Services.”179 This observation focuses on the wrong point in time. Whatever occurred
after the Lease was signed is irrelevant to determining whether the economic life of the
equipment, at the time the Lease was made, was less than or equal to the term of the Lease. Here
Docket No. 80 Ex. 5, at 10.
Id. at 15.
Id. at 11.
it appears that at the time the Lease was made, TFG retained some leverage value beyond the
term of the Lease by retaining title to the software.
Second, Mr. Rasmussen addressed head-on whether the remaining economic life of the
equipment exceeded 36 months at the time of the transaction:
If the software had been used as planned, it would have some remaining economic
life as of the date of the transfer. However, it is likely that any remaining
economic useful life would have been limited because the services and purchase
price paid for the software initially included just one year of software upgrades.180
In other words, working accounting software in the box has an economic life that exceeds 36
months—a value only lost in this case due to subsequent implementation problems. The issue is
further complicated, however, by the fact that United did not, at the outset, purchase software
upgrades that would periodically update the software over the course of the Lease. Thus, Mr.
Rasmussen suggests, even if there was value past the 36 months at the time of the transaction, it
would be “limited.” Limited is not the same as non-existent. The subsection of the statute upon
which United focuses requires that the term of the lease swallow the entire value of the product.
Given this, even if Mr. Rasmussen’s testimony were undisputed, a reasonable fact finder could
still find that the Leased Equipment had value beyond the term of the Lease.181 Accordingly, the
Id. at 22.
This is not contradictory to the Court’s earlier holding that the abandonment of the
software caused no damage to TFG. Damages are determined from the perspective of the
plaintiff—the relevant inquiry is whether the plaintiff can show any damage proximately caused
by the conduct of the defendant. In contrast, the lease versus security interest inquiry is
objective, focusing on whether, as a matter of economics, leased equipment will retain any value
at the end of the lease period, determined at the time the lease was entered into. Here the Lease
had value beyond the 36 month Base Term because, when implemented, it would have value to
United that TFG could extract by sale at the end of the term. As it happened, United was not
able to use the equipment successfully, so there was no chance that United would buy the
software at the end of the extension period. Though title to the software might have been
Court cannot find as a matter of law that the agreement between TFG and United was a security
agreement and Defendants’ Motion will be denied.
TFG has also requested that Mr. Rasmussen’s testimony be ignored by this Court because
he is not qualified as an expert in this area.182 In light of the discussion above, this request is
Both parties have moved for summary judgment on TFG’s breach of contract claim
against the guarantors. The guarantor’s obligations are established in three separate documents:
The Guaranty Agreement, the Amended and Restated Lease Schedule No. 1 (the “Amended
Lease Schedule”) to Master Lease Agreement, and the Master Lease Agreement.
The Guaranty Agreement requires Stein-Sterling and Simon to guarantee “the full,
complete and prompt payment, performance and observance of all of Lessee’s obligations under
each Lease, including without limitation the payment of rents and the payment of all amounts
required or provided for under the Lease resulting from Lessee’s breach or non-performance
thereof.”183 The agreement further provides that “[n]othing shall discharge or satisfy guarantor’s
obligations hereunder except the full payment, performance and observance of all of Lessee’s
obligations under each lease.”184 This provision is modified by the Amended Lease Schedule.
That document states that “provided no material Event of Default has occurred or is continuing
valuable such that TFG would be damaged by its loss, United’s abandonment of the software did
not proximately cause the loss of that value to TFG.
Docket No. 80, at 10.
Docket No. 73 Exs. C & D ¶ 1.
Id. ¶ 6.
(or has not been cured within 15 days after written notice is provided to Lessee), the Guaranties
shall be released upon completion of the eighteenth (18th) month of the Base Lease Term.”185
The Amended Lease Schedule incorporates by reference the terms of the Master Lease
Agreement. The Master Lease Agreement identifies several events of default, one of which is
“Lessee abandons any item of Equipment.”186
The Court has found that United abandoned the equipment after reaching a settlement
agreement with the software company and the implementation consultants on September 24,
2007.187 September 24, 2007, is well within the 18 month period, which began October, 2006,
when the Final Acceptance was signed. Because abandonment of the equipment was a
specifically identified “event of default,” the guarantors were not released at the eighteenth
month, and they are still guarantors of all United’s obligations under the Lease.
United contends that because the time of guaranty was limited to the first eighteen
months of the Lease the guarantor’s liability for breaches should likewise be limited. The Court
disagrees with this interpretation. The Amended Lease Schedule only releases the guarantors at
eighteen months “[p]rovided no material Event of Default has occurred or is continuing.”188 If
such an event has occurred or is occurring, the guarantors are not released, and the guaranty
agreement continues to govern, which requires the guarantors to be liable for all of United’s
obligations. Nothing in any of the documents touching on the guarantor arrangement indicates
Docket No. 73 Ex. E ¶ 10.
Docket No. 65 Ex. D ¶ 15(a)(3).
Docket No. 66 Ex. Y.
Docket No. 73 Ex. E ¶ 10.
that if an event of default has occurred, the guarantors remain on the hook but only for damages
incurred during the first eighteen months. The Court will not invent such a provision on its own.
Accordingly, TFG’s Motion for summary judgment on the guarantors will be granted and
United’s Motion will be denied.189
IV. MISCELLANEOUS MOTIONS
MOTION TO STRIKE FOOTNOTE 5
TFG has submitted a motion asking the Court to strike footnote five from United’s
Memorandum in Support of Motion to Dismiss.190 The footnote in question accuses TFG of
having a history of inventing phone calls. The Court will deny the Motion as moot because the
offending footnote need not be considered in order for the Court to arrive at a decision on the
Motion to Dismiss.
MOTION TO EXCLUDE OPINION OF DERK RASMUSSEN
TFG has submitted another motion asking the Court to exclude the testimony of Derk
Rasmussen, an expert relied upon by United in support of its argument that the Lease was
United’s failure to notify TFG of issues with the software is not properly classified as
an event of default under the Master Lease Agreement. Only one of the specifically defined
events of default in the Lease Agreement might apply to United’s failure to notify: “An ‘Event of
Default’ shall occur under any lease if . . . Lessee or any guarantor of Lessee, fails to observe or
perform any of its covenants and obligations required to be observed or performed under the
Lease and such failure continues uncured for ten (10) days after written notice is provided to
Lessee.” Docket No. 65 Ex. D ¶ 15(a)(4) (emphasis added). This provision, applied to United’s
failure to notify, creates curious results. The “failure to perform” on United’s part would be its
failure to notify TFG of software issues (not the occurrence of the software issues themselves).
Before that failure to notify became an event of default, however, TFG would have to have
provided notice to United that United had failed to provide TFG with notice of the problems (at
which point, of course, such notice would be superfluous), and United would have to had
continued to not notify TFG for ten days. Clearly this did not occur (and the absurdity that would
arise if it did occur probably speaks to the provision’s inapplicability to United’s duty to notify).
Docket No. 120.
actually a security agreement.191 To the extent that TFG is asking the Court to ignore Mr.
Rasmussen’s testimony on that issue, the request is moot, and the Motion will be denied. Mr.
Rasmussen’s testimony aids TFG’s arguments—it does not hinder them. If TFG desires to have
Mr. Rasmussen’s testimony excluded from trial the Court instructs TFG to deal with the matter
in a Daubert motion prior to trial.
MOTION TO STRIKE MOTION ON THE NATURE OF THE AGREEMENT
TFG asks the Court to strike United’s Motion for Patrial Summary Judgment on the
Nature of the Parties’ Agreement, or, in the alternative, to allow United more time for discovery
on the issue. Because the Court has found against United on this issue, the Court will deny
TFG’s Motion as moot.
Based on the foregoing, it is hereby
ORDERED that Defendants’ Motion to Dismiss for Lack of Subject-Matter Jurisdiction
Pursuant to Rule 12(b)(1) (Docket No. 67) is DENIED. It is further
ORDERED that Plaintiff’s Motion for Summary Judgment on all Claims (Docket No. 64)
is GRANTED IN PART and DENIED IN PART as set forth in this Order. It is further
ORDERED that Defendants’ Motions for Partial Summary Judgment on the Nature of the
Lease Agreement (Docket No. 70) and on the Issue of the Guaranties (Docket No. 72) are
DENIED. It is further
ORDERED that Plaintiff’s Motion to Exclude Opinion of Derk Rasmussen (Docket No.
82) is DENIED as moot. It is further
Docket No. 82.
ORDERED that Plaintiff’s Motions to Strike Footnote No. 5 to Defendants’ Reply in
Support of their Motion to Dismiss (Docket No. 120) is DENIED. It is further
ORDERED that Plaintiff’s Motion to Strike Defendant’s Motion for Partial Summary
Judgment on the Nature of the Parties’ Agreement and in the alternative Plaintiff’s Motion for
Additional Discovery (Docket No. 86) is DENIED. Consistent with this Court’s practice, this
matter will be referred to Magistrate Judge Warner for a settlement conference, which is set for
November 18th, 2011 at 9:00 am.
DATED November 1, 2011.
BY THE COURT:
United States District Judge
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