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First Technology Capital, Inc. v. Banctec, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

September 26, 2017

FIRST TECHNOLOGY CAPITAL, INC., Plaintiff,
v.
BANCTEC, INC., Defendant.

          OPINION AND ORDER

          Robert E. Wier, United States Magistrate Judge

         As in many enduring business relationships that culminate in contentious litigation, First Technology Capital, Inc. (FTC), and BancTec, Inc. (BancTec), enjoyed a fruitful partnership for many years-one built on “good faith negotiations and gentlemen agreements”-but one that ultimately ended, mired in “controvers[y]” and “headbutting.” DE #72-13 (Bridges Depo.), at 43 (Depo. p. 168). The parties had long enjoyed a series of positive sale / leaseback encounters, all under a broad 2006 master lease, with each deal per a sub-schedule. Things soured in 2015. In March 2016, FTC sued BancTec, asserting the following general claims:

1. Breach of contract under Schedule 7 (which contains claims for rent due from 11/1/13 to 12/9/13, plus interest and “all costs and expenses, ” including reasonable attorney fees);
2. Breach of contract under Schedule 8 (which contains claims for numerous rental payments, destruction of certain equipment, plus interest and “all costs and expenses, ” including reasonable attorney fees);
3. Specific enforcement as to the Schedule 8 equipment;
4. Conversion of the Schedule 8 equipment (including a claim for punitive damages); and
5. Unjust enrichment regarding the Schedule 8 equipment.

DE #26 (Amended Complaint); see also DE #29 (Answer).

         Following a heavily contested period of discovery and resolution of numerous intervening motions, the parties filed dueling motions for summary judgment, each of which is fully briefed and ripe for consideration. See DE ##42, 72, 74, 80, 83, 90, 91, 98, 102, 103, and 107. The Court has laboriously reviewed every page submitted-indeed, the entire docket-and carefully wrestled with the issues raised.

         For the following reasons, the Court GRANTS IN PART and DENIES IN PART each motion (DE ##42, 72, and 74). There is no genuine dispute of material fact regarding Schedule 7; the Court quickly dispatches that suite of claims, largely in BancTec's favor. Genuine disputes of material fact do, though, pervade the Schedule 8 record-and the Court does consider all relevant documents-surrounding the parties' intentions, and thus agreement, concerning Schedule 8. Due to related claims' interdependency on this foundational issue, the Court (with but a few exceptions detailed below) denies both sides summary judgment on the Schedule 8-related topics. A jury must decide the bulk of the Schedule 8 disputes.

         I. RELEVANT BACKGROUND

         In 2006, FTC and BancTec entered a Master Lease Agreement (MLA) in which, generally speaking, FTC agreed to lease BancTec certain items of equipment “listed on Schedule ‘A' and any supplemental or additional schedule ‘A' attached to and made a part of” the MLA. See DE #26-1 (MLA). Each Schedule A “constitute[d] a single lease” under the MLA. Id.; see also DE #42-4, at 4. The arrangement was a sale / leaseback, where BancTec sold assets it already owned to FTC, and FTC leased the equipment, already in place, back to BancTec. The arrangement assisted BancTec's cash-flow and EBITDA, and FTC made money on an initial fee and the interest-rate spread. See DE ##74-2 (Cushman Depo.), at 8 (Depo. p. 23); 72-13 (Bridges Depo.), at 25 (Depo. p. 94); id. at 70 (Depo. p. 274). Paragraph 2 defined the commencement rent mechanics and the date of each lease “for the purpose of determining when the monthly rental charges begin[.]” DE #26-1, at ¶ 2. Over the years, the parties entered into many such Schedules. The present case concerns Sub-Schedule No. 7 (Schedule 7) and Sub-Schedule No. 8 (Schedule 8) to the MLA. See DE ##26-3, 26-10.

         In Schedule 7, BancTec agreed to make 60 rental payments of $76, 765.00 per month to FTC. DE #26-3, at 2. The parties also “incorporated” all “terms and conditions of the” MLA into Schedule 7. Id. BancTec accepted (on paper) the Schedule 7 equipment on October 21, 2008. Id. at 4; DE #29, at ¶ 21. In Schedule 8, BancTec agreed to make 60 rental payments of $58, 027.00 per month to FTC. DE #26-10, at 2. The parties likewise “incorporated” all “terms and conditions of the” MLA into Schedule 8. Id. BancTec “accepted” the Schedule 8 equipment on December 1, 2009. Id. at 3; DE #29, at ¶ 54.[1]Further, the MLA provides that “each Lease”-i.e., each Schedule-is “subject to the terms and conditions of this Agreement until its expiration or termination.” DE #26-1, at ¶ 1. As discussed, following many years of a workable business relationship, disputes arose, and the parties turned to state and federal court to hash out their plenteous disagreements. The merits of the claims are now fully before the Court for summary judgment consideration.

         The parties take interesting tacks in approaching the record. FTC tries to lash BancTec to the fine and specific verbiage of the MLA, essentially ignoring deal-related and contemporaneous documentation and the parties' course of performance over the life of the MLA. BancTec tries to ignore MLA mechanics and draw the Court into a holistic assessment sensitive to the economic realities and equities of the relationship. Each side is right, and each side is wrong. On Schedule 7, the Court agrees that BancTec properly completed the purchase and owes, at most, interest on the slight delay in purchase payment. On Schedule 8, the Court perceives reasonable and legitimate questions about the parties' agreement and intent, as to the situation and claims involved. A jury will sort through most of the Schedule 8 claims, and will have to settle lease term (the 61st month issue), issues of default, and post-lease obligations, including the status of and remedies related to the Schedule 8 equipment.

         II. STANDARD

         A court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A reviewing court must construe the evidence and draw all reasonable inferences from the underlying facts in favor of the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 106 S.Ct. 1348, 1356 (1986); Lindsay v. Yates, 578 F.3d 407, 414 (6th Cir. 2009). Additionally, the court may not “weigh the evidence and determine the truth of the matter” at the summary judgment stage. Anderson v. Liberty Lobby, Inc., 106 S.Ct. 2505, 2511 (1986).

         The burden of establishing the absence of a genuine dispute of material fact initially rests with the moving party. Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2553 (1986) (requiring the moving party to set forth “the basis for its motion, and identify[] those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, ' which it believes demonstrate an absence of a genuine issue of material fact”); Lindsay, 578 F.3d at 414 (“The party moving for summary judgment bears the initial burden of showing that there is no material issue in dispute.”). If the moving party meets its burden, the burden then shifts to the nonmoving party to produce “specific facts” showing a “genuine issue” for trial. Celotex Corp., 106. S.Ct. at 2253; Bass v. Robinson, 167 F.3d 1041, 1044 (6th Cir. 1999). However, “Rule 56(c) mandates the entry of summary judgment . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp., 106 S.Ct. at 2552.

         If the movant bears the burden of persuasion at trial, “that party must support its motion with credible evidence-using any of the materials specified in Rule 56(c)-that would entitle it to a directed verdict if not controverted at trial.” Id. at 2557 (Brennan, J., dissenting) (citation omitted); see also Arnett v. Myers, 281 F.3d 552, 561 (6th Cir. 2002) (noting that, when the movant also bears the burden of persuasion at trial, the moving party's initial summary judgment burden is “higher in that it must show that the record contains evidence satisfying the burden of persuasion and that the evidence is so powerful that no reasonable jury would be free to disbelieve it” (citation and internal quotation marks omitted)); see also Celotex Corp., 106 S.Ct. at 2557 (Brennan, J., dissenting) (“If the burden of persuasion at trial would be on the non-moving party, the party moving for summary judgment may satisfy Rule 56's burden of production in either of two ways. First, the moving party may submit affirmative evidence that negates an essential element of the nonmoving party's claim. Second, the moving party may demonstrate to the Court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim.” (emphasis in original)).

         A fact is “material” if the underlying substantive law identifies the fact as critical. Anderson, 106 S.Ct. at 2510. Thus, “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.” Id. A “genuine” issue exists if “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Id. at 2511; Matsushita Elec. Indus. Co., 106 S.Ct. at 1356 (“Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.'”) (citation omitted). Such evidence must be suitable for admission into evidence at trial. Salt Lick Bancorp v. FDIC, 187 F. App'x 428, 444-45 (6th Cir. 2006).[2]

         III. ANALYSIS

         The Court confronts the following motions:

1. DE #42: FTC seeks judgment on (1) a claim to Schedule 7-based rent from 11/1/13 to 12/9/13 and accompanying delay charges; (2) a claim to Schedule 8-based rent from 12/1/14 to 10/1/15 and accompanying charges; (3) the conversion claim; (4) the specific enforcement claim; and (5) BancTec's liability for FTC's reasonable attorney fees.
2. DE #74: FTC seeks judgment on (1) a claim concerning unauthorized and unnoticed destruction of certain Schedule 8 equipment, and (2) BancTec's liability for FTC's reasonable attorney fees.
3. DE #72: BancTec seeks entry of judgment in its favor on all claims.

         As previously indicated, each motion is fully briefed and ripe for consideration. See DE ##80, 83, 90, 91, 98, 102, 103, and 107.

         The parties principally dispute the meaning / interpretation of their agreement- including consideration of the MLA, Schedules 7 and 8, and the applicability and import of other related documents. Agreement interpretation / construction, where the contract is clear, is purely an issue of law. Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002) (citing cases).[3] “To prove a breach of contract, [FTC] must 2001). Indeed, “the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial consideration and determination whether genuine issues of material fact exist.” Id. (quoting 10A Wright, Miller & Kane, Federal Practice & Procedure § 2720 (3d ed. 1998)). establish three things: 1) existence of a contract; 2) breach of that contract; and 3) damages flowing from the breach of contract.” Metro Louisville/Jefferson Cnty. Gov't v. Abma, 326 S.W.3d 1, 8 (Ky. Ct. App. 2009); see also, e.g., Omni USA, Inc. v. Parker-Hannifin Corp., 964 F.Supp.2d 805, 813, 840 (S.D. Tex. 2013) (applying traditional contract breach elements to a UCC case).[4]

         First-Schedule 7.

         The key as to Schedule 7, to the Court, is that the MLA lease term had expired with no effective BancTec purchase election. See DE ##42-1, at 25 (FTC so admitting); 26, at ¶ 28 (noting expiration “on October 31, 2013”). In the Court's assessment, this unequivocally pushes the scenario into MLA ¶ 5(B) territory, which provides that the lease continues on a month-to-month basis until, as relevant here, BancTec's “total month-to-month rent payments equal” fair market value. Thus, at the point of expiration, BancTec had floated a document exploring purchase, the July 2013 letter (DE #26-6, at 3), but had not formally elected purchase. To quote FTC's own unambiguous view of the status:

The July 11, 2013 Letter was not an “unqualified, absolute, unconditional unequivocal, unambiguous (Civic Plaza, 401 F.2d at 197) election by BancTec to exercise the “Fair Market Value” purchase option contained in ¶ 4(A). . . . Ultimately, the FTC and BancTec found common ground at $58, 002.35 after the term of the lease of the Schedule 7 Equipment expired on October 31, 2013.

DE #42-1, at 25 (citing DE #42-2 (Carpenter Aff.), at ¶¶ 28, 50-52). Per ¶ 5(B), at lease expiration, BancTec had “not elected to renew the Lease [or], purchase or return the Equipment.” MLA ¶ 5; see also DE #42-2, at ¶ 103. FTC does not contend default existed, as to Schedule A, at that point. With no default,

the Lease will be extended for each subject item of Equipment on a month-to-month basis until either [termination by Lessee] or: a) Lessee's total month-to-month rent payments equal the greater of the fair market value or Stipulated purchase Value of the Equipment, at which time Lessor shall transfer title to Lessee[.]

MLA ¶ 5(B). BancTec and FTC actively negotiated the purchase post-expiration, see DE 42-9 through 42-12 (negotiating emails), ultimately reaching agreement in the latter part of November. Tellingly, in none of the offers does FTC suggest it is seeking a buy-out plus additional rent. Indeed, the parties simply negotiated out the value, agreed on a price, and FTC invoiced BancTec. The obvious arms' length negotiations produced eventual agreement, the essence of fair market value. MLA ¶ 4(A); see also DE ##42-19, at 2-22; 42-20; 42-21; 42-22 (Schedule 8 post-expiration negotiations directly referencing FMV, by both parties, at multiple points).

         The long and short is that BancTec did owe a continuing rental obligation, but it owed that obligation, per ¶ 5(B), only until the payments reached the greater of fair market or stipulated purchase value. Fair market value-the parties' negotiated price- caps the obligation once reached via rent payments. Here, the parties agreed to that number, and BancTec paid it by December 9, 2013. The Court ...


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