Summary
upholding hell or high water clause in finance lease and directing summary judgment for plaintiff
Summary of this case from Wells Fargo Bank Northwest, N.A. v. Taca International Airlines. S.A.Opinion
00 Civ. 0880 (BSJ)
January 16, 2001
Opinion Order
INTRODUCTION
Plaintiff, Siemens Credit Corporation ("Siemens") and Third-Party Defendant Siemens Information and Communication Network's ("SICN"), separately move for summary judgment against Defendant and Third-Party Plaintiff, American Transit Insurance Company ("ATIC"), pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, Plaintiff's motion is granted and Third-Party Defendant's motion is denied.
BACKGROUND
On July 25, 1996 ATIC, a commercial automobile insurance carrier, entered into an Agreement for Products and Services ("Agreement") with Siemens Rolm Communications ("Rolm"), the predecessor company of SICN and a manufacturer of telephone equipment, Declaration of Marianne Trotta in Support of Third-Party Defendant's Motion for Summary Judgment ("Trotta Dec.") ¶ 2. On October 29, 1996, ATIC and Siemens entered into a separate Equipment Lease Agreement ("Lease") whereby ATIC leased the telephone equipment supplied by Rolm from Siemens for 60 months at $2314.00 per month. The equipment was installed in or about October 1996 and ATIC made the monthly payments due under the Lease through October 28, 1998. Declaration of Anne C. Mickens ("Mickens Dec.") ¶¶ 3; 5; Lease at 1 (attached to Mickens Dec. as Ex. A). ATIC claims that it ceased payments because the equipment was so defective that it could not properly operate its business, and that despite repeated complaints, the equipment was not adequately or timely fixed. Affidavit of Edward T. McGettigan, Jr. in Opposition to Plaintiff's Motion for Summary Judgment ("McGettigan Opp. Pl. Aff.") ¶ 4; Affidavit of Edward T. McGettigan, Jr. in Opposition to Third-Party Defendant's Motion for Summary Judgment ("McGettigan Opp. Def. Aff.") ¶ 5. Accordingly, it replaced the equipment in early 1999. McGettigan Opp. Pl. Aff. ¶ 7. Siemens declared ATIC in default under the Lease on or about November 10, 1999. Mickens Dec. ¶ 8.
The documents provide and the parties do not dispute that the Agreement is governed by California law while the Lease is governed by New York law.
ATIC sent numerous letters to Rolm complaining of the problems with the equipment. The first such letter is dated October 9, 1997, although it indicates that ATIC had been in contact with Rolm prior to October 9th regarding problems with the equipment. While ATIC also blames Siemens for the untimely and inadequate service, see McGettigan Opp. Pl. Aff. ¶ 4, it is clear that ATIC had a warranty contract only with Rolm/SICN and not Siemens.
On February 7, 2000, Siemens initiated an action against ATIC seeking payment under the Lease. ATIC, in turn, on March 1, 2000, filed a third-party Complaint against SICN for indemnification of the money due to Siemens on the grounds that SICN breached the Agreement by providing defective equipment and failing to properly and timely service the equipment. These motions for summary judgment followed.
DISCUSSION
Plaintiff's Motion for Summary Judgment
After an examination of the Lease, this Court finds that Siemens is entitled to summary judgment. The Lease is a finance lease under Article 2-A of the New York Uniform Commercial Code, see Lease ¶ 7, and obligates ATIC to make all payments due under it regardless of the condition or performance of the leased equipment. See NYUCC § 2-A-407. Edward McGettigan, ATIC's underwriting manager, signed the Lease on behalf of ATIC. The Lease reads in capitalized print over the signature of
Such leases are also known as "hell or high water leases."
McGettigan:
BY SIGNING THIS LEASE: (I) YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND THE TERMS AND CONDITIONS ON THE FRONT AND BACK OF THIS LEASE, (II) YOU AGREE THAT THIS LEASE IS A NET LEASE THAT YOU CANNOT TERMINATE OR CANCEL, YOU HAVE AN UNCONDITIONAL OBLIGATION TO MAKE ALL PAYMENTS DUE UNDER THE LEASE AND YOU CANNOT WITHHOLD, SET OFF OR REDUCE SUCH PAYMENTS FOR ANY REASON.See Lease at 1.
In addition, the Lease provides that ATIC was leasing the equipment "as is," and further provides, again in capitalized print:
YOU ACKNOWLEDGE THAT WE DO NOT MANUFACTURE THE EQUIPMENT, WE DO NOT REPRESENT THE MANUFACTURER OR THE SUPPLIER, AND YOU HAVE SELECTED THE EQUIPMENT AND SUPPLIER BASED UPON YOUR OWN JUDGMENT. WE MAKE ABSOLUTELY NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. YOU AGREE THAT REGARDLESS OF CAUSE, WE ARE NOT RESPONSIBLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RELATING TO THE THIS LEASE OR THE EQUIPMENT.See Lease ¶ 3.
Finally, the Lease also clearly and conspicuously states:
"[w]e transfer to you for the Lease Term any warranties made by the manufacturer or Supplier under a Supply Contract and you agree not to assert against us any Equipment problems," see Lease ¶ 3, and "[y]ou acknowledge that neither the supplier nor any salesperson, employee or agent of supplier is our agent or has authority to bind us in any way."See Lease ¶ 7.
ATIC does not dispute, as it cannot, that the lease contains these provisions. Rather, it principally argues that the Lease is unconscionable and therefore-unenforceable. ATIC claims that the circumstances under which the lease was signed, including alleged misrepresentations by Siemens and absence of counsel, create issues of fact as to the unconscionable nature of the lease. Taking all of the sworn allegations ATIC presents in support of this argument as true, this Court finds that ATIC raises no genuine issues of fact material to the unconscionability of the Lease and finds it enforceable as a matter of law.
It is axiomatic that the moving party is entitled to summary judgment when there is no genuine issue as to any material fact. Obviously, the moving party has the burden to establish the absence of a genuine issue of material fact. Once the moving party has accomplished this, the non-moving party must set forth specific facts which demonstrate that a genuine issue for trial exists. Fed.R.Civ.P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, "[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." Anderson, 477 U.S. at 248.
An unconscionable contract is one that is so grossly unreasonable in the light of the mores and business practices of the time and place as to be unenforceable on its face. See Gillman v. Chase Manhattan Bank, N.A., 135 A.D.2d 488 (2d Dep't 1988). Thus, in order for a court to find that a contract is unconscionable there must be "some showing of `an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party'"Brower v. Gateway 2000, Inc., 246 A.D.2d 246 (1st Dep't 1998) (quotingMatter of State of New York v. Avco Financial Service, 50 N.Y.2d 383 (1980)). ATIC cannot make such a showing.
The terms of the Lease are not so outrageous and so favorable to Siemens as to warrant unenforceability. After all, ATIC got its telephone equipment in exchange for its monthly payments. The notion that the Lease was unconscionable because ATIC lacked counsel for this simple commercial transaction is equally unpersuasive. ATIC, one of the largest commercial automobile insurance carriers in New York State, is a sophisticated company and this Court agrees with the drafter that the Lease is in "plain English." Lease at 1. Moreover, had ATIC found that the terms of the "boilerplate" Lease too one sided or unsatisfactory, and was unable to negotiate more favorable terms, it had the option and ability to reject the Lease.
As to ATIC's claim of misrepresentations by Siemens — it is without merit. Even if made, the Lease contains an integration clause in § 14 which states that the terms and conditions contained in the Lease make up the entire agreement and supersede all previous dealings. In addition, § 14 states that any changes to the Lease must be made in writing and signed by both parties. No revisions were made.
On the other hand, ATIC has raised triable issues of fact as to its equipment problems, but as the Lease provisions make clear, they are properly brought only against the manufacturer third-party defendant, SICN. See Lease ¶ 3. Simply stated, because it is undisputed that ATIC agreed to the unconditional obligation to make all payments under the Lease and the Lease is enforceable, Siemens is entitled to summary judgment. Again, if ATIC has any legitimate claims arising out of equipment problems, it must pursue them against the manufacturer, SICN.
Siemens is ordered to submit to this Court further support for the damages it seeks with specific reference to the applicable provisions of § 9(b) of the Lease. In addition, this Court finds that the Lease also entitles Siemens to recoup the costs incurred in enforcing its rights under the Lease, including attorneys fees. Accordingly, in addition to the statements already submitted itemizing its costs Siemens shall provide this Court with contemporaneous time sheets. These submissions shall be made on or before January 31, 2001. ATIC shall make any further submissions in opposition on or before February 14, 2001.
Third-Party Defendant's Motion for Summary Judgment.
SICN moves for summary judgment first on the grounds that ATIC is time barred from prosecuting this action by § 8 of the Agreement. Essentially, SICN argues that the Agreement provides for a warranty of a period of one year from the "Cutover Date," which was specified as September 25, 1996 and claims that the warranty expired on September 24, 1997. Id. ¶ 5. Furthermore, SICN asserts the warranty required as a condition precedent to its enforcement, that ATIC provide notice to Rolm of any failure to maintain the system and equipment in good working order and that no such notice was given. Id. ¶¶ 6; 7. Finally, SICN claims that even had such notice been given and the failures of which ATIC complains occurred during the warranty period, the Agreement limits the right of any party to sue beyond two years after the cause of action arose. Id. ¶ 8. Thus the latest date on which ATIC could commence an action according to SICN for breach of the agreement would have been September 24, 1999. ATIC did not sue until March 1, 2000. Id. ¶ 9.
Although ATIC does not dispute that the warranty runs from the Cutover Date, ATIC notes that the Agreement defines the Cutover Date as the "date on which a System is installed and substantially performing according to all material specifications as verified by Rolm's standard testing procedures." Agreement ¶ 1 (attached as Ex. A to Affidavit of Edward T. McGettigan, Jr. in Opposition to Third-Party Defendant's Motion for Summary Judgement) While Rolm was to make all reasonable efforts to complete the system's installation by the intended Cutover Date, September 25, 1996, it was to notify ATIC in writing of the system'sactual Cutover Date. Id. (citing Agreement ¶ 10). ATIC contends that SICN has not established that the equipment was ever "installed and substantially performing according to all material specifications as verified by Rolm's standard testing procedures," and certainly not by September 25, 1996. Id. Nor did SICN ever notify ATIC of the actual Cutover Date. Id. ATIC thus argues that the actual Cutover Date was not September 25, 1996 and consequently the warranty did not expire on September 24, 1997. Id. at 7. Accordingly, ATIC asserts that its notification to SICN of the failure of the equipment occurred during the warranty period and therefore SICN's motion must be denied.
ATIC also argues that the Agreement with Rolm is unconscionable for essentially the same reasons it asserted against Siemens as to the Lease. This Court disagrees for the same reasons set forth above. See supra at 6-7. Further, ATIC notes that SICN's motion should be denied because it failed to submit a memorandum of law in support of its motion as required under Local Civil Rule 7.1. While ATIC is correct, this Court does not deny SICN's motion on those grounds.
Because this Court finds genuine issues of fact exist as to when the warranty period ended and thus the contractual two year limit on bringing suit began, summary judgment is denied. Among these issues of fact are: (1) whether the telephone equipment at issue was ever "installed and substantially performing according to all material specification as verified by Siemens Rolm's standard testing procedures," as explicitly required by the Agreement; (2) whether SICN provided ATIC with written notice of the actual "Cutover Date," as explicitly required by the Agreement; (3) whether the intended "Cutover date" relied upon by SICN was the actual "Cutover date"; (4) whether SICN failed to perform and render timely and satisfactory service of the equipment; and (5) whether ATIC timely notified SICN of the alleged defective nature of its equipment and its alleged inadequate service.
Second, SICN contends that ATIC's Complaint fails to state a claim for indemnification upon which relief can be granted. Specifically, SICN argues that ATIC's liability to Siemens under the Lease does not arise from a breach of a duty, in contract or tort, owed by SICN to ATIC, or otherwise implicate ATIC. Indeed, ATIC's obligations under the Lease are independent of the claims that ATIC may have against SICN. Thus SICN cannot be held liable for ATIC's failure to fulfill those obligations. Declaration of Douglas J. Kramer in Support of Third-Party Defendant's Motion for Summary Judgment ¶ 11. Curiously, ATIC does not address this issue in its opposition papers. While this Court is inclined to agree with SICN, it denies this part of the motion without prejudice. ATIC is ordered to respond to this motion or withdraw the claim on or before January 26, 2001.
CONCLUSION
For the reason set forth above, Siemens' motion for summary judgment is GRANTED and SICN's motion for summary judgment is DENIED. SICN and ATIC are ORDERED to submit to this Court a joint pre-trial order on or before February 16, 2001 and be trial ready within 48 hours by March 5, 2001.