United States District Court, D. Utah
MEMORANDUM DECISION AND ORDER GRANTING COUNTERCLAIM
PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND
DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY
N. Parrish United States District Court Judge
the court are TFG-Ohio, L.P.'s (“TFG”) Motion
for Partial Summary Judgment (ECF No. 44) and Valley
Electrical Consolidated, Inc.'s (“VEC”)
Motion for Partial Summary Judgment (ECF No. 48). For the
reasons set forth below, the court GRANTS TFG's Motion
for Partial Summary Judgment and DENIES VEC's Motion for
Partial Summary Judgment.
a contract case. VEC, as the lessee, and TFG, as the lessor,
entered into a Master Lease Agreement. The Master Lease
provided for a Base Term of thirty-six months. It also
provided that the lease would extend for an additional twelve
months unless VEC provided written notice of its intent to
elect a different end-of-term option at least 180 days before
the end of the Base Term. VEC failed to provide such notice.
Consequently, TFG contends that VEC was required to make
twelve additional monthly rent payments. VEC admits that it
has not made any of the additional rent payments. But it
argues that it was not required to do so for a variety of
reasons. The court is unconvinced by VEC's arguments and
therefore holds that VEC is liable for breach of contract
because it has failed to make any of the twelve monthly rent
a construction solutions provider for oil and gas,
industrial, and power generation markets. TFG is in the
business of leasing equipment and other property to lessees
in the form of finance leases. Generally, a finance lease is
a “fixed-term lease used by a business to finance
capital equipment.” Finance Lease, Black's
Law Dictionary (10th ed. 2014). “The lessor's
service is usually limited to financing the asset, and the
lessee pays maintenance costs and taxes and has the option of
purchasing the asset at lease-end for a nominal price.”
December 8, 2011, VEC, as the lessee, and TFG, as the lessor,
executed the Master Lease Agreement. Master Lease ¶ 1,
ECF No. 44-1. Pursuant to the Master Lease, TFG leased to VEC
certain equipment and other property (the “Leased
Property”). Master Lease ¶ 1. The Leased Property
is described in the Amended and Restated Schedule No. 001 to
the Master Lease (the “Lease Schedule”). Lease
Schedule, ECF No. 44-5. The Lease Schedule and the Master
Lease are collectively referred to as the
“Lease.” The purpose of the Lease was to fund the
cost of improvements and equipment for a VEC facility located
in Ohio. See Spencer Dep. 62:18-63:13.
Lease Schedule provides that the Base Term of the Lease is
thirty-six months. Lease Schedule ¶ 4. The Base Term
began on March 6, 2012, and ended on March 31, 2015.
See Master Lease ¶ 2; Lease Schedule ¶ 4.
The Master Lease provides VEC with certain options upon the
conclusion of the Base Term:
19. [VEC'S] END OF TERM OPTIONS
Upon the completion of the Base Term of any Lease, provided
at least one hundred eighty (180) days prior written notice
is received by [TFG] from [VEC] via certified mail, [VEC]
shall irrevocably elect one the of the following options: (i)
purchase all, but not less than all, of the Leased Property
for a price to be agreed upon by [TFG] and any applicable
Assignee and [VEC]; (ii) extend the Lease for twelve (12)
additional months at the rate specified on the respective
Schedule, or (iii) return the Leased Property to [TFG] at
[VEC's] expense to a destination within the continental
United States specified by [TFG] and terminate the Schedule .
. . . With respect to options (i) and (iii), each party shall
have the right in its absolute and sole discretion to accept
or reject any terms of purchase or of any new Schedule, as
applicable. IN THE EVENT [TFG] AND [VEC] HAVE NOT AGREED TO
EITHER OPTION (i) OR (iii) BY THE END OF THE BASE TERM, OR IF
[VEC] FAILS TO GIVE WRITTEN NOTICE OF ITS ELECTION VIA
CERTIFIED MAIL AT LEAST ONE HUNDRED EIGHTY (180) DAYS PRIOR
TO THE TERMINATION OF THE BASE TERM, THEN OPTION (ii) SHALL
AUTOMATICALLY APPLY AT THE END OF THE BASE TERM.
Master Lease ¶ 19.
VEC, so long as it provided 180-day prior written notice,
could irrevocably elect either of the three end-of-term
options: (i) purchase all the Leased Property; (ii) extend
the Lease for twelve additional months; or (iii) return the
Leased Property. See Master Lease ¶ 19. If,
however, VEC failed to provide the requisite notice, then a
twelve-month extension would automatically apply at the end
of the Base Term. See Master Lease ¶ 19. The
twelve-month extension would also automatically apply if the
parties were unable to agree on option (i) or (iii) by the
end of the Base Term. See Master Lease ¶ 19.
With respect to option (i), purchase of the Leased Property,
both parties had “absolute and sole discretion”
to accept or reject any terms of purchase. Master Lease
Master Lease defines an “Event of Default” to
include, among other things, any failure “to make any
payment of rent . . . which remains unremedied for five (5)
days.” Master Lease ¶ 16(a)(1). Paragraph 17(a) of
the Master Lease provides:
“Upon the occurrence of any Event of Default, [TFG]
may, with or without the giving of notice, do any one or more
of the following: . . . (10) With or without terminating the
Lease, recover the Casualty Loss Value of the Leased Property
as of the rental payment date immediately preceding the date
Master Lease ¶ 17(a).
Casualty Loss Value of the Leased Property, as set forth in
Exhibit B of the Master Lease, is $219, 582.00 for any date
that was thirty-six or more months from the Commencement Date
of the Lease. Master Lease, Ex. B. Paragraph 17(c) of the
Master Lease provides:
[TFG] shall be entitled to recover all costs and expenses
incurred by [TFG] in exercising any or all of the
above-listed remedies, including without limitation . . .
reasonable attorney fees and court costs incurred in
connection therewith or in connection with any collection
activities, negotiated settlement or otherwise resulting or
arising from [VEC's] Default, and any indemnity, plus
interest on all of the above until paid (before and after
judgment, if any) at the lesser of the rate of twenty-four
percent (24%) per annum or the highest rate permitted by law.
Lease ¶ 17(c).
Master Lease also contains provisions regarding modification,
waiver, integration, and choice of law. With respect to
modification, the Master Lease “may not be contradicted
by evidence of any alleged oral agreement and any change or
modification must be in writing signed by the parties
hereto.” Master Lease ¶ 20(a) (emphasis removed).
With respect to waiver, “[a]ny waiver by [TFG] of any
right or remedy must be in writing specifically identifying
what is being waived.” Master Lease ¶ 17(b). With
respect to integration, the Lease is “the entire
agreement between the parties . . . and shall supersede all
prior communications, representations, agreements and
understandings, in any form, and there is no understanding or
agreement between the parties, oral or written, which is not
set forth herein.” Master Lease ¶ 20(a). With
respect to choice of law, the Master Lease provides that it
is to be “governed by and construed in accordance with
the laws of the State of Utah.” Master Lease ¶
20(e) (emphasis removed).
The Security Agreement
connection with the Lease, the parties executed a Security
Agreement. Security Agreement ¶ 1, ECF No. 50-2.
Pursuant to the Security Agreement, VEC granted to TFG a cash
security deposit in the amount of $137, 238.00, twenty-five
percent of the amount funded under the Master Lease.
See Lease Schedule ¶ 9; Security Agreement
¶ 3. Neither the Lease Schedule nor the Security
Agreement set a date on which TFG was required to return the
security deposit to VEC.
March 2013 and November 2014, Rick Razecca, a TFG National
Account Executive, and Brenda Spencer, VEC's then Chief
Financial Officer, communicated by email and over the
telephone regarding the release of the security deposit.
See ECF No. 51-1 at 10-26. On April 10, 2014, the
parties executed a Partial Collateral Release (the
“First Collateral Release”). First Collateral
Release, ECF No. 46-1 at 15-16. Pursuant to the First
Collateral Release, TFG released $45, 769.30 to VEC.
See First Collateral Release ¶ 1. By executing
the First Collateral Release, VEC acknowledged and ratified
that “the Security Agreement and the Lease shall remain
in full force and effect without change.” First
Collateral Release ¶¶ 2-3.
November 11, 2014, the parties executed another Partial
Collateral Release Agreement (the “Second Collateral
Release”). Second Collateral Release, ECF No. 46 at
20-21. Pursuant to the Second Collateral Release, TFG
released to VEC the remainder of the security deposit, $91,
469.30. See Second Collateral Release ¶ 1. With
this second release, TFG released the entire security
deposit, $137, 238.00, before the end of the Base Term.
Spencer Decl. ¶¶ 8, 10. By executing the Second
Collateral Release, VEC again acknowledged and ratified that
“the Security Agreement and the Lease shall remain in
full force and effect without change.” Second
Collateral Release ¶¶ 2-3.
VEC Fails to Provide Timely Notice
the Base Term of the Lease ended on March 31, 2015, VEC had
to give written notice of its end-of-term election on or
before October 2, 2014 to satisfy the written-notice
requirement. See Master Lease ¶ 19. VEC did not
give notice of its end-of-term election on or before October
2, 2014. Spencer Dep. 59:9-12.
January 8, 2015, more than three months after the
written-notice deadline, Mr. Razecca emailed Ms. Spencer. ECF
No. 51-1 at 29. Mr. Razecca wrote, “I understand we
have not received your notice [to elect an end-of-term
option]; [my supervisor, Greg Emery, ] asked me to send you
information as to what we typically receive from
clients.” ECF No. 51-1 at 29. Mr. Razecca went on to
write, “On your letter head [sic], simply state what is
intended at the end of the term, 1. Purchase, 2. Extend or 3.
Return.” ECF No. 51-1 at 29. Ms. Spencer responded by
email the next day. ECF No. 51-1 at 31. She attached to the
email a letter in which she wrote that VEC “intends to
exercise its option to (i) purchase all, but not less than
all of the leased [property] for a price to be agreed upon by
[TFG].” ECF No. 51-1 at 32.
the next two weeks, Ms. Spencer and Mr. Razecca exchanged a
number of emails. On January 13, Ms. Spencer asked whether
TFG received a hardcopy of the letter and what the next steps
were. ECF No. 51-1 at 35. On January 14, Mr. Razecca
responded that VEC received the letter that morning. ECF No.
51-1 at 34. On January 19, Ms. Spencer asked whether there
was “[a]ny further follow up.” ECF No. 51-1 at
34. Two days later, on January 21, Mr. Razecca wrote that Mr.
Emery was out of the office and that “[Mr. Emery] would
be in touch . . . if he needs anything else.” ECF No.
51-1 at 34. This ended the exchange between Ms. Spencer and
Mr. Razecca, and the parties did not communicate in writing
for close to two months.
March 20, 2015, Mr. Emery emailed Ms. Spencer. ECF No. 51-1
at 37. Mr. Emery wrote, “[a]s per our conversation,
attached is the payoff letter and below is the
breakdown.” ECF No. 51-1 at 37. Upon receipt of the
payoff, VEC's obligations under the Lease would be deemed
satisfied and TFG would transfer its interest in the Leased
Property to VEC. ECF No. 51-1 at 38. The total payoff was
comprised of: (1) a residual payoff of $219, 582.00; (2) six
extension payments, totaling $92, 817.18; and (3) taxes in
the amount of $22, 131.14. ECF No. 51-1 at 37. Thus, the
total payoff amount was $334, 530.32. ECF No. 51-1 at 38.
internal emails, Ms. Spencer and other VEC employees
discussed how to respond to the payoff letter. See
ECF No. 47-6 at 2-3. In one email, Ms. Spencer wrote:
If we went by the contract[, ] the extension would be 12
months[.] . . . [TFG] is requesting a 6 month extension
because we were late with the notice[.] . . . Feels if April
rent not paid[, ] [TFG] will enforce the contract[.] . . .
Our payoff to them needs to have two components: Residual
Value [and] Extension due to late notice[.]
ECF No. 47-6 at 2. In a subsequent internal email, Ms.
Spencer wrote, “I want to confirm that we are not going
to pay the April payment.” ECF No. 47-6 at 3.
VEC Stops Making Rent Payments
never accepted the terms of the payoff letter. See
Greenwell Decl. ¶ 7. VEC has not made any monthly rental
payments-or any payments at all on the Lease-since April 1,
2015. Greenwell Decl. ¶ 7. VEC continues to use the
Leased Property, and it has ...