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Valley Electrical Consolidated, Inc v. TFG-Ohio, L.P.

United States District Court, D. Utah

February 8, 2018

VALLEY ELECTRICAL CONSOLIDATED, INC., Plaintiff,
v.
TFG-OHIO, L.P. and TETRA FINANCIAL GROUP, L.C.C., Defendants, TFG-OHIO, L.P., Defendant and Counterclaim Plaintiff,
v.
VALLEY ELECTRICAL CONSOLIDATED, INC.; EVETS ELECTRIC, INC.; and J.L. ALLEN CO., LLC, Counterclaim Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING COUNTERCLAIM PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

          Jill N. Parrish United States District Court Judge

         Before 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.

         I.INTRODUCTION

         This is 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 payments.

         II. UNDISPUTED FACTS

         A. The Parties

         VEC is 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.” Id.

         B. The Lease

         On 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.

         The 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.

         In sum, 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 ¶ 19.

         The 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 of Default.”

Master Lease ¶ 17(a).

         The 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.

         Master Lease ¶ 17(c).

         The 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).

         C. The Security Agreement

         In 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.

         Between 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.

         On 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.

         D. VEC Fails to Provide Timely Notice

         Because 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.

         On 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.

         During 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.

         E. Payoff Negotiations

         On 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.

         In 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.

         F. VEC Stops Making Rent Payments

         VEC 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 ...


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