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Onset Financial, Inc. v. Victor Valley Hospital Acquisition, Inc.

United States District Court, D. Utah

April 4, 2018

ONSET FINANCIAL, INC., a Utah corporation, Plaintiff,
v.
VICTOR VALLEY HOSPITAL ACQUISITION, INC., a California corporation, Defendant.

          MEMORANDUM DECISION AND ORDER

          Dale A. Kimball, United States District Judge

         This matter is before the court on Plaintiff's Motion to Dismiss counterclaims for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court held a hearing on the motion on March 21, 2018. At the hearing, Plaintiff was represented by Stephen C. Tingey, and Defendant was represented by Sam Meziani. The court took the matter under advisement. The court has considered carefully the memoranda and other materials submitted by the parties, as well as the law and facts relating to the motion. Now being fully advised, the court issues the following Memorandum Decision and Order.

         BACKGROUND

         Plaintiff Onset Financial, Inc. (“Onset”) is a Utah corporation with its principal place of business in Utah. Defendant Victor Valley Hospital Acquisition, Inc. (“Victor Valley”) is a California corporation with its principal place of business in California. Victor Valley owns and operates medical facilities in California. Victor Valley borrowed money from Onset through three lease schedule agreements in connection with a Master Lease Agreement (“Master Lease”). These transactions were labelled as personal property leases.

         In June 2014, Onset sent a proposal letter (“June Proposal”) to Victor Valley dated June 10, 2014, which Victor Valley signed on June 11, 2014. The proposal letter contained three options at the end of the Base Period: (1) purchase the property for a price not less than 10% and not greater than 30% of the original property cost; (2) renew the lease; or (3) terminate the lease by returning all of the property to Onset. On or about August 4, 2014, Victor Valley, as lessee, executed and delivered to Onset, as lessor, the Master Lease, dated August 4, 2014. In connection with the Master Lease, Victor Valley executed and delivered to Onset Lease Schedule No. 001 (“Schedule 1”), dated August 4, 2014, including Amendment No. 1 and Amendment No. 2 to Schedule 1, dated December 9, 2014 and December 29, 2014, respectively; and Lease Schedule No. 002 (“Schedule 2”), dated August 15, 2014, including Amendment No. 1 to Schedule 2, dated July 1, 2015.

         In October 2014, Onset sent another proposal letter (“October Proposal”) to Victor Valley dated October 7, 2014. The October Proposal contained three options: (1) renew the property for a price to be determined by the parties; (2) renew the lease; or (3) terminate the lease by returning all of the property to Onset. The two parties then executed and entered into a third schedule in conjunction with the Master Lease: Lease Schedule No. 3 (“Schedule 3”), dated October 29, 2014, including Amendment No. 1 and Amendment No. 2 to Schedule 3, dated December 15, 2014 and January 6, 2015, respectively. In connection with each individual schedule, Victor Valley executed and delivered an Acceptance and Delivery Certificate to Onset.

         Paragraph 20(n) of the Master Lease provided that, at the end of the base period, the schedule would automatically renew for twelve additional months. However, if Victor Valley gave written notice to Onset, which was received by Onset at least sixty days before the end of the base period of any of the schedules, it would have two options: (1) purchase the property for a price determined by the parties; or (2) terminate the schedule and return the property to Onset. In order to choose the second option, Paragraph 20(n) required Victor Valley, inter alia, to enter into a new schedule to lease property that replaced the property listed in the old schedule. Options (1) and (2) would expire and the schedules would automatically renew if the parties did not come to an agreement on either option prior to the maturity of the base period; if Victor Valley failed to give written notice at least 150 days prior to the maturity of the base period; or if Victor Valley was in default. Additionally, the parties amended the terms of Paragraph 20(n) in relation to Schedules 1 and 2 but did not make any such amendments in relation to Schedule 3.

         At the maturity of the initial twelve-month renewal period, the schedules would continue in effect for successive periods of six months, with each subject to termination at the maturity of any such successive six-month renewal period by either party giving thirty-day prior written notice of termination to the other party. Paragraph 20(n) states that Victor Valley acknowledges and agrees that it has read and understands the above provisions, and it concludes by stating Paragraph 20(n) contains the entire agreement and supersedes all prior communications, representations, and agreements, including proposal letters. Lastly, Paragraph 20(e) contained a choice-of-law provision declaring that Utah law would govern the transaction.

         Victor Valley used the money to finance the purchase of new medical software, professional services, travel expenses, an electric generator, and construction improvements to its urgent care facility. Victor Valley purchased these items and services from third party contractors and vendors. After the initial terms of Schedules 1 and 3 had concluded, Victor Valley continued to make monthly payments. In September 2017, when Victor Valley discovered it was still making payments beyond the initial term, it stopped making such payments.

         DISCUSSION

         Onset moves to dismiss Victor Valley's counterclaims for failure to state a claim upon which relief can be granted according to Rule 12(b)(6) of the Federal Rules of Civil Procedure. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[A]ll well-pleaded factual allegations in the . . . complaint are accepted as true and viewed in the light most favorable to the nonmoving party.” Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006).

         A. Equitable Rescission or Reformation

         Victor Valley's Counterclaim argues in favor of equitably rescinding or reforming the agreement made between the two parties based on the doctrine of mistake. More specifically, Victor Valley argues for equitable relief based on unilateral mistake. “When one party's mistake of fact is coupled with knowledge of the mistake by the other party or a mistake is produced by . . . inequitable conduct by the nonerring party, the mistake provides a basis for reformation or rescission.” Guardian State Bank v. Stangl, 778 P.2d 1, 5 (Utah 1989). In order to “prevail on a theory of unilateral mistake, ‘the mistake must have occurred notwithstanding the exercise of ordinary diligence by the party making the mistake.'” Oliphant v. Estate of Brunetti, 64 P.3d 587, 592 (UT App 2002) (quoting John Call Eng'g, Inc. v. Manti City Corp., 743 P.2d 1205, 1209 (Utah 1987). However, “one party to an agreement does not have a duty to ensure that the other party has a complete and accurate understanding of all terms embodied in a written contract. Rather, each party has the burden to read and understand the terms of a contract before . . . affix[ing] his or her signature to it.” Id.

         Victor Valley argues that Onset was aware of its mistake and engaged in inequitable conduct by (1) sending proposal letters that contained different end-of-term provisions than the Master Lease and (2) failing to negotiate or explain the automatic renewal provisions in the Master Lease to Victor Valley after obtaining Victor Valley's signature ...


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