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SAUER v. XEROX CORP.

April 25, 2000

FRED SAUER, PLAINTIFF,
V.
XEROX CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Larimer, Chief Judge.

DECISION AND ORDER

This action, which stems from a dispute over a lease agreement for certain commercial equipment, was commenced by plaintiff, Fred Sauer, in 1995. Since then, the court has issued several decisions addressing the merits of the parties' claims and counterclaims. As a result of those prior decisions, at this point all of plaintiff's claims have been dismissed, and all that remains are six counterclaims asserted by defendant Xerox Corporation. Xerox has move for summary judgment on the first four of those counterclaims. Plaintiff has cross-moved for summary judgment dismissing all of Xerox's counterclaims.

BACKGROUND

The facts of this case have been set forth in prior decisions of this court, see Sauer v. Xerox Corp., 17 F. Supp.2d 193 (W.D.N.Y. 1998); Sauer v. Xerox Corp., 173 F.R.D. 78 (W.D.N Y 1997); Sauer v. Xerox Corp., 938 F. Supp. 155 (W.D.N.Y. 1996), familiarity with which is assumed, and will not be repeated at length here. In short, Sauer and Xerox were parties to a sale/leaseback agreement ("the agreement" or "the lease") pursuant to which Xerox sold to, and then leased from, Sauer certain equipment constituting a photoreceptor line used in the production of photocopiers. When Xerox exercised its rights under the agreement to renew the agreement for two additional two-year periods, and to repurchase the equipment, the parties were unable to agree on the appropriate rental amount and repurchase price.

Under the terms of the lease, both parties retained private appraisers to establish those amounts. When this still failed to yield a figure acceptable to both sides, Xerox, again pursuant to the terms of the agreement, requested the American Arbitration Association ("AAA") to appoint an appraiser, whose determination was to be "binding and conclusive" on both parties. Affidavit of Anna Lincoln (Docket Item 262) Ex. 2 at 2.

Prior to the conclusion of the appraisal process, however, plaintiff commenced this lawsuit, notwithstanding his failure to comply with the agreement's notice and cure provisions, which permitted a party to sue only upon the occurrence of an "Event of Default," as that term is defined in the agreement, written notice of the default, and an opportunity for the defaulting party to cure the default. Plaintiff asserted various contract and tort claims. Xerox subsequently asserted six counterclaims, based on theories of breach of contract, breach of implied duty of good faith and fair dealing, breach of the implied covenant of quiet enjoyment, fraud, and tortious interference with contract.

In a Decision and Order entered on August 18, 1998, I granted Xerox's motion for summary judgment on all of plaintiff's claims, and dismissed the complaint. Xerox now moves for summary judgment on four of its counterclaims.

DISCUSSION

I. Breach of Contract Claims

Xerox has asserted two counterclaims based on a theory of breach of contract. First, Xerox alleges that Sauer breached his contractual obligation to participate in the procedures set forth in the lease for determining the fair market rental value of the equipment. In particular, Xerox notes that although the agreement contained a mandatory procedure for obtaining a binding appraisal of the market and rental values of the equipment, Sauer filed this action before that process was finished. In addition, despite the agreement's express provision allowing the parties to seek appointment of an arbitrator by the AAA, Sauer strenuously objected to Xerox's exercise of that right, and he refused to participate in the process. Xerox also alleges that Sauer attempted to manipulate the entire appraisal process in a number of ways, including using three different appraisers until Sauer finally got a figure sufficiently exaggerated to satisfy him, attempting to intimidate the AAA by threatening to hold it "strictly accountable" for any loss suffered by Sauer stemming from the AAA-appointed appraiser's report, and attempting to influence the independent appraiser through ex parte communications.

Xerox's second breach of contract claim is based on its allegation that Sauer failed to comply with the lease's notice and cure provisions. The lease provides that before the lessor, i.e. Sauer, could commence a judicial proceeding arising out of an alleged breach of the agreement, he first had to provide written notice to Xerox of the claimed default, after which Xerox would have a certain time period (the length of which would depend on the nature of the default) within which to cure the default. If Xerox failed to cure, the lessor could then declare the lease to be in default by giving written notice to that effect to Xerox. Only after all these conditions had been met could the lessor commence a court action. Lincoln Aff.Ex. 2 at §§ 20, 21. Xerox contends that these provisions amounted to a covenant not to sue Xerox unless and until each of those conditions had been met, and that Xerox is therefore entitled to damages, in the form of attorney's fees and litigation expenses, that it incurred as a result of Sauer's breach of that covenant.

In response to the first counterclaim, Sauer contends that he had no obligation to participate in the appraisal process. Since the appraisal did ultimately take place, Sauer reasons, Xerox suffered no harm in this regard. As for the second, Sauer responds that at most, the notice and cure provisions simply set forth certain conditions precedent to suit, not a covenant not to sue. Sauer asserts that nothing in the agreement indicates that the parties contemplated that a failure to comply with these provisions would give rise to an independent cause of action for breach of contract, or that a breach of those terms could give rise to liability for Xerox's attorney's fees.

The elements of a breach of contract claim under New York law are: (1) the existence of a contract; (2) performance by the party seeking recovery; (3) non-performance by the other party; and (4) damages attributable to the breach. Marks v. New York Univ., 61 F. Supp.2d 81, 88 (S.D.N.Y. 1999); Air Support Int'l, Inc. v. Atlas Air, Inc., 54 F. Supp.2d 158, 165 (E.D.N.Y. 1999). I find that although Xerox has established the first three of these elements, its contract claims fail because Xerox has not demonstrated that it has suffered any legally recoverable damages.

First, my August 18, 1998 Decision and Order makes clear that Sauer did not abide by his contractual obligations with respect to both the arbitration process and the notice and cure provision. At various points in that decision, for example, I stated: "Sauer abandoned those contractual provisions [for determining the rental amount] and commenced the lawsuit"; "Just because Sauer became disenchanted with the process, did not justify his unilateral decision to abort the procedure set forth in the Lease Agreement"; "Sauer's actions in bringing this claim were at odds with his commitment under the Lease Agreement to reach a renewal rent amount through the prescribed appraisal process"; Sauer "acted rashly and improvidently by aborting the appraisal process set forth in the Lease Agreement"; and "Sauer was obligated to abide by the Lease Agreement terms, including those which commit the lessor to the appraisal process and its results." Sauer, 17 F. Supp.2d at 197-99, 202.

With respect to the notice and cure provisions, my August 1998 Decision and Order stated the following: "prior to asserting this claim, Sauer not only failed to give Xerox timely written notice of an alleged Event of Default, as required by § 21(a), but no Event of Default, as defined in § 20, had even occurred"; Sauer's only written notice to Xerox "suffers from two impediments: because it was sent one day after suit was filed, it does not provide timely and proper written notice of Xerox' alleged Event of Default, as required by § 21(a) of the Lease Agreement. Moreover, as of that date no Event of Default, as defined in § 20(a) of the Lease Agreement, had yet occurred"; "Sauer's actions violated the clear terms of the Lease Agreement"; "Sauer's failure to adhere to the notice and cure provisions"; and "Sauer failed to abide by the terms of the Lease agreement prior to asserting this claim." Sauer, 17 F. Supp.2d at 196-97, 199.

Those actions by Sauer were clearly in violation of his duties under the agreement. Since "[i]t is to avoid litigation that the parties make appraisal agreements final," Moore v. Eadie, 245 N.Y. 166, 171, 156 N.E. 653 (1927), Sauer could not simply choose to ignore the entire process and attempt to evade his obligation to be bound by that process by filing a lawsuit instead. See Olympia & York OLP Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 214 A.D.2d 509, 511-512, 626 N.Y.S.2d 69 (1st Dep't 1995) ("A party to a dispute governed by an arbitration agreement may not unilaterally evade the ...


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