The opinion of the court was delivered by: Denise Cote, District Judge
This diversity action, which arises out of a default on an equipment lease agreement, was filed by plaintiff ePlus Group, Inc. ("ePlus") on October 8, 2002. The complaint alleges claims for breach of contract, negligence, breach of insurance contract, breach of warranty, breach of the covenant of good faith and fair dealing, interference with contractual relations, fraudulent conveyance and conspiracy to effect fraudulent conveyance. The plaintiff has moved for summary judgment on its claim of breach of contract against defendants Panoramic Communications LLC ("Panoramic") and epb.communications, inc. ("epb")(collectively "Defendants"), and seeks enforcement of the liquidated damages provision of the contract.*fn1 The Defendants contend that genuine issues of material fact exist as to both liability and damages, and argue in the alternative that plaintiff's motion is premature as discovery has not yet been conducted in this action. For the reasons stated below, the plaintiff's motion for partial summary judgment is granted in part as to liability and denied as to damages.
The following facts are undisputed or as asserted by Defendants unless otherwise noted. ePlus is a commercial equipment leasing company. On May 24, 1999, ePlus and epb, then known as Earle Palmer Brown, entered into a lease agreement for computer equipment ("Master Lease"). The parties subsequently entered into twenty-five schedules ("the Schedules") which provided specific information, such as equipment lists, lease dates and rental amounts, for the individual leases covered by the Master Lease. (The Master Lease and the Schedules will be referred to collectively as the "Lease.") On April 26, 2001, the Master Lease was modified to make Panoramic a co-lessee. During the summer of 2002, the Defendants began to experience difficulty in making timely lease payments. According to a former vice president at epb, at a meeting on August 1 (the "August 2002 Meeting"), Panoramic and ePlus agreed that the purchasers of three Panoramic-related entities would retain certain of the leased equipment and that, once ePlus was able to complete new lease arrangements with these purchasers, ePlus would look exclusively to these purchasers for future rent payments.
On September 30, 2002, ePlus notified epb and Panoramic by letter that they were in default. In the letter, ePlus declared the Master Lease and the Schedules terminated as of September 1, and demanded payment of unpaid rent in the amount of $106,463.81, late fees in the amount of $3,285.73, and a casualty value payment in the amount of $1,088,445.33, for a total of $1,198,194. It is not disputed that the Defendants have not made any payments since receiving ePlus' written demand. The total amount that the plaintiff would have received had the Lease been fully performed from the date of default is $361,010.02.
The Master Lease provides that the "nonpayment by Lessee of Rent or any other payable sum upon written notice by its due date" constitutes an event of default. Master Lease ¶ 14(a). In the "event of default," ePlus has several nonexclusive remedies. Id. at ¶ 14(b). ePlus may "terminate any or all Schedules," "[p]roceed by appropriate court action to enforce the performance of the Schedule and/or recover damages, including all of Lessor's economic loss for the breach," and "upon notice to Lessee, take possession of the Asset(s) wherever located." Id. Under ¶ 14(b) of the Master Lease, the lessee, upon an event of default, agrees to return the equipment to ePlus. Id.
Under the liquidated damages clause, ePlus may also require the lessees, upon notice, to pay immediately:
the sum of (a) the Casualty Value set forth on the
Schedule as of the date of default, or if Casualty
Values are not shown on such Schedule, all Rent due
during the remainder of the Schedule Term; (b) all
Rent and other amounts due and payable on or before
the date of default; and (c) costs, fees (including
all reasonable attorneys' fees and court costs),
expenses and (d) interest on (a) and (b) from the date
of default at 1½% per month or portion thereof (or
the highest rate allowable by law, if less) and, on
(c) from the date the Lessor incurs such fees, costs
Id. (emphasis supplied).
The Master Lease explains that the Casualty Value is set forth in each of the respective Schedules. Id. In each Schedule the Casualty Value represents a percentage of the "Total Asset Unit Cost Value" of the leased asset. The Total Asset Unit Cost Value represents the original cost of the equipment to ePlus.
The Casualty Value varies according to the pay period in which the default occurs. For example, in one Schedule the Casualty Value rate varies from 109% of the Total Asset Unit Cost Value if a default occurs during the first pay period, to 79.6% if a default occurs during the thirty-sixth or final pay period. Thus, if a default occurs in the thirty-sixth pay period, the lessee would be obligated to pay 79.6% of the Total Asset Unit Cost as a Casualty Value. All of the Schedules have substantially the same provisions, differing only with respect to equipment specifications, length of term and amount of rent.
The Master Lease also provides an offset or credit to the lessee against the total amount of liquidated damages in certain circumstances. Id. at ¶ 14(c). In the event of default, the lessee is obligated to return the leased assets or allow the lessor to repossess them. Id. at ¶ 14(b). Upon the return or repossession of the equipment, ePlus is required to:
[U]se reasonable efforts to sell, re-lease or
otherwise dispose of such Asset(s) in such manner and
upon such terms as Lessor may determine in its sole
discretion (the amount, if any, which Lessor certifies
it obtained through remarketing shall be conclusively
presumed to be the Asset(s) fair market value).
Id. at ¶ 14(c)(emphasis supplied).
Upon the disposition of the equipment, the Master Lease provides a formula for crediting the "Net Proceeds" of any sale or re-lease against the liquidated damages paid or payable by the Defendants. Id. The Net Proceeds are the proceeds from a sale less the Casualty Value, or certain proceeds from a re-lease, after "all costs and reasonable expenses" have been deducted. Costs and expenses include costs for the repair, recovery, storage, remarketing and disposition of the equipment. Id. The relevant portion of the Master Lease provides:
Upon disposition of the Asset(s), Lessor shall credit
the Net Proceeds (as defined below) to the damages
paid or payable by Lessee. Proceeds upon sale of the
Asset(s) shall be the sale price paid to Lessor less
the Casualty Value in effect as of the date of
default. Proceeds upon a re-lease of the Asset(s)
shall be all rents to be received for a term not to
exceed the remaining Schedule Term, discounted to
present value as of the commencement date of the
re-lease at the Lessor's current applicable debt
rate. "Net Proceeds" shall be the proceeds of sale or
re-lease as determined above, less all costs and
reasonable expenses incurred by Lessor in the
recovery, storage and repair of the Asset(s), in the
remarketing or disposition thereof, or otherwise as a
result of Lessee's default, including any court costs
and reasonable attorneys' fees and interest on the
foregoing at eighteen percent (18%) per annum (or the
highest rate allowable by law, if less), calculated
from the dates such costs and expenses were incurred
until received by Lessor. Lessee shall remain liable
for the amount by which all sums, including liquidated
damages, due from Lessee exceed the Net Proceeds. Net
Proceeds in excess thereof are the property of and
shall be retained by Lessor.
Id. (emphasis supplied).
As this passage indicates, only that portion of the proceeds from a sale which exceeds the Casualty Value as of the date of default is used to offset the liquidated damages. In the case of a re-lease, the amount of credit is limited to the present value of the total amount of rents to be received under the new ...