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WELLS FARGO BANK MINNESOTA v. BROOKSAMERICA MORTGAGE CORP.

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, Indenture Trustee, Plaintiff,
v.
BROOKSAMERICA MORTGAGE CORPORATION and MICHAEL WAYNE BROOKS, Defendants.



The opinion of the court was delivered by: HAROLD BAER, JR., District Judge[fn1] [fn1] Christopher Slowik, a summer 2004 intern in my Chambers and a second-year law student at Brooklyn Law School, provided substantial assistance in the researching and drafting of this Opinion.

OPINION & ORDER

Plaintiff Wells Fargo Bank Minnesota, National Association ("Wells Fargo") brings a breach of contract action against defendants BrooksAmerica Mortgage Corporation ("BrooksAmerica") and Michael W. Brooks ("Brooks"). The parties submit cross-motions for summary judgment under Federal Rule of Civil Procedure ("Fed.R. Civ. P.") 56. Wells Fargo seeks an award of sums past due from BrooksAmerica under the contract between the parties, and declarations of the obligations of BrooksAmerica to perform and of Brooks to honor his personal guaranty, and BrooksAmerica demands dismissal of the action. For the following reasons, Wells Fargo's motion for summary judgment is granted and BrooksAmerica's is denied.

I. BACKGROUND

  A. The Contract Between BrooksAmerica and Terminal Marketing

  In 2000, Brooks, chief executive officer of BrooksAmerica (Brooks Aff. ¶ 1), sought financing for BrooksAmerica from the Terminal Marketing Company ("Terminal"), an equipment lessor (Brooks Aff. ¶ 5).*fn2 Brooks and Terminal negotiated a "sale-leaseback" transaction ("Transaction"), in which Terminal agreed to pay BrooksAmerica $250,000 to acquire title to certain computers and peripherals ("Equipment") owned by BrooksAmerica.*fn3 BrooksAmerica then agreed to lease the Equipment back from Terminal in exchange for monthly payments over three years totaling $353,795.76. (Id. Ex. D.) Brooks stated that BrooksAmerica entered into the Transaction because it was "in need of capital." (Id. ¶ 3.) No other goods were supplied to BrooksAmerica, and the Equipment never left BrooksAmerica's physical possession. (Id. Ex. Q.)

  Terminal and BrooksAmerica memorialized their agreement in a contract executed by both parties ("Contract") on October 26, 2000. (First Bass Decl. Ex. A; Brooks Aff. Ex. F.) A bill of sale, which transferred title to the Equipment from BrooksAmerica to Terminal, accompanied the Contract. (Mowbray Decl. Ex. F.) BrooksAmerica executed both of these documents and dated them October 26, 2000. (First Bass Decl. Ex. A; Mowbray Decl. Ex. F.) On the same date, BrooksAmerica also executed an approval letter from Terminal ("Approval Letter")*fn4 that confirmed that the "Amount to Finance" was $250,000. (Approval Letter at 1.)

  The Contract contained a hell or high water clause, which stated that BrooksAmerica's obligation to pay was "absolute and unconditional," and that BrooksAmerica was not "entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to any Rent or other sum payable hereunder." (Contract ¶ 5.) Another clause provided that the Contract was assignable by Terminal without notice, and that assignees took "without any obligations or liabilities" and "FREE FROM ALL DEFENSES, SETOFFS, OR COUNTERCLAIMS WHICH LESSEE [BrooksAmerica] MAY BE ABLE TO ASSERT." (Id. ¶ 14) (emphasis in original.) The Contract stipulated that it commenced "with delivery of the Equipment to the Lessee [BrooksAmerica]." (Id. ¶ 1.)

  Brooks also executed a personal guaranty of BrooksAmerica's obligations under the Contract ("Guaranty") (Brooks Aff. Ex. G),*fn5 in which Brooks "unconditionally guarantee[d] to Lessor [Terminal], its successors and assigns, the prompt and due payment and performance by Lessee [BrooksAmerica] of all of Lessee's obligations pursuant to the Lease and all other documents and agreements entered into by Lessee in connection therewith." (Guaranty ¶ 1) (emphasis added.)

  B. The Delivery Certificate and Lessee's Acknowledgement

  Brooks, as agent for BrooksAmerica (Brooks Aff. ¶ 7), also executed the "Delivery and Acceptance Certificate and Lessee's Acknowledgment and Consent" ("Certificate"), dated October 26, 2000 (First Bass Decl. Ex. B; Brooks Aff. Ex. H). Through the Certificate, BrooksAmerica attested that the Equipment had been delivered by Terminal and accepted by BrooksAmerica pursuant to the Contract. (Certificate ¶ 1.) BrooksAmerica further warranted that "(i) Lessor [Terminal] has fully and satisfactorily performed all covenants and conditions required to be performed by Lessor under the Lease [Contract] and (ii) Lessee has no defenses, counterclaims or set-offs against Lessor." (Id. ¶ 2.)

  The Certificate reiterated BrooksAmerica's recognition of Terminal's right to assign the Contract, and also provided:
that Lessee's [BrooksAmerica's] obligation to pay rent to [an] Assignee under the Lease [Contract] shall be absolute and unconditional and shall be payable whether or not the Lease is terminated by operation of law or otherwise and notwithstanding any defense, setoff, or counterclaim whatsoever and . . . that Lessee holds the Equipment for the benefit of Assignee, subject to and without impairing Lessee's rights under the Lease.
Id. ¶ 3.

  Brooks made these representations on behalf of BrooksAmerica despite the fact that Terminal had not paid BrooksAmerica. (Brooks Aff. ¶ 6.)

  C. Assignment of the Contract to Wells Fargo as Indenture Trustee

  Terminal entered into the Contract as part of an ongoing course of business whereby it arranged secured leases with various companies and then sold and assigned the leases and underlying security interests to Terminal Finance Corporation II ("TFC II") (Mowbray Decl. ¶ 5), a special purpose entity apparently controlled by the management of Terminal.*fn6 TFC II borrowed funds to purchase the leases from a group of investors ("Noteholders"). (Id.) As security for these loans, TFC II assigned its rights to the leases and equipment to the Noteholders, with Wells Fargo acting as the Noteholders' indenture trustee. (Id. ¶ 6.) As indenture trustee, Wells Fargo obtained all of the rights and interests in the ...


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