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M&I Equipment Finance Co. v. Lewis County Dairy Corp.

January 11, 2007

M&I EQUIPMENT FINANCE COMPANY, FORMERLY KNOWN AS M&I FIRST NATIONAL LEASING CORP., PLAINTIFF,
v.
LEWIS COUNTY DAIRY CORP., AHAVA FOOD CORP., AND MOISE A. BANAYAN, DEFENDANTS.



The opinion of the court was delivered by: David N. Hurd United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Plaintiff M&I Equipment Finance Company ("plaintiff" or "M&I"), formerly known as M&I First National Leasing Corp., brings this action against defendants Lewis County Dairy Corp. ("LCDC"), Ahava Food Corp. ("Ahava"), and Moise A. Banayan ("Banayan") (collectively "defendants") for breach of contract. Defendants assert counterclaims for breach of contract, fraud, and prima facie tort. Plaintiff moves for summary judgment on its breach of contract claim pursuant to Federal Rule of Civil Procedure ("Rule") 56(c), and to dismiss defendants' counterclaims pursuant to Rule 12(b)(6). Defendants oppose. Oral argument was heard on May 12, 2006, in Utica, New York. Decision was reserved.

II. FACTS

Plaintiff M&I, a Wisconsin corporation with its principal place of business in Milwaukee, Wisconsin, is a commercial equipment financing company; defendant LCDC, a New York corporation with its principal place of business in Brooklyn, New York, is a dairy processing business; and defendant Ahava, a New York corporation with its principal place of business in Monsey, New York, is a specialty foods distributor. Defendant Banayan, a resident of New York, is the president and primary shareholder of both LCDC and Ahava.*fn1

On August 1, 2004, M&I entered into a lease agreement with LCDC and Ahava ("the lease") whereby plaintiff agreed to finance defendants' purchase of biological wastewater treatment equipment ("the equipment") from Hydroxyl Systems, Inc. ("Hydroxyl").*fn2

The total cost of the equipment, as agreed upon by defendants and Hydroxyl, was $1,463,300. Banayan duly accepted and signed the lease, as well as several addendums which were incorporated into the lease, on behalf of LCDC and Ahava. According to the terms of the lease, plaintiff was to purchase the equipment from Hydroxyl and lease it to defendants for sixty months, at which point defendants would have the option to purchase the equipment from plaintiff. The terms of the lease did not require that plaintiff deliver the equipment upon execution of the lease, nor did they require that plaintiff make payments to Hydroxyl pursuant to any deadlines or schedules. The terms of the lease did, however, provide that if the equipment was not delivered by the end of the calendar year (2004), the parties agreed to execute an amendment to the lease modifying the original payment schedule to maintain the economic yield anticipated by plaintiff. At the time the lease was executed, Hydroxyl had not yet manufactured the equipment.

A few days before signing the lease, the parties also executed two Delivery and Acceptance Certificates ("certificates") authorizing M&I to make an initial payment to Hydroxyl, and a reimbursement payment to defendants for a down payment they previously made to Hydroxyl. Each certificate contains introductory language and four separate sections. The introductory language refers to the lease between the parties. Section I contains three options pertaining to the status of the equipment -- not yet received, received in part, or received in full. There is a box and initial line next to each option. Section II contains a line for the vendor (payee), invoice number, and payment amount. Section III and IV contain various waivers and disclaimers. On July 28, 2004, Banayan signed and dated each certificate. At the time of signing, with respect to the first certificate, a space for the lease date in the introductory language was left blank; in Section I, the box next to the option acknowledging that the equipment had not yet been received was marked but the initial line was left blank; and in Section II, the vendor ("Hydroxyl Systems"), invoice number ("4327"), and payment amount ("$572,120.00") were listed.*fn3

With respect to the second certificate, the space for the lease date in the introductory language was also left blank; in Section I, the box next to the option acknowledging that the equipment had been received in full was marked but the initial line was left blank;*fn4 and in Section II, the vendor ("Lessee Reimbursement"), invoice number ("downpymt"), and payment amount ("$13,200.00") were listed. Plaintiff subsequently filled the blank spaces for the lease date in the introductory language and Banayan's initials next to the marked boxes in the Section I of both certificates. Banayan also signed a Continuing Guaranty ("the guaranty") in his individual capacity, rendering himself personally liable for the lease obligations of LCDC and Ahava.

Pursuant to the lease and certificates, plaintiff made payments in the amount of $572,120 to Hydroxyl, and $13,200 to defendants.

Thereafter, defendants began making payments to M&I under the lease. According to defendants, in or about November 2004, plaintiff began to doubt Hydroxyl's ability to produce the equipment and requested from Hydroxyl collateral or a bond for amounts paid and assurances that future payments would be supported by collateral. Hydroxyl refused plaintiff's request, claiming it was not something any of the parties had previously agreed upon. As a result, plaintiff ceased making payments to Hydroxyl and, in turn, Hydroxyl halted production of the equipment. It is unclear exactly when the cessation of payment and production occurred. In any event, defendants never received the equipment.

On December 30, 2004, because the equipment had not been delivered, the parties executed an amendment to the lease ("amendment") as they had agreed to do pursuant to its original terms. The amendment modified the original payment schedule and gave plaintiff the right to terminate the lease in the event Hydroxyl failed to deliver the equipment; however, it also provided that in any event plaintiff would not terminate the lease before June 1, 2005, so long as defendants fulfilled their obligations.

At some point, defendants became aware of M&I's cessation of payments to Hydroxyl. As a result, defendants did not make the January 2005 lease payment or any payment due thereafter. Until that time, defendants had made all payments under the lease from August-December 2005, totaling $59,949.18. Plaintiff demanded payment and defendants refused. Plaintiff now seeks to recover the amounts it advanced to Hydroxyl ($585,320),*fn5 less the amounts paid by defendants under the lease ($59,949.18), plus interest. Thus, the total amount sought by plaintiff is $658,994.02.*fn6

III. DISCUSSION

A. Motion for Summary Judgment

M&I moves for summary judgment on its breach of contract claim pursuant to Rule 56(c). Summary judgment is granted only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552 (1986); Silver v. City Univ. of New York, 947 F.2d 1021, 1022 (2d Cir. 1991). The court will not try issues of fact on a motion for summary judgment, rather it will determine "whether the evidence presents a sufficient disagreement to require submission to a [factfinder] or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512 (1986). "The party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists and that the undisputed facts establish her right to judgment as a matter of law." Rodriguez v. City of New York, 72 F.3d 1051, 1060-61 (2d Cir. 1995). A material fact is one that would "affect the outcome of the suit under the governing law," and a dispute about a genuine issue of material fact occurs if the evidence is such that "a reasonable [factfinder] could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 57 (2d Cir. 1997). In determining whether a genuine issue of material fact exists, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986); Gibbs-Alfano v. Burton, 281 F.3d 12, 18 (2d Cir. 2002). In sum, "[s]ummary judgment may be granted if, upon reviewing the evidence in the light most favorable to the non-movant, the court determines that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law." Richardson v. Selsky, 5 F.3d 616, 621 (2d Cir. 1993).

M&I moves for summary judgment on the ground that defendants breached the unambiguous terms of the lease when they stopped making payments in January 2005. Defendants contend that plaintiff breached the lease prior to that time when it altered the certificates without Banayan's approval, and, alternatively, when it refused to complete the purchase of the equipment after Hydroxyl refused its request for collateral and/or other assurances. The terms of the lease as amended are unambiguous and defendants' failure to make a payment in January 2005 would certainly constitute a breach if plaintiff had not previously committed a breach. Thus, the central issue is whether the undisputed ...


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