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Firstmerit Bank, N.A. v. Vision Financial Group

September 28, 2006


The opinion of the court was delivered by: Conti, District Judge



Pending before the court are cross-motions for summary judgment relating to a claim for rescission of an assignment of an equipment lease. The equipment lease was assigned by Vision Financial Group Inc. ("Vision Financial" or "defendant") to FirstMerit Bank, N.A. ("FirstMerit" or "plaintiff"). Plaintiff contends there are no genuine issues of material fact in dispute and that the undisputed facts of record warrant the grant of summary judgment in its favor due to a mutual mistake of fact -- the equipment which was the subject of the lease did not exist -- permitting rescission of the assignment of the lease. Defendant asserts to the contrary that summary judgment should be granted in its favor because plaintiff assumed the risk of the mutual mistake. The court concludes that there are no genuine issues of material fact in dispute and that based upon the undisputed facts of record, after drawing all reasonable inferences in plaintiff's favor, plaintiff assumed the risk of the mistake of fact. Summary judgment, therefore, will be granted in favor of defendant.

Factual and Procedural Background

FirstMerit is a national bank with principal offices in Akron, Ohio and maintains an equipment leasing and financing division. Defendant's Joint Statement of Material Facts ("D.J.S.") ¶ 1. Vision Financial is a general equipment leasing and financing company headquartered in Pittsburgh, Pennsylvania. Id. ¶ 4. Nanomat, Inc. ("Nanomat") operated a nanotechnology business with a manufacturing facility in North Huntingdon, Pennsylvania. Plaintiff's Joint Statement of Material Facts ("P.J.S.") ¶ 1. Nanomat was a named defendant in this case, but due to its filing for bankruptcy protection, the court on April 27, 2005 terminated the case against Nanomat. (Doc. No. 12).

In 2000, Vision Financial began providing lease financing to enable Nanomat to acquire several pieces of equipment. P.J.S. ¶¶ 2, 5. Ultimately, during approximately a three-year period Vision Financial provided financing for between 20 and 40 leases for Nanomat. The amount of the financing provided by Vision Financial to Nanomat aggregated between $4,000,000 to $5,000,000. Id. ¶ 6. As of July 9, 2001, Vision Financial had provided permanent financing of $136,578 to Nanomat and assigned to other lenders two Nanomat leases aggregating in value $767,622. Id. ¶ 10.

Provident Bank ("Provident") provided Vision Financial a $15,000,000 line of credit to finance leases on a permanent basis, as well as a $5,000,000 warehouse line of credit to finance leases on a temporary basis. Id. ¶ 9. Under the arrangement between Vision Financial and Provident, Provident permitted Vision Financial to extend financing under the $15,000,000 line of credit in an amount not to exceed $250,000 for a single customer and would permit financing beyond that level under the warehouse line of credit if the financing was temporary and Vision Financial had obtained a letter of approval from another financial institution to take out the financing and to finance the lease on a permanent basis. Id.

In November 2002, Nanomat requested financing from Vision Financial for a rotary tube reactor system (the "Furnace"). Nanomat represented it purchased the Furnace in March 2002 from Harper International ("Harper") for approximately $950,000. Id. ¶ 7. Nanomat wanted to obtain lease financing for the Furnace by the end of 2002, and Vision Financial's sales representative wanted to accommodate Nanomat's request. Id. ¶ 7. At that time less than 100 of the 9,000 leases entered into by Vision Financial since 1991 had exceeded $250,000. Id. ¶ 8.

One of FirstMerit's vice presidents in its equipment leasing and financing division had mailed written solicitations to Vision Financial and similar companies during each quarter beginning in 1998. D.J.S. ¶¶ 2, 5. The solicitations sent to Vision Financial described FirstMerit's desire to purchase equipment leases. Id. ¶ 5. Because the lease financing for the Furnace would have exceeded Vision Financial's credit limit from Provident for permanent financing for a single customer, Vision Financial contacted FirstMerit in late November 2002 concerning Vision Financial's temporary financing of a lease for the Furnace and subsequently assigning the lease to FirstMerit. P.J.S. ¶ 11.

Vision Financial provided FirstMerit information submitted by Nanomat to Vision Financial, including financial records, updated credit applications, a description of the Furnace, an invoice for the purchase of the Furnace from Harper, copies of checks from Nanomat to Harper for the purchase of the Furnace, a copy of an acceptance certificate, personal and company tax returns, credit bureau reports, Dun & Bradstreet reports, and bank references.

D.J.S. ¶ 10; P.J.S. ¶¶ 13-17. During the due diligence process, Vision Financial acted as the liaison between FirstMerit and Nanomat. D.J.S. ¶ 13. Vision Financial discovered a blanket lien filed by Mellon Bank ("Mellon") for which it obtained a subordination from Mellon. P.J.S. ¶ 18. An asset manager of Vision Financial contacted a Harper salesperson about the Furnace, but did not reveal that Nanomat claimed to have already purchased the Furnace. Id. ¶ 19. FirstMerit extensively reviewed Nanomat's credit worthiness and researched the Furnace on Harper's website. D.J.S. ¶ 12. During December 2002, FirstMerit examined the Nanomat credit information and other documentation provided to FirstMerit by Vision Financial. P.J.S. ¶ 26.

In December 2002, FirstMerit requested that Vision Financial schedule a meeting with Nanomat. Id. Several representatives of FirstMerit and Vision Financial attended the meeting at Nanomat's manufacturing facility. After the meeting Srinkath Raghunathan ("Raghunathan"), one of Nanomat's principals, hosted a tour of the Nanomat facility and pointed out a piece of equipment representing that it was the Furnace. Id. ¶¶ 22-23.

On December 23, 2002, FirstMerit internally approved the lease financing of the Furnace. D.J.S. ¶ 17; P.J.S. ¶ 26. On December 24, 2002, Vision Financial reported that approval to Provident. P.J.S. ¶ 26. Vision Financial and Nanomat executed a lease for the Furnace dated December 23, 2002 and a sale and leaseback agreement dated December 24, 2002, pursuant to which Vision Financial agreed to purchase the Furnace from Nanomat for $954,238.84 and lease it back to Nanomat for monthly installments of $19,800 for 60 months (the "sale leaseback transaction"). Id. ¶ 27. Sometime before January 1, 2003, Provident funded the sale leaseback transaction. Id. ¶ 32. Nanomat provided a bill of sale and certification of the Furnace's delivery, installation, testing, inspection, and acceptance in exchange for a check from Vision Financial in the amount of $954,238.84. Id. ¶¶ 28-29.

On December 27, 2002, FirstMerit sent a letter to Vision Financial committing to the takeout lease financing subject to conditions, including obtaining a subordination agreement from Mellon. Id. ¶ 31. On January 27, 2003, Vision Financial assigned the lease of the Furnace to FirstMerit for $1,013,793.23, which included the payment of a fee in the amount of $56,174.79 to Vision Financial. Id. ¶ 34. Nanomat began making the $19,800 monthly lease payment to FirstMerit. Id. ¶ 43.

The assignment of the lease from Vision Financial, as assignor, to FirstMerit, as assignee, was made pursuant to an Assignment and Assumption Agreement dated January 27, 2003. Ex. A to Def.'s App. of Evidentiary Materials, Doc. No. 25-3; Ex. 24 to Pl.'s App. of Exhibits, Doc. 24-9 (the "Agreement"). Relevant terms of the Agreement include:

4. ADDITIONAL CONDITIONS PRECEDENT. Assignee's obligations hereunder are subject to satisfaction by Assignor of the following conditions precedent on or before the Closing Date:

a. Assignor shall have delivered to Assignee: . . . .

(v) all acceptance certificates, purchase orders, and all other documents related to the Equipment, the ...

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