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De Lage Landen Financial Services, Inc. v. Rasa Floors

July 28, 2011

DE LAGE LANDEN FINANCIAL SERVICES, INC.
v.
RASA FLOORS, LP
DE LAGE LANDEN FINANCIAL SERVICES, INC.
v.
VIEWPOINT COMPUTER ANIMATION, INC., ET AL.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM RE: PLAINTIFF'S AND OTHER PARTIES' MOTIONS FOR SUMMARY JUDGMENT ON PLAINTIFF'S BREACH OF CONTRACT CLAIM AND DEFENDANTS' COUNTERCLAIMS

TABLE OF CONTENTS

I. Factual and Procedural History ............................................. 1

A. Background ...................................................... 1

B. Rasa Floors ....................................................... 5

C. Viewpoint ........................................................ 9

D. NCC ........................................................... 10

II. Legal Standards ........................................................ 12

A. Summary Judgment ............................................... 12

B. Choice of Law ................................................... 13

III. Under Pennsylvania Law, DLL Is Entitled to Summary Judgment that Defendants Breached the Contract Between Defendants and DLL, as a Matter of Law . . . . . . . . . . 16

A. As a Matter of Law, DLL Has Established that Defendants

Breached Their Lease Agreements ................................... 16

B. Defendants' Defenses Are Unavailing ................................. 21

1. Defendants Cannot Establish that the Lease Agreements Are Unconscionable ......................................... 21

2. Rasa's Argument Regarding Breach by DLL Is Without Merit . . . . . . . . 24

3. Defendants' Arguments Regarding Breach by DLL and Mutual Mistake Are Without Merit ................................... 25

4. Defendants' Argument Regarding Illegality Are Without Merit . . . . . . . 29

VI. Assertions By Third Party HP Do Not Prevent the Entry of Summary Judgment in Favor of DLL and Against Rasa, Viewpoint and NCC . . . . . . . . . . . . . . . . 32

V. DLL Is Entitled to Summary Judgment on Defendants' Counterclaims . . . . . . . . . . . . . 35

A. Defendants Have Not Shown a Genuine Issue of Material Fact as to Fraudulent Misrepresentation ................................... 36

1. Defendants Have Not Established Misrepresentation by Capital 4 . . . . . 37

2. Conduct of Capital 4 May Not Be Imputed to DLL . . . . . . . . . . . . . . . . . 39

a. Defendants' Theory of Apparent Agency Is Without Merit . . . . 42

b. Defendants' Theory of Agency by Estoppel Is Without Merit . . 45

c. Defendants' Agency Arguments Are an Attempt to

Circumvent Language of Finance Lease Contracts . . . . . . . . . . . 45

3. Defendants Have Not Established Misrepresentation by DLL and DLL Had No Obligation to Disclose Information to Defendants . . . . . . 47

B. Claims Under Various Consumer Protection Laws . . . . . . . . . . . . . . . . . . . . . . . 50

C. Defendants' RICO Claims Against DLL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

1. Elements of a RICO Claim ................................... 51

2. Defendants Fail to Establish the Requisite Elements of Their RICO Counterclaims Against DLL ............................. 53

VI. Conclusion ............................................................ 58

O:\CIVIL 07-08\08-533 DeLage v. Rasa\DLL Table Contents MSJ.wpd

Plaintiff De Lage Landen Financial Services, Inc. (hereinafter "Plaintiff" or "DLL") has moved for summary judgment pursuant to Fed. R. Civ. P. 56 on its sole claim in this case, for breach of contract, against Defendants Rasa Floors & Carpet Cleaning, LLC ("Rasa"); Viewpoint Computer Animation, Inc. ("Viewpoint"); and third-party Defendant North-central Communications, Corp. ("NCC") (hereinafter collectively "Defendants") (ECF Nos. 189, 191 in C.A. 08-533; 171 in C.A. 08-534), and on Defendants' Counterclaims against DLL. There has been extensive briefing and oral argument on the parties' claims, and related issues.

The contracts between DLL and Defendants each state that Pennsylvania law will control and the Court has determined that Pennsylvania law will govern DLL's claims. After review of the briefs and other filings accompanying the parties' motions and cross motions, the Court concluded DLL was entitled to summary judgment in its favor as to its claims and entered an Order to this effect on June 24, 2011 (ECF No. 259 in C.A. 08-533; 229 in C.A. 08-534). Denial of Defendants' Cross Motions for Summary Judgment was subsumed in the entry of summary judgment in favor of DLL. This Memorandum will explain the reasons for the Order. This Memorandum will additionally address DLL's Motions for Summary Judgment as to Defendants' counterclaims against DLL and will grant summary judgment in favor of DLL on Defendants' counterclaims against DLL.

I. Factual and Procedural History

A. Background

The parties are familiar with the lengthy factual and procedural background of this case and thus, the Court briefly restates only those facts relevant to the summary judgment motions.

The Court held hearings and made relevant findings of fact in conjunction with Defendants' Motions for Class Certification. The Court's August 20, 2010 Memorandum denying Defendants' class motions described the nature of the contracts at issue as follows:

Under its "Power of $Zero" ("POZ") program, the now-defunct Capital 4[, Inc. ("Capital 4")]*fn1 offered telephone and internet services to business customers for a set monthly fee, and for a fixed period of time. In addition to receiving telephone and internet services provided by Capital 4, customers had the option of receiving either (1) networking and telephone equipment, (2) a cash rebate, or (3) a combination of equipment and a partial cash rebate. At some point after Capital 4's POZ program was up and running, 3Com [Corporation ("3Com")] became aware of and interested in the program. Beginning in 2005, Capital 4 and 3Com entered into a series of contractual agreements defining their roles respecting the POZ agreement, in which, among various contractual obligations, Capital 4 would provide customers with 3Com networking and telephone equipment.

To finance the cost of the equipment and/or cash rebates, Capital 4 arranged with financial institutions to act as funding sources for Capital 4 customers. 5/5/10 Hr'g Tr., Testimony of Steven Majer, Jr., 14-15, 27-29. DLL was one of these such lenders. 5/4/10 Hr'g Tr., Testimony of Douglas Cunningham, 57-58. Thus, under the POZ program, POZ customers entered into two separate contracts: (1) a POZ Customer Agreement with Capital 4 ("POZ Customer Agreement"), and (2) an equipment lease or rental agreement with a leasing company such as DLL ("Lease Agreement") which was referred to in the POZ Customer Agreement as a "Funding Agreement." DLL and 3Com's Joint Post-Hearing Br. 4.

De Lage Landen Fin. Servs, Inc. v. Rasa Floors, LP, 269 F.R.D. 445, 454 (E.D. Pa. 2010) (Baylson, J.).

As noted above, DLL entered into two different types of agreements. DLL and Capital 4 entered into a Business Communications Program Agreement ("Program Agreement"), which outlined DLL's and Capital 4's roles as lender/lessor and vendor, respectively. Plaintiff's Appendix to Statement of Undisputed Facts, Ex. D. The Program Agreement stated that lease agreements could include "Soft Costs" such as service, maintenance, installation, delivery, software, and training associated with leased equipment, and that DLL would fund Capital 4 for service and maintenance quarterly or monthly, less DLL's administrative fee. Pl.'s App. to Statement of Undisputed Facts, Ex. D at ¶ A(8).

DLL's separate Lease Agreements*fn2 with customers specified that DLL had no responsibility for service or maintenance related to leased equipment, but that lease payments could "INCLUDE THE COST OF MAINTENANCE AND/OR SERVICE BEING PROVIDED BY THE SUPPLIER AND/OR MANUFACTURER[.]" App. Ex. C at § 7.Thus, "[e]ach customer's monthly fee was apportioned to the lender for the lease payment on equipment, and to Capital 4 for the telephone and internet services." De Lage Landen Financial Services, Inc., 269 F.R.D. at 454 (citing 5/5/10 Hr'g Tr., Majer, 32-33).

DLL originally filed suit in two separate cases against two separate Defendants, Viewpoint and Rasa, for breach of contract and unjust enrichment on February 2, 2008. Id. at 449. Defendants brought several counterclaims against DLL and brought third party claims against 3Com and Capital 4. Id. The cases were consolidated for purposes of discovery on April 14, 2009. Id. With leave granted by the Court, DLL filed a third-party complaint against NCC on October 5, 2009 (ECF No. 105 in C.A. 08-533). The Court has issued decisions on several motions to dismiss during this period, resulting in the narrowing of claims and counterclaims. See De Lage Landen Financial Services, Inc., 269 F.R.D. at 449-51.

On March 24, 2011, following substantial discovery, DLL filed Motions for Summary Judgment on its breach of contract claims against Rasa, Viewpoint, and NCC and on Defendants' counterclaims (ECF Nos. 189, 191 in C.A. 08-533; 171 in C.A. 08-534). Defendants filed responsive briefs on May 16, 2011 (ECF Nos. 222, 225 in C.A. 08-533; 205 in C.A. 08-534). Defendants' responses included cross motions for summary judgment, but their initial briefing was limited to DLL's claims, pursuant to this Court's Order of April 15, 2011 (ECF No. 211 in C.A. 08-533; 189 in C.A. 08-534). DLL filed a Consolidated Reply Brief on May 31, 2011 (ECF No. 240 in C.A. 08-533; 211 in C.A. 08-534).

Pursuant to this Court's procedures on summary judgment motions, DLL's Motions for Summary Judgment are accompanied by multi-paragraph Statements of Undisputed Facts (ECF Nos. 190, 192 in C.A. 08-533; 172 in C.A. 08-534).*fn3 Although Defendants have each filed counter-statements asserting that many of these facts are disputed, these "disputes" are really in the nature of legal arguments rather than factual disputes (ECF Nos. 222, 225 in C.A. 08-533; 204 in C.A. 08-534). Furthermore, the Court finds significant that, in filing Cross-Motions for Summary Judgment on Contract Claims, Defendants each state that there is "no genuine issue of material fact on the defenses raised by [Defendants] to the contract claims of DLL, and [Defendants are] entitled a judgment as a matter of law." ECF Nos. 222 at 2, 225 at 2 in C.A. 08-533; 205 at 2 in C.A. 08-534. The Court will accept DLL's facts as undisputed as the record will show that none of the asserted "disputes" are "genuine."*fn4

B. Rasa Floors

In support of its Motion for Summary Judgment, DLL filed a Statement of Undisputed Facts consisting of 63 paragraphs and supported by a number of exhibits (ECF No. 190 in C.A. 08-533). Paragraphs 1 through 7 describe the relationship between DLL and Capital 4, which are two separate companies. Paragraphs 8 through 18 describe the POZ Program and the manner by which Capital 4 used its network of VARs to sell the program and several different financial institutions, such as DLL, as funding sources.

Rasa is in the business of selling and cleaning carpets in Texas. 5/4/10 Hr'g Tr., Testimony of Michael Rasa, 66. The business has offices in approximately seven locations, about 150 employees, and $50,000,000 in annual revenue. Michael Rasa Dep. at 13-14, 67. Michael D. Rasa ("Mr. Rasa") is the principal and Chief Executive Officer of Rasa. Id. at 13. Rasa was introduced to the POZ program by Douglas Cunningham ("Mr. Cunningham"), the president and owner of NCC, which was also a POZ VAR. 5/4/10 Hr'g Tr., Rasa, 67, 82. Prior to entering into the POZ program, Mr. Rasa met once with Mr. Cunningham, for not more than 20 or 30 minutes. Rasa Dep. 22, Mar. 11, 2010. Rasa entered an agreement to participate in the POZ Program through a POZ Customer Agreement with Capital 4 on December 5, 2005, choosing to receive a cash rebate rather than receiving new telephone equipment. Statement of Undisputed Facts and Rasa's Resp. at ¶ 16-18; Pl.'s App. Ex. G. DLL is not named as a party to the Customer Agreement. Id. On December 6, 2005, Mr. Rasa signed a document entitled "Rental Agreement," to which DLL is also a party. Rasa Dep. 33. There is no dispute that Mr. Rasa signed the Rental Agreement, has admitted that he had failed to read it, and has stated that if he had read it, he would not have signed it. 5/4/10 Hr'g Tr., Rasa, 70, 88.

Paragraphs 19 through 30 describe the agreement entered into between DLL and Rasa. Through the Rental Agreement, DLL agreed to rent to Rasa one Intertel Telephone System and two hundred business telephones, Pl.'s App. Ex. C. at 1, equipment which Rasa had previously rented from Intertel. Statement of Undisputed Facts and Rasa's Resp. at ¶ 17.

Section 2 of the Rental Agreement states, in part, that Rasa's "obligation to pay the Rental Payments and other Rental Agreement obligations is absolute and unconditional and is not subject to cancellation, reduction, setoff or counterclaim" and specifies the Agreement to be "NON-CANCELLABLE." Id. at ¶ 2. Section 5 expressly disclaims any warranties as to the fitness or merchantability of the equipment, stating that Rasa's "OBLIGATION TO PAY IN FULL ANY AMOUNT DUE UNDER THE RENTAL AGREEMENT WILL NOT BE AFFECTED BY ANY DISPUTE, CLAIM, COUNTERCLAIM, DEFENSE OR OTHER RIGHT WHICH YOU [Rasa] MAY HAVE OR ASSERT AGAINST THE SUPPLIER OR THE EQUIPMENT MANUFACTURER." Id. at ¶ 5. Further, Section 7 of the Rental Agreement provides that

IN THE EVENT THE RENTAL PAYMENTS INCLUDE THE COST OF MAINTENANCE AND/OR SERVICE BEING PROVIDED BY THE SUPPLIER AND/OR THE MANUFACTURER, YOU [Rasa] ACKNOWLEDGE THAT WE [DLL] ARE NOT RESPONSIBLE FOR PROVIDING ANY REQUIRED MAINTENANCE AND/OR SERVICE FOR THE EQUIPMENT. YOU [Rasa] WILL MAKE ALL CLAIMS FOR SERVICE AND/OR MAINTENANCE SOLELY TO THE SUPPLIER AND/OR MANUFACTURER AND SUCH CLAIMS WILL NOT AFFECT YOUR [Rasa's] OBLIGATION TO MAKE ALL REQUIRED RENTAL PAYMENTS.

Id. at ¶ 7.

Section 14 of the Rental Agreement states, inter alia, that Rasa is in default if Rasa "fail[s] to pay any Rental Payment or other sum when due." Id. at ¶ 14. Section 15 defines the available remedies to DLL. Id. at ¶ 15.

Section 21 of the Rental Agreement states that Rasa "agrees that this Rental Agreement is a Finance Lease as that term is defined in Article 2A of the Uniform Commercial Code ("UCC")." Id. at ¶ 21.

Section 22 of the Rental Agreement between Rasa and DLL, entitled "Choice of Law" states, in relevant part,

This Rental Agreement shall in all respects be interpreted and all transactions subject to this Rental Agreement and all rights and liabilities of the parties under the Rental Agreement shall be determined and governed as to their validity, interpretation, enforcement and effect by the laws of the Commonwealth of Pennsylvania except for local filing requirements.

Pl.'s App. Ex. C at ¶ 22.

Section 23 states "This Rental Agreement contains the entire agreement and understanding."

Above Mr. Rasa's signature, dated December 5, 2005, the Agreement states "You [Rasa] acknowledge that the Equipment shown above has been received, has been put in use, is in good working order, and is satisfactory and acceptable." Pl.'s App. Ex. C.

The facts are undisputed that Rasa did not have any direct contact with DLL in signing the contract with DLL, but all of the discussions and negotiations took place through the Capital 4 VAR. Statement of Undisputed Facts and Rasa's Resp. at ¶ 51. However, while the document is "co-branded" with the names of Capital 4 and DLL, Capital 4 is not named as a party or signatory to the Rental Agreement. Statement of Undisputed Facts and Rasa's Resp. at ¶ 21, Pl.'s App. Ex. C.

Paragraphs 31 through 44 describe DLL's funding of the Rental Agreement, Capital 4's insolvency as of September 2007, the company's resulting cessation of telephone and internet services, and Rasa's payment default. There is no dispute that DLL reduced Rasa's Rental Payments as of October 2007, to eliminate the portion of the fee paid to Capital 4 for telephone services, and that Rasa ...


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