United States District Court, D. Arizona
A. Teilborg, Senior United States District Judge
the judgment entered by the Court upon stipulation of the
parties Plaintiff CIT Finance LLC ("CIT") and
Defendant Treon, Aguirre, Newman & Norris PA ("Treon
Aguirre"), (Doc. 101), Treon Aguirre's Third-Party
Complaint against Pacific Office Automation, Inc.
("POA"), Darin DuMolin, and Derek Abert
("Defendants") remained, (Doc. 48 at 12-17). Now
pending before the Court is Third-Party Defendants'
Motion for Summary Judgment ("Motion"). (Doc. 102).
The Court now rules on the Motion.
early 2013, Treon Aguirre ("Plaintiff), a Phoenix law
firm, and POA, an office equipment supplier, entered into
negotiations to lease office equipment, including printers,
copiers, and scanners. (Plaintiff's Statement of
Supplemental Controverting Facts, Doc. 107
("PSSCF") at ¶ 1; Third Party Defendants'
Statement of Facts in Support of Its Motion for Summary
Judgment, Doc. 103 ("DSOF") at ¶¶ 1, 2)-
As part of these negotiations, POA representatives Darin
DuMolin and Derek Abert met multiple times with Plaintiffs
employees to determine the firm's equipment needs.
(Third-Party Plaintiffs Statement of Controverting Facts,
Doc. 107 ("PCSOF") at ¶ 3; DSOF at ¶ 3).
During these meetings, Mr. DuMolin and Mr. Abert represented
to the employees that the new equipment would "meet or
exceed the office's current equipment." (Doc. 107-1
at 6). Additionally, the POA representatives promised that
the equipment would perform specific functions, such as
"printing] envelopes, offset[ing] documents, and
hole-punching] documents." (PSSCF at ¶¶ 2, 3;
Doc. 107-1 at 6).
February 2013, POA delivered the equipment to Plaintiff's
office and began installation. (PSSCF at ¶ 5). Upon
delivery, Plaintiff's employees immediately noticed that
the new equipment fell short of their expectations.
(Id. at ¶ 6; PCSOF at ¶¶ 4, 13; Doc.
107-1 at 6, 7, 24). The equipment could not perform many of
the functions that POA representatives had promised, and
Plaintiff's employees believed that the equipment did not
perform as well as their previous equipment. (PSSCF at ¶
6; Doc. 107-1 at 6-8, 13, 19, 24). Plaintiffs accountant,
Deborah Carter, expressed dissatisfaction to Mr. DuMolin and
mentioned returning the majority of the new printers. (Doc.
107-1 at 28-41).
March 2013, Plaintiff's founding partner, John Aguirre,
signed a Modified Lease Agreement (the
"Agreement"), (Doc. 103-1 at 2-4), and Equipment
Delivery and Acceptance Receipts (the "Acceptance
Receipts"), (Doc. 103-4 at 2, 3), acknowledging
"the complete and satisfactory delivery and installation
of the [e]quipment leased from [POA]." (Id.).
These documents covered 34 pieces of equipment, including the
printers Ms. Carter had wanted returned. (Docs. 103-1 at 2-4;
103-4 at 2, 3). As part of the Agreement, POA agreed to
"buyout" Plaintiffs then-existing equipment leases,
(DSOF at ¶ 6; PCSOF at ¶ 6); Plaintiff agreed to
make a minimum monthly payment of $3, 781, (Doc. 103-1 at 2).
April 2013, pursuant to the Agreement, POA paid $32, 066.36
to GE Capital and $3, 970.64 directly to Plaintiff because
"it was in collections for nonpayment." (DSOF at
¶ 6; PCSOF at ¶ 6). POA sold its Agreement with
Plaintiff to CIT, a third-party finance company but
maintained an obligation to provide service and supplies on
the equipment. (DSOF at ¶¶ 8, 9; PCSOF at
¶¶ 8, 9). Meanwhile, Plaintiff failed to make any
payments under the Agreement. (DSOF at ¶ 12; PCSOF at
2013, despite frequent maintenance visits by POA over the
prior two months, some of the leased equipment continued to
exhibit problems. (Docs. 103-3 at 2-12; 107-1 at 45-52). On
May 16, Ms. Carter again contacted Mr. DuMolin to return the
desktop printers. (Doc. 107-1 at 52). Mr. DuMolin then sought
to meet with Mr. Aguirre or Richard Treon, Plaintiffs other
founding partner; however, because "communication broke
down, " the parties never met. (Id.; PCSOF at
¶¶ 14, 15). Despite the equipment deficiencies,
Plaintiff used much of the equipment, generating over 1.3
million copies on the large format photocopiers, running over
14, 678 images on the fax machine, and generating over 45,
858 images on the smaller-scale printers. (DSOF at ¶ 19;
PCSOF at ¶ 19).
DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
judgment is appropriate when "there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law." Fed.R.Civ.P. 56(a). A
party asserting that a fact cannot be or is genuinely
disputed must support that assertion by "citing to
particular parts of materials in the record, " including
depositions, affidavits, interrogatory answers or other
materials, or by "showing that materials cited do not
establish the absence or presence of a genuine dispute, or
that an adverse party cannot produce admissible evidence to
support the fact." Id. 56(c)(1). Thus, summary
judgment is mandated "against a party who fails to make
a showing sufficient to establish the existence of an element
essential to that party's case, and on which that party
will bear the burden of proof at trial." Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986).
the movant bears the burden of pointing out to the Court the
basis for the motion and the elements of the causes of action
upon which the non-movant will be unable to establish a
genuine issue of material fact. Id. at 323. The
burden then shifts to the non-movant to establish the
existence of material fact. Id. A material fact is
any factual issue that might affect the outcome of the case
under the governing substantive law. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant
"must do more than simply show that there is some
metaphysical doubt as to the material facts" by
"com[ing] forward with 'specific facts showing that
there is a genuine issue for trial.'" Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586-87 (1986) (quoting Fed.R.Civ.P. 56(e)). A dispute about a
fact is "genuine" if the evidence is such that a
reasonable jury could return a verdict for the non-moving
party. Liberty Lobby, Inc., 477 U.S. at 248. The
non-movant's bare assertions, standing alone, are
insufficient to create a material issue of fact and defeat a
motion for summary judgment. Id. at 247-48. However,
in the summary judgment context, the Court construes all
disputed facts in the light most favorable to the non-moving
party. Ellison v. Robertson, 357 F.3d 1072, 1075
(9th Cir. 2004).
summary judgment stage, the trial judge's function is to
determine whether there is a genuine issue for trial. There
is no issue for trial unless there is sufficient evidence
favoring the non-moving party for a jury to return a verdict
for that party. Liberty Lobby, Inc., 477 U.S. at
249-50. If the evidence is merely colorable or is not
significantly probative, the judge may grant summary
Rescission of the Agreement
argues that Defendants misrepresented material facts
regarding equipment functions during negotiations, and, thus,
Plaintiff seeks to rescind the Agreement with POA. (Doc. 48
at ¶¶ 60-68). Defendants rejoin that Plaintiff is
"prohibited from simultaneously maintaining an action to
rescind the [l]ease (based [on] alleged fraud) and [an]
action for damages" and, alternatively, Plaintiff
ratified the Agreement, thereby waiving its rescission
argument. (Doc. 102 at 6-7).
parties do not dispute that Chapter 2A of the Arizona Uniform
Commercial Code applies here. However, as the Court held in
an earlier summary judgment order for this case, the U.C.C.
does not preclude a common-law fraud defense to rescind a
contract. (Doc. 42). The Court, in analyzing whether
"hell or high water clauses" (express or
incorporated by Ariz. Rev. Stat. § 47-2A407 (2005)) bar
a finance lessee's common-law fraud defense, explained as
Arizona courts have not decided the issue, and it appears
that other courts do not entirely agree on the answer.
Compare Eureka Broadband Corp. v. Wentworth Leasing
Corp., 400F.3d 62, 68 (1st Or. 2005) ("Nothing in
the Code explicitly preempts common law actions for
fraudulent misrepresentation, and courts have entertained
such actions in commercial cases [involving hell or high
water clauses]."), and Colo. Interstate Corp. v. CIT
Grp./Equip. Fin., Inc., 993 F.2d 743, 749 (10th Cir.
1993) ("In the absence of fraud or deceit which is not
claimed here, it is our view that under Texas law the parties
should be held to their agreement [containing a hell or high
water clause]."), with C & J Vantage Leasing Co.
v. Wolfe, 778 N.W.2d 66 (Iowa Ct. App. 2009),
vacated C & J Vantage Leasing Co. v. Wolfe, 795
N.W.2d 65 (Iowa 2011) ("The enforceability of this [hell
or high water] provision precludes Wolfe's affirmative
defenses of fraud in the inducement, estoppel, mutual
mistake, and an interest-rate disclosure defense grounded in
Iowa Code chapter 535.") (citing In re O.P.M.
Leasing Servs., Inc., 21 B.R. 993, 1007 (Bankr. S.D.N.Y.
1982)), and Colonial Pac. Leasing Corp. v. McNatt,
486 S.E.2d 804, 805 (1997) ("We conclude that a
'hell or high water' clause does not insulate a
lessor's assignee from a claim of fraud where an agency
relationship can be established between the assignee and the
perpetrators of the alleged fraud.").
Addressing U.C.C. provisions virtually identical to
Arizona's, the First Circuit held that "[n]othing in
the [Massachusetts] Code explicitly preempts common law
actions for fraudulent misrepresentation, and courts have
entertained such actions in commercial cases."
Eureka, 400 F.3d at 68. The court reasoned that
several U.C.C. provisions specifically preserve the fraud
defense, including a provision in Chapter 2A, which deals
with leases. Id. (citing Mass. Gen. Laws ch. 106,
§8 1-103, 2A-505(4)). The court also noted that the
U.C.C. provision that expressly precludes fraud claims only
applies when a buyer has bought goods on credit and
misrepresented its solvency. Id. (citing Mass. Gen.
Laws ch. 106, § 2-702).
The Court agrees with the First Circuit that the text of the
U.C.C. does not preclude fraud claims by finance lessees who
have accepted the goods. As the First Circuit points out,
Chapter 2A specifically provides that "[rlights and
remedies for material misrepresentation or fraud include,
without limitation, all rights and remedies available under
this article for default." A.R.S. 8 47-2A505(d). To be
sure, the U.C.C. limits some of the rights and remedies of
finance lessees who have accepted goods, see A.R.S.
§ 47-2A517 (providing for the right to revoke acceptance
of goods "[elxcept in the case of a finance
lease"); A.R.S. § 47-2A407(a) (a finance
lessee's "promises under the lease contract become
irrevocable and independent upon the lessee's acceptance
of the goods"), but no provision in the U.C.C. precludes
fraud claims by finance lessees. Furthermore, the official
comment to the U.C.C. notes that a "hell or high
water" provision is only enforceable "absent. . .
application of the principles of law and equity, including
the law with respect to fraud." Uniform Commercial Code
8 2A-407 cmt. 5. Thus, as evidenced by its text as
legislative history, the U.C.C. does not preclude all
defenses by a finance lessee.
Additionally, and more fundamentally, Arizona courts
recognize that "when fraud enters into a transaction to
the extent of inducing execution of a written document, the
instrument never becomes a valid contract, and the party
seeking to rescind the contract is not bound by its
terms.' Wagner v. Rao,885 P.2d 174, 176
(Ariz.Ct.App. 1994) (citing City Dodge, Inc. v.
Gardner,208 S.E.2d 794 (Ga. 1974)). Accordingly,
"any provision in a contract making it possible for a
party thereto to free himself from the consequences of his
own fraud in procuring its execution is invalid."
Lutfy v. R. D. Roper & Sons Motor Co., 115 P.2d
161, 166 (Ariz. 1941). In other words, a hell or high water
clause in a lease that was induced by fraud is invalid
because the lease itself is invalid. For the same reason,
even though a finance lessees' "promises under the
lease contract become irrevocable upon the lessee's
acceptance, " A.R.S § 47-2A407(a), a lessee who
enters into a lease by fraudulent inducement has made no
"promises" at all. Precluding a party from
asserting fraudulent inducement could ...