Free Proposed Findings of Fact - District Court of Arizona - Arizona

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Grant H. Goodman, State Bar #009463 Grant H. Goodman, PLLC 5110 North 44th Street, Suite L200 Phoenix AZ 85018 Phone: (602) 343-1477 [email protected] Attorney for Defendants IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA CITICAPITAL TECHNOLOGY ) FINANCE, INC., formerly known as EAB ) Leasing Corp., a Pennsylvania corporation, ) ) and CITICAPITAL COMMERCIAL ) LEASING CORPORATION, formerly ) ) known as Associates Leasing, Inc., an ) Indiana corporation, ) ) Plaintiffs, ) ) ) v. ) ) GRANT H. GOODMAN and TERI B. ) GOODMAN, husband and wife, ) ) ) Defendants. Case No.: CV03-01587 PHX JAT DEFENDANTS' PRETRIAL CONCLUSIONS OF LAW; Fed.R.Civ.P., 52

MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION The plaintiff, CitiCapital, has filed its Complaint seeking $975,000.00 in lease "damages" purportedly under its contracts and schedules in issue. CitiCapital has not produced or disclosed its damage calculations under the lease contracts. CitiCapital has not produced or disclosed its damage computations pursuant to any authoritative and controlling uniform law. CitiCapital, in favor of an amalgam approach to damages, has

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failed to produce or disclose profit computations. terminated.

Disclosure and discovery has

CitiCapital has been on notice since at least 2002 that its lease damage provisions had been judicially construed as punitive, and therefore controlled by the Uniform Commercial Code. CitiCorp Vendor Finance, Inc., v. WIS Sheetmetal, Inc., 206

F.Supp.2d 962, (S.D.Ind. 2002). CitiCapital knew its damage calculations under the federal rules required candid and exacting disclosure in accordance with the controlling and uniform laws of this jurisdiction.1 CitiCapital damage computations accelerate future lease payments without reduction to present value. CitiCapital does not correlate its actual damages in relation to a reasonable approximation of harm contemplated when the contracts were entered into. CitiCapital provides no credit to the lessee under the contracts at issue for disposition and sale of the equipment. CitiCapital fails to account for lawful off-sets in this matter by not accounting for the amounts received and/or demanded as bankruptcy post-petition administrative claims totaling $212, 229.79. Accordingly, CitiCapital knowing that its contractual default remedies were deficient and unenforceable as a matter of law, was required to disclose its damage computations under A.R.S. § 47-2A528. The remedy available to the plaintiff is this situation is simply the "present value of the total rent for the then remaining lease term of the original lease agreement, minus the present value as of the same date of the market rent at the place where the goods are located computed for the same lease term," A.R.S. § 47-2A528 A (1) (2). CitiCapital was required to prove up its damages in accordance with this statute through expert testimony. Damages Under UCC § 15:13; 15-19.

See "CitiCapital Reply Brief, November 17, 2003; Harte-Hanks Direct Marketing v. Varilease (Arizona) Technology Finance Group, Inc." "The Uniform Commercial Code is really a supplement to the parties' contract ­ Lease- in that it provides by statute what the Lease provides by contract. There are, therefore, two independent grounds, a governing statute and a contract, on which to find that the Plaintiff here is obligated to make its lease payments..."
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CitiCapital must construe its damages, if any, pursuant to the Arizona Uniform Commercial Code. Under the Uniform Commercial Code had the liquidated damage provision invoked by CitiCapital been a reasonable reflection of anticipated harm caused by default at the inception of the agreement, A.R.S. §47-504 would control. However, in this instance, the defendants are unable to ascertain whether the plaintiff was relying upon an unenforceable penalty representing its liquidated damages claims, or whether the plaintiff in fact attempted to compute its damages pursuant to A.R.S. §47-528. CitiCapital has failed under either circumstance. judgment as a matter of law on the issue of damages. Consequently, since the plaintiff's liquidated damage provision is inherently unreasonable it must be set aside as a matter of law. Carter v. Tokai Financial Services, Inc., 231 Ga.App. 755, 500 S.E.2d 638 (1998); Citicorp Vendor Finance, Inc. v. WIS Sheetmetal, Inc., 206 F.Supp.2d 961 (2002); Information Leasing Corporation v. Chambers, 152 OhioApp.3d 715, 789 N.E.2d 1155 (2003). Accordingly, under Section 2A-528, CitiCapital, in the event that it elected to sell the equipment, (which it did here), is entitled only to the present value for the balance of the lease term minus the present value as of the same date for the market rent where the goods were located. Further, should the lessor claim that its damages were not properly accounted for under the Code, it may invoke 2A-528B which would place it "in as good a position as performance would have" requiring demonstrable evidence of damages reduced to present value for the profit it expected from full performance under the lease contracts. CitiCapital elected to do neither. CitiCapital was required, as a matter of law, under 2A-528B to give "due credit for payments for proceeds of disposition." Additionally, CitiCapital was required to credit the lessee with any expenses saved in consequence of the default including all lawful offsets and equipment sale proceeds. Defendants should be accorded

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In the CitiCorp case, supra, the United States District Court concluded that the typical CitiCorp lease contained unenforceable damage provisions similar to the case at bar. The District Court there considered standards almost identical in scope to those contained under Arizona law interpreting enforceability of a liquidated damage clause. The opinion noted that a liquidated damage clause would only be enforced where the actual damages were uncertain or difficult to ascertain or prove. And, "or are of a purely speculative character and the contract furnishes no data for their ascertainment." 206 F.Supp.2d at 961, 965. The District Court went on to observe that the court's function must be to review the contracts in substance, and not application of erroneous labels. Accordingly, the court required strict proof that the damages were reasonably incurred by CitiCapital, and that CitiCapital's conclusory references to the lease provision "labels" were deficient as a matter of law. The court also noted that a liquidated damage clause will be invariably deemed a penalty where the provision includes untailored amounts not approximating actual damages incurred. The CitiCapital lease there, as here, awards the plaintiff its attorney's fees without any evidence of, or relationship to, ascertainable damages. The case of Information Leasing Corp. v. Chambers, supra, is also instructive. Significant factors for the Ohio court included that the lease contained an acceleration clause, that the lease payments were not subject to any setoffs or defenses, and that there was no requirement that the lessor minimize or mitigate its damages. The CitiCapital lease is, in all material respects, identical to the lease at issue in the Information Leasing Corporation decision. The opinion concluded that the acceleration clause violated public policy because it bore "no reasonable relationship to the damages incurred." 789 N.E.2d at 1164. Accordingly, the Ohio court directed that where the contract damages under the provisions at issue are set aside, that a present value calculation of profit be produced by

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the lessor supported by credible evidence. The court also noted that under the Uniform Commercial Code, 2A-528 the lessor must provide a credit against the judgment for proceeds collected in disposition of the equipment. 789 N.E.2d 1155, 1167. Additionally, the court stated that the remedies under the Code "are to be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed, but neither consequential or special nor penal damages may be had except as specifically provided or by other rule of law." 789 N.E.2d 1155, 1169. The lessor must also construe the contract and pursue its damages, if any, in "good faith". 789 N.E.2d 1155, 1169. The court in Information Leasing Corporation, supra, then summarized the lessor's damages: "...simply stated, the lessor, ILC, was entitled to the unpaid rent and the present value of the future rent less the value of the (equipment), plus any incidental damages." 789 N.E.2d 1155, 1170. The plaintiff has failed to produce evidence on its claimed damages pursuant to Chapter 2A, Title 47, Arizona Uniform Commercial Code. The plaintiff bears both the burden of production and has the ultimate burden of persuasion at trial. Adickes v. S.H. Kress & Co., 398 U.S. 144, 160, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Under Adickes, the plaintiff with the ultimate burden of proof at trial does not carry its initial burden of production where it fails, as here, to produce affirmative evidence negating an essential element of the nonmoving parties' claim or defense. 398 U.S. at 158, 90 S.Ct. 1598. The plaintiff has attempted to use a summary judgment motion as a substitute for discovery. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The plaintiff here was required to direct this court to materials on file which demonstrate that the defendants would not be able to meet their burden under the Arizona Uniform Commercial Code. See, Celotex, 477 U.S. at 326, 106 S.Ct. 2548.

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The plaintiff has produced nothing in this case to prove damages it allegedly sustained under the Uniform Commercial Code. The plaintiff's isolated affidavit in support of its posture in this case, is deficient. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Co., Inc., 210 F.3d 1099 (2000); Henry v. Gill Indus., Inc., 983 F.2d 943 (9th Cir. 1993). The plaintiff has not followed the contract, or the Code, in the determination of its claimed damages. CitiCapital attempts a unilateral end-run around Arizona's Uniform Commercial Code and legislative public policy governing lease contracts. Agreements which seek to subvert stated legislative public policy and objectives are "necessarily void". Elson Dev. Co, supra; (Contract terms are not intended to penalize debtor in the event of default, nor reward the creditor through unjust enrichment above the debt contracted for).2 The Defendants on the other hand may properly move for judgment under the contract and the Code. M.A. Mortenson Co., Inc., supra, Pacific Western Resin Co., supra.3 The lease and guaranty contracts at issue are controlled and are therefore

interpreted under the Arizona Uniform Commercial Code (hereinafter the "Code"). I. Guaranty Contract Application to Principal's Debt.

The guarantors and the guaranty contracts are entitled to the dignity of contract, and the covenant of good faith and fair dealing4 inherent in all contracts as a matter of

See, A.R.S. §47-1102 (Purpose; rules of construction; variation by agreement); "C. The effect of provisions of this title may be varied by agreement, except as otherwise provided in this title and except that the obligations of good faith, diligence, reasonableness and care prescribed by this title may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations are to be measured if such standards are not manifestly unreasonable. (Emphasis supplied). Elf Atochem North Am. V. Celco, 187 Ariz. 89, 927 P.2d 355 (App. 1996). 3 Judicial recognition and application of the Arizona Uniform Commercial Code across a range of transactions covered by the Code. Figueroa v. Acropolis, 192 Ariz. 563, 968 P.2d 1048 (App. 1997); Elf Atochem North A.M., supra; Schoenfelder v. Arizona Bank, 161 Ariz. 601 (App. 1989); John Deere Co. v. First Interstate Bank, 147 Ariz. 256, 709 P.2d 890 (App. 1985). 4 See, A.R.S. §47-1203. (Obligation of good faith). Parrish v. United Bank of Arizona, 164 Ariz. 18, 790 P.2d 304 (App. 1990); City of Phoenix v. Great Western Bank & Trust, 148 Ariz. 53, 712 P.2d 966 (App. 1985).
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common law and statute. Race v. Fleetwood Retail Corp. of Washington, 116 Wash.App. 1041 (Wash.App. Div. 3, 2003); A.R.S. § 47-1201 (General definitions), "#40. "Surety" includes guarantor."5 In an analogous situation, the Arizona Supreme Court (In Banc) noted that the burden is placed upon the secured creditor to provide evidence that the equipment was disposed of in a commercially reasonable manner. Chapman v. Field, 124 Ariz. 100, 602 P.2d 481 (1979). In the present matter the court is provided no evidence of the collateral disposition, let alone the commercial reasonableness of the transactions. The creditor's failure to timely disclose its damage calculations, and to file credible affidavits in support of its claimed damages under the Code warrant dismissal. Norwest Bank (Minnesota) N.A., v. Symington, 197 Ariz. 181, 3 P.3d 1101, (App. 2000). The plaintiff has set aside the Code and the contracts at issue to exaggerate its damages. The defendants have repeatedly demanded strict proof of the plaintiff's alleged damage claims under the controlling contracts and the Code. Arizona's position on disclosure, discovery, good faith, and candor towards opposing counsel and the court are necessarily incorporated into this action in Arizona's Federal District Court. Brady v. Maryland, 83 S.Ct. 1194 (U.S.Md. 1963); Brown v. Superior Court, 137 Ariz. 327, 670 P.2d 725 (1983). The equipment valuations and the method and manner of disposition by the creditor must be disclosed by the plaintiff if it "may" relate to the instant proceedings. Norwest Bank, supra; See also; Pfingston v. Ronan Engineering Co., 284 F.3d 999, 1005, (9th Cir. 2000); Trost v. Trek Bicycle Corp., 162 F.3d 1004 (8th Cir. 1998); Southern

See, A.R.S. §47-1106 "A. ...the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this title or by other rule of law." The defendants have performed all calculations and rendered expert opinions and damage calculations in accordance herewith. The defendants have demanded strict proof of the plaintiff's claimed damage calculations under the contracts and the Code. The plaintiff has provided neither during the course of this litigation, but based upon information and belief, the plaintiff has now filed in association with its portion of the joint pre-trial, a new set of calculations. These calculations post-date the close of disclosure and discovery under the Federal rules. The defendants still have no idea upon which statutes, or contracts, the plaintiff has relied.
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Union Co., v. Southwest Gas Corp., 180 F.2d 1021, 1059-60 (D.Ariz.2002); Lamarca v. United States, 31 F.Supp.2d 110, 122-23 (E.D.N.Y. 1998); Jacobsen v. Deseret Book Co., 287 F.3d 936, 952-953 (10th Cir. 2002); Commercial Data Servers, Inc., v. IBM Corp., 262 F.Supp.2d 50 (S.D.N.Y. 2003). CitiCapital's "moving target" approach to damages disclosure is patently disallowed. Morrison Knudsen Corp., v. Fireman's Fund Ins. Co., 175 F.3d 1221 (10th Cir. 1999). The plaintiff was required to supplement at reasonable intervals its initial, expert, and pretrial disclosures. Miller v. Pfizer, Inc., 356 F.3d 1326, 1332 (10th Cir. 2004); Klonoski v. Mahlab, 156 F.3d 255, 268, (1st Cir. 1998); United States v. Boyce, 148 F.Supp.2d 1069 (S.D.Cal.2001) (party cannot wait until eve of trial to supplement discovery responses); Reid v. Lockheed Martin Aeronautics Co., 205 F.R.D. 655, 662 (N.D.Ga.2001) (waiting until 30 days prior to trial for disclosure by labeling a "supplement" disallowed). The plaintiff's failures in this regard require exclusion. W.G. Pettigrew Dist. Co., v. Borden, Inc., 976 F.Supp. 1043, 1050, (S.D.Tx.1996); U.S. v. Philip Morris USA, Inc., 219 F.R.D. 198, 200-01, (D.D.C. 2004). The complete failure to disclose here requires mandatory preclusion. Wilson v. Bradlees of New England, Inc., 250 F.3d 10 (1st Cir. 2001); Southern States Rack And Fixture, Inc., Sherwin-Williams Co., 318 F.3d 592, 595-96 (4th Cir.2003). The balance of this motion sets forth the defendants' accounting and fair market valuations, equitable subrogation (collateral impairment) defenses, and the Uniform Commercial Code affirmative defenses to the asset liquidations performed by the plaintiff. Security State Bank v. Burk, 100 Wash.App. 94, 995 P.2d 1272 (Wash.App. Div. 2 2000); Wallace Hardware Co. Inc. v. Abrams, 223 F.3d 382 (6th Cir. 2000). Plaintiff's irreconcilable positions taken in other courts contrasted with those taken here warrants dismissal. Helfand v. Gerson, 105 F.3d 530, (9th Cir. 1997); In re Estate of Cohen, 105 Ariz. 337, 464 P.2d 620 (1970).

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The plaintiff has authorized the admissions of its legal agents in fact. admissions are of a party opponent, and are binding against the principal.

The See,

Ariz.R.Civ.P. 613, 801 (d)(2); Fed.R.Evid. 801 (d)(2); Henry ex rel. Estate of Wilson v. HealthPartners of Southern Arizona, 203 Ariz. 393, 55 P.3d 87 (App. 2002); In re Harris, 279 B.R. 254 (9th Cir.BAP (Cal.), 2002); Migliori v. Boeing North America, Inc., 97 F.Supp.2d 1001 (C.D.Cal., 2000). II. Plaintiff may be placed only in the same position as if the lease had been fully performed. The plaintiff may not escalate damages beyond performance under the lease through the unexpired or executory portion of the contract. Unintended damage computations are quite simply terms that were neither dickered nor bargained for. Hidden penal, consequential, or special damages are disallowed. The lease, having occasioned repeated performance thereunder by the party sought to be charged, is a tacit acceptance by the plaintiff as to controlling terms of performance, and forms the basis for damage calculations by statute. A.R.S. § 47-2A207. Accordingly, damage computations at variance with the conduct of the parties are relevant to prove the actual construction of the contracts. Performance insisted upon here by the plaintiff is inconsistent with the actual course of performance. A.R.S. § 47-2A207 C; A.R.S. § 47-2A402 (Anticipatory repudiation). CONTROLLING AND UNIFORM CASE LAW A Liquidated Damage Clause Must Not Place A Lessor In A Better Position Than It Would Have Been Had The Lease Been Fully Performed In the Ninth Circuit, a liquidated damage clause is per se unconscionable to the extent that it provides the claimant with damages it would not have received had the contract been fully performed. Siletz Trucking Co., 467 F.2d 961 (9th Cir. 1972). The Ninth Circuit requires that the liquidated damage formula represent a reasonable and accurate approximation of prospective damages in the event of a default. Additionally, in
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order to ensure that the formula is appropriate, the claimant must have discounted its expectations under the lease to present value, and secondly, the lessor is required to give the lessee credit for the benefits to the lessor upon default. Siletz Trucking Co., supra. CitiCapital's analysis is deficient under a Ninth Circuit analysis. CitiCapital had already approximated its damages with mathematical precision at the inception of the lease by including internal and external rates of return, daily, monthly and lease term rate factors, and by including its "Capitalized Cost" amortized over the length of the lease, or sixty (60) months. In point of fact, at the inception of the contract a liquidated damage clause was superfluous since the plaintiff had already ascertained its performance and damage expectations under the contract. There was no basis upon which to

"approximate" "prospective" damages since CitiCapital had determined its benefit of the bargain amortized into a monthly lease/rental amount. CitiCapital failed to discount any amounts to present value and failed to give credit to the lessee for the benefits upon sale when it demanded return of the equipment. Arizona allows liquidated damages only in a limited context. First, the parties to the contract are not free to provide a penalty for its breach. "The central objective behind the system of contract remedies is compensatory, not punitive. Punishment of a

promissor for having broken his promise has no justification on either economic or other ground and a term providing such a penalty is unenforceable on the grounds of public policy." Pima Savings & Loan Association v. Rampello, 168 Ariz. 297, 812 P.2d 1115 (App. 1991). The question as to whether a liquidated damage is appropriate or in fact a penalty is a question of law for the court. Rampello, supra. The Rampello opinion directs that a liquidated damage clause, in order to avoid being characterized as a penalty, "must be a reasonable forecast of just compensation for the harm that is caused by any breach. Second, the harm that is caused by any breach must be one that is incapable or

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very difficult of accurate estimation." Rampello, supra; Larson-Hegstrom & Associates, Inc. v. Jeffries, 145 Ariz. 329, 701 P.2d 587 (App. 1985). The difficulties of proof of loss must be determined at the time the contract is made and not thereafter. Moreover, "the amount fixed must be reasonable to the extent that it approximates the loss anticipated at the time of making the contract". Where the amount is unreasonable it will be considered, unequivocally, a penalty. Rampello, supra; Larson-Hegstrom, supra. CitiCapital had already approximated its contract damages at the inception of the contract through the mathematical calculations which resulted in its lease calculations and monthly rental amounts. There was absolutely no unanticipated harm in this matter as a result of a breach. Damages were not difficult or impossible of estimation. The plaintiff performed the estimations, calculations, and analysis on the face of the contracts at issue. While Arizona courts have not yet applied Section 2A-504, courts uniformly have concluded that "the liquidated damages formula must put the lessor in no better position than it would have been in had the lease been fully performed." In re Montgomery Ward Holding Corp., 326 F.3d 383 (3rd Cir. 2003); Eplus Group, Inc. v. Panoramic Communications, LLC, 2003 WL 157200 (S.D.N.Y.). At its heart, this is a simple breach of contract claim to which fundamental principles of contract law apply. Including that "the purpose behind the allowance of damages for breach of a contract is to place the injured party in the position he or she would have occupied if the contract had been performed." Frontier Leasing Corp. v. Griffin Petroleum, Inc., 172 F.Supp.2d 1172, 1176 (S.D.Iowa 2001). In In re Montgomery Ward Holding Corp. General Electric (plaintiff herein), on behalf of its wholly owned subsidiary/lessee Montgomery Ward, successfully argued that under the Uniform Commercial Code, 2A-504, that a "Casualty Value" was both an unenforceable penalty and inherently unreasonable as a matter of law. The Montgomery

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Ward opinion in reference to the official comment under UCC §2A-504 noted that where, (as here), the lessor fails to structure the lease in a self-amortizing fashion that the contract, does not allow the lessor to "risk-shift" after the fact. As the Third Circuit aptly described and as General Electric forcefully argued, the lessor's risk-taking decision in structuring the lease performance in the absence of residual values were, and are, economic business judgment decisions the lessor, and the lessor alone, must make. The holding in Montgomery Ward under the Uniform Commercial Code and relative to a claimed liquidated damage provision asserted that, "their consistent approach to all damages issues is that the victim of a breach cannot be placed in a better position than it would have occupied if the contract had been performed." (Citations omitted). 326 F.3d at 388. The Third Circuit approach accurately summarized the majority view as follows: "And in the present context that conforms to the view adopted by the majority of courts that have construed the U.C.C. provision: no true liquidated damages provision can put the lessor in a position legally superior to the one that it would have occupied had the lease been fully performed." (citations omitted). 326 F.3d at 388. In sum, the Montgomery Ward decision instructs accountability to the lessee of the future lease payment stream reduced to present value. The opinion also requires

"demonstrable damages" measured in terms of what the lessor would have had as an absolute right at the end of the lease term. In that case, as here, the lessor was entitled only to return of the equipment without residual value contract rights. The court also noted that terms, by their very nature, designed to secure performance bearing no rational relation to damages are, as a matter of law, construed as penalties and are invariably determined to be unenforceable. The Montgomery Ward panel also noted that the performance obligations of the lease in question only required return of the leased equipment. The decision states: In comparison to the actual financial obligations called for by performance of the leases (remembering that Lechmere had no contractual obligation at the end of the term other than to return the equipment), the
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excessively large Casualty Value figures provided powerful in terrorem pressure for Lechmere to perform the leases rather than (for example) to terminate them voluntarily and pay the price for doing so in real damages. And the situation is of course no different when we look at a premature termination triggered by bankruptcy. 326 F.3d at 390. Finally, the Third Circuit described the situation as follows: To recapitulate, Meridian deliberately chose to establish a lease pricing structure that substituted a lower (and thus more attractive to a lessee) monthly rental, with the potential for recoupment of its investment plus a profit through a hoped-for (but in no way assured) course of events after the lease ran its course, for a safer (but less attractive) higher rental that (when coupled with the expected value of the remainder interest) would provide for amortization of the investment and profit during the lease term. It cannot be heard to say that it made that choice in ignorance of the well-established Illinois doctrine that blocks purported liquidated damages provisions that the courts instead classify as penalties. 326 F.3d at 390. *** In short, Meridian gambled on the future and lost ­ and because its hoped-for recoupment constituted an unenforceable penalty, it cannot shift the risk of that loss to Montgomery Ward. 326 F.3d at 391. In the case at bar, CitiCapital (General Electric) has provided a definitive lease term (60 months) without recourse to residual values. The plaintiff calculated up front its preferred stated rate of return and profitability rolled into an amortized monthly lease

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payment. The CitiCapital contracts at issue fail to reduce any amounts to present value
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and fail to provide the lessee with credit for the disposition and sales proceeds for the sold equipment. CitiCapital has provided no basis in law, or fact, for application of the "FINAL ADJUSTMENT TABLE" (Schedule "B") and "LESSOR'S REMEDIES" (TRAC Lease), relative to amounts it seeks to recover in addition to its ordinary contract claims. An identical result was obtained in Eplus Group, Inc. v. Panoramic Communications, LLC, 2003 WL 1572000 (S.D.N.Y.). The Eplus Group decision was issued under Virginia law and adoption of the Uniform Commercial Code, Section 2A504. The court noted that under the Official Comments to Article 2A and in relation thereto that:
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The freedom of parties to contract regarding liquidated damages is, however, still constrained by a "rule of reasonableness." 2003 WL 1572000 (S.D.N.Y.), pg. 6. Additionally, the Eplus court determined, as with all other courts considering the issue, "that a liquidated damage clause should not place a lessor in a better position than

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it would have been in had the lease been performed." Id. at p. 6. (citing to Montgomery
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Ward & Co., Inc. v. Meridian Leasing Corp., 269 B.R. 1, 9 (D.Del.2001) (citing Case Credit Corp. v. Baldwin Rental Centers, Inc., 228 B.R. 504, 509 (Bankr.S.D.Ga. 1998)) (emphasis removed); Coastal Leasing Corp. v. T-Bar S Corp., 128 N.C.App. 379, 385, 496 S.E.2d 795 (N.C.Ct.App. 1998)). 2003 WL 157200 (S.D.N.Y.) at pg. 7. The United States District Court, for the Southern District of New York, instructively noted the following: A liquidated damages provision has been held to violate Section 2A504 where it permitted the lessor to collect the present value of all future rent and the present value of the equipment's fair market value at the end of the lease, and permitted the lessor to sell the repossessed equipment immediately without providing the lessee with any credit for the proceeds of the sale. Carter v. Tokai Fin. Services, Inc., 231 Ga.App. 755, 759, 500 S.E.2d 638 (Ga.Ct.App. 1998). See also Sun v. Mercedes Benz Credit Corp., 254 Ga.App. 463, 467, 562 S.E.2d 714 (Ga.Ct.App. 2002). Such a provision allows the lessor to have "the benefit of both the property and the value of all future rent payments," placing it in a "superior position following default to that which it was in before" the default. Carter, 231 Ga.App. at 759, 500 S.E.2d 638; see also 2 James J. White & Robert S. Summers, Uniform Commercial Code §14-4. 2003 WL 1572000 (S.D.N.Y.) at p. 7. The Eplus opinion requires the lessor to credit the fair market value of the equipment and also requires the lessor to reduce to present value the future rent. Also of significance to the court's analysis was the "casualty value" amounting to three times the

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amount of the lease payments lost through the default.
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The court concluded this

liquidated damage measure as inherently unreasonable. Secondly, the court observed that reference to the formula for crediting the sales proceeds against alleged damages may provide a basis from which to determine the reasonableness of the liquidated damage provision. It is undisputed that the CitiCapital lease provisions in the instant case fail, as a matter of law, under the considerations raised above to include; (1) no credit
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contractually to the lessees for the fair market value of the sold equipment; (2) no reduction to present value of future rental/lease payment stream; (3) no contractual estimation as to the relationship between the "Lessor's Remedies 14B" and the "Final Adjustment Table, Schedule B" values as against the actual damages incurred by CitiCapital; (4) no contractual reference to ascertain the equipment's fair market value at the end of the lease in mitigation of the lessor's damages, and liquidated damage valuations exceeding by 500% a simple contract damages analysis; (5) no contractual present value calculations at all within the four corners of the contract; (6) no "residual" values imposed upon the lessee within the four corners of the contract; (7) no obligations

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imposed upon the lessee to perform or release or incur any further obligations to the lessor beyond the four corners of the contract (60 months). The Eplus opinion concludes the following: EPlus' argument that the "flexibility" and freedom to contract referred to in the Official Comment of Section 2A-504 support the enforceability of its liquidated damages clause is unpersuasive. The Official Comment and the text of Section 2A-504 itself require any such clause to be reasonable. 2003 WL 1572000 (S.D.N.Y.) at p. 8. CONCLUSION In sum, CitiCapital's prior pleadings, motions, and disclosures under the Uniform Commercial Code clearly illustrate and highlight the deficiencies in its claimed damages. The lease contracts are violative of all applicable law, both common and uniform,

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determining the enforceability of a liquidated damage clause. CitiCapital has violated, cumulatively, virtually every conceivable basis upon which the case law collectively disaffirms the imposition of penal damages. In re Montgomery Ward Holding Corp. is dispositive and controlling on the issues herein and is a correct statement of the law. The Uniform Commercial Code, official comments thereto, the case law, and commentary are in agreement as to the proper method and manner of damage calculation which merely places the lessor in a position similar to that in the event of full performance under the lease contracts. As a consequence, the defendants should be accorded judgment as a matter of law.
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Document 60

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DATED this 9th day of January, 2006. GRANT H. GOODMAN, PLLC

/s/ Grant H. Goodman, #009463 Grant H. Goodman Attorney for Defendants Original e-filed, copy e-mailed to [email protected] and copy mailed this 9th day of January, 2006, to: Honorable James A. Teilborg United States District Court 401 West Washington Suite 523 SPC 51 Phoenix AZ 85003 Copy mailed this 9th day of January, 2006, to: David N. Ingrassia, Esq. DAVID N. INGRASSIA, P.C. 1212 East Osborn Road Phoenix AZ 85014 Attorneys for Plaintiffs

/s/ Grant H. Goodman

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Case 2:03-cv-01587-JAT

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Filed 01/09/2006

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