OPINION AND ORDER
PAUL R. CHERRY, United States Magistrate Judge.
This matter is before the Court on Plaintiff LEAF Funding, Inc.'s Motion for Summary Judgment [DE 17], filed by Plaintiff LEAF Funding, Inc. ("LEAF") on April 17, 2009. For the reasons set forth in this Order, the Court grants LEAF's Motion for Summary Judgment on liability and damages but orders further briefing on the calculation of damages owed to LEAF jointly and severally by Defendants.
On December 1, 2008, LEAF filed its Complaint against Brogan Pharmaceuticals, Inc. ("Brogan") and Brett Dines ("Dines") (collectively "Defendants"), alleging that Brogan defaulted on an Equipment Lease Agreement ("Agreement" or "Lease Agreement") for certain medical equipment ("Equipment"), for which Dines had personally guaranteed payment. In the First Claim for Relief for Breach of the Lease Agreement, LEAF alleges that Brogan is in default on the Lease Agreement because it failed to make payments under the Agreement and that, as a result, Brogan owes LEAF the sum of $87,681.24, plus interest at the rate of 15% per annum, late fees, reasonable collection costs, and attorney's fees. In the Second Claim for Relief for Breach of the Lease Agreement, LEAF alleges that, under a Guaranty executed by Dines to secure payment of Brogan's indebtedness under the Lease Agreement, Dines owes LEAF the sum of $87,681.24, plus interest at the rate of 15% per annum, late fees, reasonable collection costs, and attorney's fees. Finally, in the Third Claim for Relief for Replevin, LEAF alleges its immediate right to possession of the Equipment and seeks an Order of Possession with respect to the Equipment.
On January 23, 2009, Defendants filed an Answer and affirmative defenses, including that LEAF's Complaint is time-barred, that LEAF failed to take reasonable steps to mitigate its damages, and that LEAF has waived the personal guaranty of Dines by virtue of its alleged impairment of the value of the Equipment.
On April 17, 2009, LEAF filed the instant Motion for Summary Judgment and a Memorandum in Support, seeking summary judgment on the First and Second Claims for Relief in its Complaint and requesting that the Third Claim for Relief be dismissed without prejudice. Defendants filed a Response on May 18, 2009, and LEAF filed a Reply on June 2, 2009.
The parties filed forms of consent to have this case assigned to a United States Magistrate Judge to conduct all further proceedings and to order the entry of a final judgment in this case. Therefore, this Court has jurisdiction to decide this case pursuant to 28 U.S.C. § 636(c).
SUMMARY JUDGMENT STANDARD
The Federal Rules of Civil Procedure mandate that motions for summary judgment be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Rule 56(c) further requires the entry of summary judgment, after adequate time for discovery, 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, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "[S]ummary judgment is appropriate-in fact, is mandated-where there are no disputed issues of material fact and the movant
A party seeking summary judgment bears the initial responsibility of informing the court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The moving party may discharge its "initial responsibility" by simply "'showing'-that is, pointing out to the district court-that there is an absence of evidence to support the non-moving party's case." Id. at 325, 106 S.Ct. 2548. When the non-moving party would have the burden of proof at trial, the moving party is not required to support its motion with affidavits or other similar materials negating the opponent's claim. See id. at 323, 325, 106 S.Ct. 2548; Green v. Whiteco Indus., Inc., 17 F.3d 199, 201 n. 3 (7th Cir.1994); Fitzpatrick v. Catholic Bishop of Chi., 916 F.2d 1254, 1256 (7th Cir.1990). However, the moving party, if it chooses, may support its motion for summary judgment with affidavits or other materials and thereby shift to the non-moving party the burden of showing that an issue of material fact exists. See Kaszuk v. Bakery & Confectionery Union & Indus. Int'l Pension Fund, 791 F.2d 548, 558 (7th Cir. 1986); Bowers v. DeVito, 686 F.2d 616, 617 (7th Cir.1982).
Once a properly supported motion for summary judgment is made, the non-moving party cannot resist the motion and withstand summary judgment by merely resting on its pleadings. See Fed.R.Civ.P. 56(e)(2); Donovan v. City of Milwaukee, 17 F.3d 944, 947 (7th Cir.1994). Rule 56(e) establishes that the opposing party's "response must-by affidavits or as otherwise provided in this rule-set out specific facts showing a genuine issue for trial." Fed. R.Civ.P. 56(e)(2); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, to demonstrate a genuine issue of fact, the non-moving party must do more than raise some metaphysical doubt as to the material facts; the non-moving party must come forward with specific facts showing that there is a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
In viewing the facts presented on a motion for summary judgment, a court must construe all facts in a light most favorable to the non-moving party and draw all legitimate inferences in favor of that party. See Anderson, 477 U.S. at 255, 106 S.Ct. 2505; NLFC, Inc. v. Devcom Mid-Am., Inc., 45 F.3d 231, 234 (7th Cir.1995); Doe v. R.R. Donnelley & Sons Co., 42 F.3d 439, 443 (7th Cir.1994). A court's role is not to evaluate the weight of the evidence, to judge the credibility of witnesses, or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact. See Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505; Doe, 42 F.3d at 443.
On or about December 20, 2007, Brogan, as lessee, and Direct Capital Corporation ("Direct"), as lessor, executed the Lease Agreement. Under this Agreement, Brogan agreed to make a monthly "Rental Payment Amount" of $1,719.24 for a "Rental Term" of sixty months (for a total of $103,154.40) in exchange for the lease of the Equipment.
Id. (emphasis added).
The calculation for determining the "Stipulated Lease Value" referred to in subpart (c) is set forth under "Loss and Damage" and provides:
Id. at ¶ 15. In addition to these remedies, the Agreement allows for the assessment of service charges, interest, and fees in the event Brogan, as lessee, fails to make a payment:
Pl. Mot., Exh. 1-A, ¶ 21.
As additional inducement for Direct to enter into the Agreement, Dines simultaneously
On January 1, 2008, the Equipment identified in the Agreement was delivered to Brogan. The following day, January 2, 2008, Direct executed a Lease Assignment and Security Agreement ("Assignment") in which Direct transfers and assigns all of its rights and remedies under the Agreement to LEAF. In this Assignment, Direct grants LEAF a security interest in the Equipment, which LEAF agrees to release upon payment by Brogan of all monetary obligations under the Agreement.
Brogan has not made a payment since September 1, 2008.
On September 13, 2008, Dines "advised Mr. Nestor of Leaf Funding that Brogan was surrendering the leased property and that he should immediately arrange to pick up their equipment." Def. Resp., Exh. A, ¶ 4 (Dines' Aff.). Approximately two weeks later, on September 26, 2008, Dines contacted LEAF again to advise that the "leased property needed to be picked up as soon as possible." Id. at ¶ 5.
A suit had been filed in Lake County, Indiana, against Brogan, by Sargent Electric Company, and, on October 23, 2008, the court in that case issued an Order of Prejudgment Attachment that provides, in relevant part:
See docket date October 23, 2008, Sargent Elec. Co. v. Brogan Pharms., Inc., No. 45C01-0804-PL00064 (Lake Cir. Ct.2008). The order further directs the Sheriff to seize all of the above identified property and to hold it until final judgment is rendered in that matter. In his Affidavit, Dines states that he notified LEAF a third time to pick up the Equipment on October 24, 2008. He also states that "in the meantime, Brogan's landlord ... unilaterally... changed the locks at the Brogan plant, which is where the leased property was located." Def. Resp., Exh. A, ¶ 7 (Dines' Aff.). LEAF is not a party to that state court action. LEAF has contacted the parties in that action, but the parties have been unwilling to aid LEAF in the retrieval of the Equipment in light of the Order of Prejudgment Attachment. LEAF has been unable to repossess the Equipment.
LEAF seeks summary judgment in its favor on its claims of breach of the Lease Agreement against Brogan and Dines. After first finding both Brogan and Dines liable for the breach, the Court turns to the damages calculation and then finally to the dismissal of LEAF's claim for replevin.
A. Breach of the Lease Agreement
In the First and Second Claims of its Complaint respectively, LEAF alleges that Brogan breached the Lease Agreement
1. Liability of Brogan Pharmaceuticals
A lease is a type of contract, and the elements of a breach of contract claim are the existence of a contract, the defendant's breach of the contract, and damages. Indiana Bureau of Motor Vehicles v. Ash, 895 N.E.2d 359, 365 (Ind.Ct.App. 2008) (quoting Berkel & Co. Contractors, Inc. v. Palm & Assocs., Inc., 814 N.E.2d 649, 655 (Ind.Ct.App.2004)).
The instant Lease Agreement and subsequent Assignment required Brogan to make sixty monthly payments of $1,719.24 to LEAF (for a total of $103,154.40) in exchange for the lease of the Equipment.
Although Defendants assert a number of Affirmative Defenses in their Answer, including that LEAF's action is time barred and that LEAF failed to mitigate its damages, neither Defendant has asserted any defense to Brogan's liability in response to LEAF's motion for summary judgment, and, thus, the affirmative defenses as to Brogan's liability are waived. See The Pantry, Inc. v. Stop-N-Go Foods, Inc., 796 F.Supp. 1164, 1167 (S.D.Ind.1992) ("A summary judgment on the issue of liability encompasses all affirmative defenses and implicitly challenges the non-movant to establish a basis for finding that the defenses are both applicable and supported by sufficient facts."); see also Ramada Franchise Sys., Inc. v. Royal Vale Hospitality of Cincinnati, Inc., No. 02 C 1941, 2005 WL 435263, *10 (N.D.Ill. Feb. 16, 2005).
However, out of an abundance of caution, the Court briefly analyzes the two affirmative defenses that may bear on Brogan's liability and finds that neither is tenable. First, Defendants assert in their Answer the affirmative defense that LEAF's remedy is time barred. However, Indiana Code § 26-1-2.1-506(1)-(2) provides that an action for default under a lease contract must be brought within four years of when it accrued unless shortened to a period of no less than a year by the agreement itself. The Lease Agreement in this case does not shorten the statute of limitations. Brogan breached the agreement either on September 13, 2008, when Dines, as president of Brogan, first contacted LEAF and asked LEAF to pick up the equipment, or shortly after October 1, 2008, when Brogan failed to make its monthly lease payment. As the Complaint was filed on December 1, 2008, less than three months from either possible default date, this defense must fail. Second, the Answer asserts that LEAF failed to take reasonable steps to mitigate its damages. This defense requires a defendant to prove "that the non-breaching party has not used reasonable diligence to mitigate its damages." Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC, 870 N.E.2d 494, 507 (Ind.Ct.App.2007) (citing Ind. Indus., Inc. v. Wedge Prods., Inc., 430 N.E.2d 419, 428 (Ind.Ct.App.1982)). In this case, the Defendants have not alleged any injury beyond LEAF's failure to repossess the Equipment, which LEAF did not have an obligation to do under the Lease Agreement. Moreover, if LEAF wished to repossess the equipment, Brogan was required by the Lease Agreement to repackage the Equipment and deliver it to a location of LEAF's choosing, which is consistent with Indiana's adoption of the Uniform Commercial Code:
Ind.Code § 26-1-2.1-525(2). The evidence of record does not support a defense of failure to mitigate damages.
2. Liability of Brett Dines as Guarantor
In support of summary judgment against Dines, LEAF argues that Dines, as guarantor, is liable for the damages flowing from Brogan's default. A guaranty is a conditional promise made by a party to answer for the debt or default of another only if the principal debtor fails to pay. TW Gen. Contracting Servs. v. First Farmers Bank & Trust, 904 N.E.2d 1285,
In response to the motion for summary judgment, Dines' only asserted defense is that LEAF impaired the collateral when it failed to take timely possession of and to promptly liquidate the leased property after Dines made two calls to LEAF requesting that LEAF make arrangements to come and retrieve the Equipment. Thus, Dines argues that there is a genuine issue of material fact as to the amount, if any, that Dines as guarantor owes to LEAF.
"The guarantor of a debt may seek to avoid personal liability in a suit by a creditor by asserting the impairment of collateral defense." Bartle v. Health Quest Realty VII, 768 N.E.2d 912, 922 (Ind.Ct.App.2002) (citing Farmers Loan & Trust Co. v. Letsinger, 652 N.E.2d 63, 66 (Ind.1995)). "Pursuant to this defense, the guarantor's liability will be discharged if the facts establish that the creditor's conduct unjustifiably impaired the collateral securing the debt." Id. (citing Alani v. Monroe County Bank, 712 N.E.2d 19, 21 (Ind.Ct.App.1999)). The underlying purpose of the impairment of collateral defense is to prevent the guarantor from being exposed to personal liability beyond that which was expected at the time the parties entered into the contract secured by the collateral. See Farmers, 652 N.E.2d at 66-67; Alani, 712 N.E.2d at 21, 22 (citing White v. Household Fin. Corp., 158 Ind.App. 394, 302 N.E.2d 828, 835 (1973)).
As an initial matter, the state court Order of Prejudgment Attachment that is presently preventing LEAF from repossessing the Equipment presumably has not impaired the value of the Equipment (other than any effect the passage of time may have on the value of the Equipment) but rather has temporary impaired the ability to access the Equipment. The outcome of those state court proceedings and the priority of interest in the Equipment assigned to the various parties will ultimately determine the practical extent of the impairment of the collateral, if any, to the parties in the instant dispute.
Moreover, the defense of impairment of the collateral discharges a guarantor's liability when the "creditor's conduct unjustifiably impaired the collateral securing the debt." Cole, 713 N.E.2d at 904 (citing Wisconics Eng'g, Inc. v. Fisher, 466 N.E.2d 745, 767 (Ind.Ct.App.1984)); see also Farmers, 652 N.E.2d at 66 ("Guarantors and sureties are exonerated if the creditor by any act, done without their consent, alters the obligation of the principal in any respect or impairs or suspends the remedy for its enforcement.") (quoting Weed Sewing Mach. Co. v. Winchel, 107 Ind. 260, 7 N.E. 881 (1886)); Williams v. Lafayette Prod. Credit Ass'n, 508 N.E.2d 579, 583 (Ind.Ct.App.1987) (holding that when collateral is left in the possession of the debtor, part of the risk assumed by the guarantor is that the debtor's actions may impair the collateral and any such harm to the collateral by the debtor cannot be attributed to the creditor without some improper act by the creditor); Hedrick v. First Nat. Bank Trust Co., 482 N.E.2d 1146, 1149 (Ind.Ct.App.1985) (finding, in dicta, that the decrease in value of the collateral during the pendency of the debtor's bankruptcy proceeding could not be attributed to the creditor bank when the creditor bank had not acted).
In this case, the present inaccessibility of the collateral is not the result of action taken or caused by LEAF but rather is the result of the lawsuit related to the debts of Brogan filed in Lake County, Indiana, in which the court issued an Order of Prejudgment Attachment on October 23, 2008. See Sargent Elec. Co. v. Brogan Pharms., Inc., No. 45C01-0804-PL-00064 (Lake Cir. Ct.2008). Dines made his first two communications to LEAF to make arrangements to pick up the Equipment on September 13, 2008, and September 26, 2008. On October 23, 2008, the state court issued the Order of Prejudgment Attachment, and LEAF was no longer able to repossess the Equipment. Dines contacted LEAF a third time on October 24, 2008-the day after the Order of Prejudgment Attachment had issued. LEAF is not currently a party to that action for money damages, and, to date, LEAF has been unable to obtain the assistance of the parties to that action in retrieving the Equipment.
The Lease Agreement specifically provides that it is Brogan's obligation to package the Equipment at the termination of the lease, whether through completion or default, and to deliver the packaged Equipment to a location of LEAF's choosing; LEAF did not have a duty under the Agreement to retrieve the Equipment at Brogan's request. See also Ind.Code § 26-1-3.1-605(g) (2009).
Therefore, the Court finds that Dines' asserted defense of impairment of the collateral fails and that he remains jointly and severally liable to LEAF for the damages resulting from Brogan's breach of the Lease Agreement. Summary judgment in favor of LEAF against Dines on liability is granted.
a. Amounts due and accelerated payments
In both its memorandum in support of summary judgment and its reply brief, LEAF requests damages against Brogan and Dines, jointly and severally, in the amount of "$87,681.24, plus interest at the rate of 15% per annum, late fees, reasonable collection costs, and attorney's fees." Pl. Br., p. 10. The amount of $87,681.24 is the accelerated balance of the fifty-one remaining monthly payments of $1,719.24 under the Lease Agreement. Defendants have not opposed the requested amount of $87,681.24 in damages nor have Defendants opposed the method of calculation. However, LEAF does not reference any provision in the Lease Agreement or in the law to support this calculation of damages, and the sum requested by LEAF does not account for a reduction to present value of the accelerated payments.
The "Default and Remedies" provision of the Lease Agreements provides that one of LEAF's remedies is to "sue for and recover from Lessee any and all amounts due under this Lease including the Stipulated Lease Value of this Lease." Pl. Br., Exh. 1-A, ¶ 22. The four-part formula for calculating the "Stipulated Lease Value" is set forth earlier in the Lease Agreement at paragraph 15 and includes a calculation for the reduction to present value of the accelerated balance of the remaining payments at a rate of four percent per year: "the accelerated balance of the total amounts due for the remaining term of this Lease discounted monthly to present value at a discount rate of 4% per annum from the date each such installment is due to the date of loss or termination." Id. at ¶ 15. LEAF references this present value calculation at the four percent rate in both its memorandum in support of summary judgment and its reply brief yet does not apply the calculation to its final request for damages. Compare Pl. Mot., § II, ¶ 2; Pl. Mot., Exh. 1, ¶ 4 (Grant Aff.); Pl. Reply, ¶ II, ¶ 2; and Pl. Reply, § III.A, ¶ 2 (each referencing the present value discount); with Compl., ¶ 13 & 15; Pl. Mot., § I, ¶ 2; Pl. Mot., Exh. A, ¶ 6; and Pl. Reply, § 4, ¶ 1 (each requesting full payment without reduction to present value).
Accordingly, the Court grants summary judgment on damages in favor of LEAF and against both Brogan and Dines in an
b. Prejudgment interest
In its motion, LEAF requests prejudgment interest at the rate of 15% per annum from and after November 1, 2008. In a diversity case, prejudgment interest is governed by state law, and Indiana courts have explained that prejudgment interest is part of the compensatory award necessary to make the plaintiff whole. See Travelers Ins. Co. v. Transp. Ins. Co., 846 F.2d 1048, 1051-52 (7th Cir. 1988); Bank One, Nat. Ass'n. v. Surber, 899 N.E.2d 693, 705 (Ind.Ct.App.2009). Under Indiana law, damages in the form of prejudgment interest are proper in a contract action when the amount of the claim "rests upon a simple calculation and the terms of the contract make such a claim ascertainable" and when the trial court does not have to exercise any discretion in computing the award. Troutwine Estates Dev. Co., LLC v. Comsub Design and Eng'g, Inc., 854 N.E.2d 890 (Ind.Ct.App. 2006); see also Simmons, Inc. v. Pinkerton's, Inc., 762 F.2d 591, 607 (7th Cir. 1985). Damages are ascertainable when measurement is a matter of mathematical computation. Bank One, 899 N.E.2d at 705. Because the damages for the breach of the instant Lease Agreement are readily calculable under the terms of the agreement, prejudgment interest is appropriate.
As for the rate of prejudgment interest, Paragraph 21 of the Agreement allows for interest based on monies already owed, but not yet paid, at the lesser of the maximum rate of interest allowed by law or 15% per annum. Under Indiana law, the prejudgment interest rate is set at 8% only when the parties have not agreed on the rate of interest. See Ind.Code § 24-4.6-1-102. As Indiana Courts have allowed prejudgment interest rates higher than the 15% sought by LEAF and provided for in the Lease Agreement, the Court finds that the contractually agreed upon prejudgment interest rate of 15% in paragraph 21 of the Lease Agreement is applicable. See, e.g., Roy A. Miller & Sons, Inc. v. Indus. Hardwoods Corp., 775 N.E.2d 1168, 1174 (Ind.Ct.App.2002) (awarding the 30% service charge rate provided on the invoices sent to the contractor rather than the eight percent statutory rate provided for in Indiana Code § 24-4.6-1-103); White River Conservancy Dist. v. Commonwealth Eng'rs, Inc., 575 N.E.2d 1011, 1017 (Ind.Ct.App.1991) (upholding a contractual prejudgment interest rate of 18% because the evidence did not show that the rate was unconscionable at the time it was agreed upon under Indiana Code § 26-1-2-302); Weisman v. Hopf-Himsel, Inc., 535 N.E.2d 1222, 1234 (Ind.Ct.App.1989) (affirming the trial court's award of 18% prejudgment interest). Therefore, LEAF is entitled to a prejudgment interest rate of 15% on the amounts currently due to it under the Agreement.
c. Attorney's fees
LEAF also requests attorney's fees incurred as a result of Brogan's default under the Lease Agreement. Under Indiana law, when a contract allows for the recovery of reasonable attorney's fees, the agreement to pay attorney's fees will be enforced according to its terms unless it is contrary to law or public policy. Reuille v. E.E. Brandenberger Const., Inc. 888 N.E.2d 770, 771 (Ind.2008) (citing Carter-McMahon v. McMahon, 815 N.E.2d 170, 178 (Ind.Ct.App.2004)); see also Kikkert v. Krumm, 474 N.E.2d 503, 505 (Ind.1985). In the instant case, paragraph 22 of the Lease Agreement allows LEAF to recover from Brogan "attorney's costs including attorney fees" related to LEAF's collection efforts resulting from a breach by Brogan. Neither Brogan nor Dines has offered any opposition to the imposition of attorney's
d. Conclusion on damages
Accordingly, the Court orders the parties to confer and to attempt to agree on the calculation of the amount of damages Brogan and Dines now owe to LEAF and to file with the Court a joint agreed statement of damages. However, if the parties are unable to agree on the calculation, then LEAF is ordered to file a request for damages with its proposed calculation, to which Defendants may file a response, and LEAF may file a reply.
The calculation, whether agreed to or proposed separately, shall include (1) both the method and the legal support for the method of calculating the amount due under the Lease Agreement as a result of Brogan's failure to make any monthly payments since September 1, 2008, which LEAF is currently requesting in the amount of $87,681.24; (2) the calculation of the 15% per annum prejudgment interest; (3) an itemization of late fees; and (4) an itemization of reasonable collection costs. The amount of reasonable attorney's fees will be briefed separately following the Court's determination of the amount of damages.
C. Dismissal of Count III
In the Motion for Summary Judgment, LEAF requests that the Court dismiss its Third Claim for replevin of the Equipment. The Lake County Circuit Court in Sargent Electric Company v. Brogan Pharmaceuticals, Inc., Cause No. 45C01-094-PL-00064 issued an Order of Prejudgment Attachment, ordering that all personal property subject to execution be seized by the Sheriff. As a result, Brogan is not in a position to return the Equipment to LEAF. LEAF also represents that it has been unsuccessful in it efforts to obtain the cooperation of the parties to the state court litigation in repossessing the Equipment. Anticipating the potential invocation of Younger abstention, LEAF represents that it intends to pursue acquisition of the Equipment in the Lake County action directly and asks the Court to dismiss without prejudice its claim for replevin. Defendants have not opposed this request. Accordingly, LEAF's Third Claim is dismissed without prejudice.
Based on the foregoing, the Court hereby
The Court further
Farmers Loan & Trust Co. v. Letsinger, 652 N.E.2d 63, 66-67 (Ind.1995) (internal citations and footnotes omitted).
Ind.Code § 26-1-3.1-605(g).