EUREKA BROADBAND CORPORATION v. WENTWORTH LEASING CORP.

02-11068-RGS

2004 | Cited 0 times | D. Massachusetts | February 24, 2004

FINDINGS OF FACT, RULINGS OF LAW AND ORDER FOR JUDGMENT AFTER A JURY-WAIVED TRIAL

1. There are three parties to a typical finance lease transaction:(1) the vendor, who supplies the goods; (2) the lessee, who chooses thevendor and receives the goods; and (3) the lessor, who supplies the moneynecessary to make the purchase. Midwest Precision Services, Inc. v.PTM Indus. Corp., 887 F.2d 1128, 1131 (1st Cir. 1989). The lessorearns its profit on the difference between what it pays for the equipmentand the aggregate sum of the lease payments it collects over the life ofthe lease (the discounted value of which is the finance charge). Thelessor takes a security interest in the leased equipment and nominallyholds title, but does not take physical possession of the equipment. Atthe end of the lease, the lessor typically transfers title to the lesseefor a nominal consideration.

2. Wentworth Leasing Corporation (Wentworth) is a Massachusetts companyholding itself out as a finance lessor. Wentworth was the creation ofStanton Pearson, its President, sole employee, and sole shareholder.Wentworth operates out of Pearson'sPage 2home at 302 Boxboro Road in Stow, Massachusetts. Wentworth(Pearson) also rents Post Office Box 244 in Stow.

3. Plaintiff Eureka Broadband (Eureka) is the successor company toGillette Global Network, Inc. Eureka is a Delaware corporation with aprincipal place of business in New York City, New York. Eureka installsfiber-optic systems in large office buildings and collects access feesfrom commercial carriers providing telecommunications services tobuilding tenants.

4. In June of 2000, Wentworth, introduced by Pearson to Eureka-Gilletteas a finance lessor, presented a lease proposal involving an $841,000purchase of switching equipment by Eureka-Gillette from CopperCom, Inc.,a Florida vendor. Under the terms of the proposed lease, Eureka-Gillettewas to make forty-eight monthly lease payments to Wentworth of $22,486,totaling $1,079,328 over the life of the lease. To demonstrate itscreditworthiness, Eureka-Gillette was required to furnish Wentworth with"[f]inancial statements, tax returns if statement[s] are unaudited,current interim statements and other pertinent information." The leasefurther required that Eureka-Gillette pay a commitment fee equivalent toone monthly payment (to be applied against the first installment on thelease). On July 24, 2000, Eureka-Gillette accepted the proposal andforwarded a check to Wentworth in the amount of $22,486.

5. On August 14, 2001, Jeffrey Buller, Eureka-Gillette's Vice Presidentfor Finance, e-mailed Pearson a package of "due diligence" materials,including copies of Eureka-Gillette's internal financial statements. OnSeptember 6, 2001, Wentworth accepted the CopperCom lease on thecondition that Eureka-Gillette pay the first and last month rents as anadditional deposit. The printed lease form provided that "[t]he Equipmentis and shallPage 3at all times be and remain the sole and exclusive personal propertyof LESSOR, and LESSEE shall have no right, title or interesttherein."1 Attached to the lease was a schedule of the CopperComequipment that Eureka (no longer Gillette) had chosen to purchase. Anaddendum to the lease granted Wentworth a security interest in theequipment, and in the event of a default, an interest in Eureka'saccounts receivable up to the amount of any monthly payment then owing.On that same day, Eureka provided Wentworth with a Delivery andAcceptance form acknowledging receipt of the CopperCom equipment.

6. On October 12, 2001, Buller e-mailed Pearson a list of Eureka'saccounts receivable.2 Buller also confirmed that a check for $22,486,representing the second (October) lease installment, had been mailed toWentworth. Eureka thereafter sent Wentworth checks on a monthly basis forthe November, December, and January 2002 installments, totaling $112,430.

7. On December 20, 2001, Eureka and Wentworth entered a secondfinancing lease for the purchase of additional equipment from CopperComand a second vendor, Marconi. The terms of the second lease wereessentially identical to those of the first. The monthly rental paymentwas $17,057 (for a forty-eight month total of $818,736). The requiredfirst and last month deposit was $34,114. A check in the amount of$51,171 was mailed to Wentworth by Eureka on December 21, 2001,representing the deposit and the first month's payment on the lease. Theparties also entered a purchase option giving Eureka the rightPage 4to acquire the equipment upon termination of the lease.3 Eurekain short order provided Wentworth with an executed Delivery andAcceptance form for the Marconi equipment.

8. On December 22, 2001, CopperCom submitted an invoice to Wentworth inthe amount of $839,340 for the September equipment purchase. On December28, 2001, Copper Com sent additional invoices in the amount of$115,642.06 to Wentworth for the December purchase. The invoices werepayable in full within thirty days of the delivery of the equipment.Wentworth was unable to produce evidence of an invoice from Marconi.Marconi instead billed Eureka directly. On January 10, 2002, Bullere-mailed Pearson, reminding him that Marconi was complaining about nothaving been paid. Buller urged Pearson to contact Marconi's Director ofCredit to arrange payment. Pearson never did.

9. By the end of January of 2002, Eureka had paid Wentworth a total of$163,601 on the leases. Wentworth had paid neither CopperCom nor Marconi.Moreover, Wentworth-Pearson, unbeknownst to Eureka, had neither thecapacity nor the intention of doing so. Pearson made two desultoryattempts to sell the leases to third party investors in late January andlate February of 2002. In the meantime, both Marconi and CopperCom weredemanding payment from Eureka, a continuing theme of Buller's largelyignored e-mails to Pearson. When Pearson did reply, his usual delayingtactic was to request even more "due diligence" information from Eureka.

10. By the end of February, Eureka had lost patience. On February 22,2002, Barry Skidelsky, Eureka's General Counsel, wrote to Pearsonexpressing dismay that CopperCom and Marconi "are now dunning us, eventhough the payment obligation to themPage 5is yours under our lease transactions with you." Skidelsky demandedimmediate assurance that the vendors would be paid. He also stated thatthe monthly lease payments would be withheld until Pearson provided proofthat the vendors had in fact been paid.

11. On April 11, 2002, Eureka's President, Joseph Gillette, wrote toPearson informing him that Marconi had brought suit against Eureka overthe unpaid bill. Gillette stated that Eureka considered Wentworth to bein breach of the leases, and demanded the return of the $163,601 of leasepayments. Pearson never responded. In September of 2002, Eureka settledwith Marconi, agreeing to return the equipment and pay Marconi $180,000.Eureka also eventually returned the CopperCom equipment (which was notperforming to Eureka's satisfaction) and paid a "small" fee toCopperCom.4

12. Pearson-Wentworth never returned the $163,601 to Eureka nor madeany effort to resolve the debt issue with either CopperCom orMarconi.5

13. In November of 2003, after the case had been set for trial, Pearsonmailed some one hundred postcards to customers on the list of accountsreceivable that Eureka had provided him as part of its "due diligence."The postcards were fraudulently embossed with Eureka's corporate logo.The postcards stated that "Our [r]emittance address has changed," anddirected customers to forward all future payments to the Stow post officebox controlled by Wentworth-Pearson. At least one of Eureka's customersforwarded a checkPage 6to the post office box as directed.

Rulings of Law

Eureka's Complaint sets out three counts. Count I alleges breach ofcontract and seeks damages of $163,601 (the total of the rental paymentsmade by Eureka to Wentworth), as well as costs and attorney's fees. CountII alleges the same damages under the rubric of unjust enrichment.6Count III alleges intentional misrepresentation. Wentworth, by way ofcounterclaim, alleges that Eureka is in default on the leases and seeksan acceleration of the payments due (discounted to present value), aswell as costs and attorney's fees.

As a matter of law, this case would seem very simple. A contractexisted betweenPage 7Eureka and Wentworth whereby Eureka was obligated to make monthlypayments on the leases while Wentworth was obligated to pay for theleased equipment. Eureka made the required payments until it discoveredthat Wentworth had not kept its end of the bargain. It is hornbook lawthat a material breach of a contract by one party excuses the other fromfurther performance. Ward v. American Mut. Liab. Ins. Co.,15 Mass. App. Ct. 98, 100-101 (1983). A lease is a contract. Wentworthbreached the leases by failing to pay for the equipment. Eureka was thusexcused from making further payments. As the breaching party, Wentworthis liable for any damages that Eureka incurred as a direct and naturalresult of the breach.7 Greany v. McCormick, 273 Mass. 250,253 (1930).

Wentworth, both at trial and in its post-trial memorandum, agrees thatno material facts are in dispute. It concedes that it received the$163,601 in payments from Eureka.Page 8It admits that it never paid CopperCom or Eureka. And itacknowledges that it was on notice from Eureka that its failure to paythe vendors was deemed by Eureka to be a breach. Rather, Wentworthadvances a progressively astonishing argument in support of itscounterclaim.

The argument, which has a superficial air of plausibility, turns on amisapplication of the Uniform Commercial Code (UCC) and a misreading ofthe First Circuit's decision in Midwest Precision Services,supra. The argument can be summarized as follows. WhenCopperCom delivered the equipment to Eureka and then invoiced Wentworthwithout a demand for immediate payment or the retention of a securityinterest, under the UCC, G.L. c. 106, § 2-401(2), title to theequipment passed to Wentworth as the buyer. Therefore, when in settlementof the payment dispute with CopperCom, Eureka returned the equipment, itconverted property belonging to Wentworth and is thus liable to Wentworthfor the equipment's fair market value.8 While Wentworth admits it isliable to CopperCom for the unpaid purchase price,9 according toWentworth that is a matter solely between itself and CopperCom. "It,therefore, follows that since Lessor was the owner of the leasedequipment and the Lessee was in default on its Leases with the Lessor forfailing to make the required monthly payments, it is immaterial from thestandpoint of the Lessee whether or not the Lessor will pay for theequipment." Defendant's Post-Trial Memorandum, atPage 9(unnumbered page) 8. Wentworth's breathtaking conclusion is thatEureka is liable under the acceleration clause of the CopperCom leasesfor the full amount of the unpaid balances due.10

Fortunately, the answer to all of this is straightforward. Mindful, asJudge Kass pointed out in Mechanics National Bank of Worcester v.Gaucher, 7 Mass. App. Ct. 143, 146 (1979), that the preamble to UCC§ 2-401 cautions that "the rights and obligations of parties underthe Code should be sorted out without traditional dependence on theconcept of title," nonetheless, such a sorting resolves this case. It isuseful to begin where Wentworth does with the UCC's definition of a sale:"the passing of title from the seller to a buyer for a price." UCC §2-106(1). While it is extremely doubtful that one who acquires possessionand title without the intention of paying for the goods ordered couldever invoke a buyer's remedies under the UCC,11 the simple fact isthat Wentworth never qualified as a buyer. A buyer under Article 2 of theUCC is "a person who buys or contracts to buy goods." UCC §2-103(1)(a). Wentworth did not purchase goods from CopperCom (that is, bypaying or tendering payment), nor did it contract to do so. That is thedistinction with Midwest Precision Services. InMidwest, Shawmut Bank found itself caught between the vendor(Midwest) and its lessee (PTM), which had wrongfully rejected thevendor's goods.Page 10Shawmut argued that it was not a buyer under the UCC (and hence notliable to the vendor), but was merely the financing agent for thetransaction. The First Circuit, while agreeing that Shawmut's status as afinance lessor defined its rights and obligations with respect to PTM,that issue was immaterial as no claim was being pressed between the two.

The issue, rather, is Shawmut's status vis-a-vis Midwest. That status is defined by the purchase order issued by Shawmut to Midwest, which purports to be the "complete and exclusive statement" of the agreement between Shawmut and Midwest. It has all the makings of a bilateral contract: there are promises on both sides (Shawmut's promise to pay and Midwest's promise to deliver); duties on both sides (Shawmut's duty to pay and Midwest's duty to deliver); and rights on both sides (Midwest's right to payment and Shawmut's right to delivery). See E. Farnsworth, Contracts 109-10 (1982). Nothing in the agreement expressly states that Shawmut and Midwest have no rights under the contract as against each other. All indications are to the contrary, including language stating that the supplier's express warranties in the purchase order shall be valid and enforceable directly by PTM or Shawmut.Midwest Precision Services, 887 F.2d at 1132. As Wentworthnever contracted with CopperCom by purchase order or any other method, itnever became a "buyer" within the UCC's Article 2 definition andtherefore never acquired title under UCC § 2-401(2).

Eureka is also entitled to recover on its intentional misrepresentationclaim. "To sustain a claim of misrepresentation, a plaintiff must show afalse statement of material fact made to induce the plaintiff to act,together with reliance on the false statement by the plaintiff to theplaintiff's detriment." Zimmerman v. Kent,31 Mass. App. Ct. 72, 77 (1991). See also Acushnet Fed. CreditUnion v. Roderick, 26 Mass. App. Ct. 604, 605 n.1 (1988). A deceit"may be perpetrated by an implied as well as by an expressrepresentation." Briggs v. Carol Cars, Inc., 407 Mass. 391, 396(1990). The misrepresentation in this case consisted of Pearson's holdingout Wentworth as a "finance lessor" ready and able to underwriteequipment purchases for creditworthy borrowers consistent with the rulesPage 11defining finance leasing arrangements.12 Pearson, usingWentworth as a vehicle, was in fact engaged in a scheme, the success ofwhich depended on his ability to sell the leases that he negotiated toinvestors with sufficient capital to fund the equipment purchases. Whenthe effort failed, the scheme unraveled.13 Eureka relied on Pearson'smisrepresentations to its detriment by making the stipulated leasepayments and placing its reputation at risk with its vendors. A plaintiffharmed by a defendant's misrepresentation is entitled to the benefit ofits bargain, that is, to be restored to the position it would have beenin had the situation been as represented by the defendant.Restatement (Second) of Torts, § 549 (1977). A plaintiff isalso entitled to recover any additional expenses it incurred that wereforeseeable as a result of the defendant's misrepresentation.14See Anzalone v. Strand, 14 Mass. App. Ct. 45, 49(1982).

ORDERPage 12

For the foregoing reasons, judgment will enter for Eureka in the sum of$161,301 on its contract and misrepresentation claims, with prejudgmentinterest awarded on the contract claim from the date of Eureka's demandletter of April 11, 2002. See Starr v. Fordham,420 Mass. 178, 194-195(1995). The court will also entertain an applicationfor attorney's fees and costs as indicated in the body of its Memorandum.Eureka will have twenty-one (21) days from the date of this Order tosubmit such an application and a proposed form of Final Judgmentconforming with the court's Memorandum and Order. On the counterclaim,Wentworth shall take nothing.

SO ORDERED.

1. A choice of law clause in the lease stipulated Massachusetts lawas governing the rights and liabilities of the parties.

2. An updated list of accounts receivable was sent to Pearson byBuller on January 3, 2002.

3. The December lease had no security interest addendum.

4. No definitive evidence of the dollar amount of the fee paid byEureka to CopperCom was offered at trial.

5. Pearson testified at trial that he had obtained an oral agreementfrom CopperCom to delay payment for the equipment for six months to ayear. I do not find Pearson credible on this point (as well as mostothers). In any event, his testimony is contradicted by evidence ofCopperCom's efforts in early 2002 to collect directly from Eureka.

6. Unjust enrichment is an equitable claim. In this context, thecourt is being asked to imply a contract in the event that it finds thatno enforceable agreement existed between Wentworth and Eureka and toorder restitution. See Corbin on Contracts, rev. ed.§ 1.20 (1993). Under the doctrine of unjust enrichment a plaintiffseeks restitution of a benefit conferred on another whose retention ofthe benefit at plaintiff's expense would be unconscionable. To satisfythe five elements of unjust enrichment, a plaintiff must show "(1) anenrichment, (2) an impoverishment, (3) a relation between the enrichmentand the impoverishment, (4) the absence of justification and (5) theabsence of a remedy provided by law." LaSalle Nat'l Bank v.Perelman, 82 F. Supp.2d 279, 294-295 (D. Del. 2000), citingJackson Nat'l Life Ins. Co. v. Kennedy, 741 A.2d 377, 393(Del. Ch.1999). The doctrine does not require any contractual or fiduciaryrelationship between the parties as a prerequisite of suit.Greenwald v. Chase Manhattan Mortg. Corp., 241 F.3d 76, 78 n.1(1st Cir. 2001). Where a contract does govern the parties' relationship,the contract provides the measure of the plaintiff's right and no actionfor unjust enrichment lies. McKesson HBOC, Inc. v. New York StateCommon Retirement Fund, Inc., 339 F.3d 1087, 1091 (9th Cir. 2003).This principle is simply an extension of the fifth element of thedoctrine, that is, where a plaintiff has an adequate remedy at law, aclaim of unjust enrichment is unavailable. See id.,at 1093 (Delaware law); Taylor Woodrow Blitman Constr. Corp. v.Southfield Gardens Co., 534 F. Supp. 340, 347 (D. Mass. 1982)(federal common-law); Popponesset Beach Ass'n, Inc. v.Marchillo, 39 Mass. App. Ct. 586, 593 (1996) (Massachusetts law). AsEureka has remedies at law, the unjust enrichment claim isredundant.

7. Eureka argues that in addition to the lease payments, it isentitled to recover the $5,068.07 in attorney's fees that it incurred indefending and settling the suit brought by Marconi and in negotiating asettlement with CopperCom. The authority for an award of these fees isderived from Mut. Fire, Marine and Inland Ins. Co. v. Costa,789 F.2d 83, 88-90 (1st Cir. 1986), which notes that Massachusettsrecognizes an exception to the American rule "when the naturalconsequence of . . . a defendant's breach of contract is to cause theplaintiff to become involved in litigation with a third party. . . ."Eureka also seeks an award of $25,000 in attorney's fees expended for thelitigation and trial of this case. No authority is given for this secondrequest, although Eureka presumably has in mind Mullane v.Chambers, 333 F.3d 322 (1st Cir. 2003), and similar casesrecognizing the equitable power of a court to award attorney's fees wherea party "has `acted in bad faith, vexatiously, wantonly, or foroppressive reasons.'" Id. at 337-338, quoting Chambers v.Nasco, Inc., 501 U.S. 32, 45-46 (1991). The requested fees areattested to in a sworn Declaration submitted by Eureka's attorney. TheDeclaration, however, sets out only gross amounts. In this Circuit, whena lodestar method is to be applied, an attorney must particularize a feerequest by explaining the tasks performed, the hours associated with eachof those tasks, and a justification for his hourly billing rate.Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 527(1st Cir. 1991). Because I am inclined to believe that an award ofattorney's fees on both requests is merited, I will give Eureka anopportunity to conform its fee request to First Circuitrequirements.

8. Wentworth concedes that because it never received an invoice fromMarconi, the logic of its own argument requires that it repay the $41,875advanced by Eureka on the Marconi lease, as title on the Marconiequipment never passed to Wentworth.

9. Pearson testified somewhat improbably at trial (and withoutsupporting documentary evidence) that Wentworth carries the CopperCominvoices on its books as liabilities.

10. Wentworth, through Pearson's testimony at trial and in itscounterclaim, advanced two additional arguments, that CopperCom hadagreed to a postponement of payment on its invoices, and that Eureka hadbreached the leases by failing to provide sufficient financialinformation to demonstrate its creditworthiness. Neither argument isbriefed in Wentworth's post-trial submission and I deem them waived. Inote that there is no evidence supporting the first of these arguments,and overwhelming evidence to refute the second.

11. Under the common-law, the gaining of possession and title by acheat constituted the crime of false pretenses. See Rex v.Pear, 1 Leach 211, 168 Eng.Rep. 208 (1779).

12. While Pearson is not named individually in the lawsuit, there isno dispute that as Wentworth's President and sole shareholder, hisactions were those of Wentworth.

13. Nondisclosure is actionable only where there is a duty todisclose. Wolf v. Prudential-Bache Securities, Inc.,41 Mass. App. Ct. 474, 476 (1996); Swinton v. Wittinsville Sav. Bank,311 Mass. 677, 678-679 (1942). This is not, however, a case ofnondisclosure. It involves half-truths giving rise to a duty of fulldisclosure. Golber v. BayBank Valley Trust Co.,46 Mass. App. Ct. 256, 258 (1999) ("[H]alf-truths may be as actionableas whole lies."). See also Restatement (Second) ofTorts, § 551 (1977). "[A] party who discloses partialinformation that may be misleading has a duty to reveal all the materialfacts he knows to avoid deceiving the other party." V.S.H. Realty,Inc. v. Texaco, Inc., 757 F.2d 411, 415 (1st Cir. 1985). I alsoagree with Eureka that a strong inference that Pearson entered thistransaction with fraudulent intent can be drawn from his arguablycriminal conduct in misusing the financial information that Eurekaprovided to divert payments from Eureka's customers to a post office boxunder his control.

14. These damages would include Eureka's rental payments and thecosts it incurred in settling the disputes with its unpaid vendors. Theseare the same damages that are recoverable under the contract claim.Duplicate damages, of course, are not permitted.

FINDINGS OF FACT, RULINGS OF LAW AND ORDER FOR JUDGMENT AFTER A JURY-WAIVED TRIAL

1. There are three parties to a typical finance lease transaction:(1) the vendor, who supplies the goods; (2) the lessee, who chooses thevendor and receives the goods; and (3) the lessor, who supplies the moneynecessary to make the purchase. Midwest Precision Services, Inc. v.PTM Indus. Corp., 887 F.2d 1128, 1131 (1st Cir. 1989). The lessorearns its profit on the difference between what it pays for the equipmentand the aggregate sum of the lease payments it collects over the life ofthe lease (the discounted value of which is the finance charge). Thelessor takes a security interest in the leased equipment and nominallyholds title, but does not take physical possession of the equipment. Atthe end of the lease, the lessor typically transfers title to the lesseefor a nominal consideration.

2. Wentworth Leasing Corporation (Wentworth) is a Massachusetts companyholding itself out as a finance lessor. Wentworth was the creation ofStanton Pearson, its President, sole employee, and sole shareholder.Wentworth operates out of Pearson'sPage 2home at 302 Boxboro Road in Stow, Massachusetts. Wentworth(Pearson) also rents Post Office Box 244 in Stow.

3. Plaintiff Eureka Broadband (Eureka) is the successor company toGillette Global Network, Inc. Eureka is a Delaware corporation with aprincipal place of business in New York City, New York. Eureka installsfiber-optic systems in large office buildings and collects access feesfrom commercial carriers providing telecommunications services tobuilding tenants.

4. In June of 2000, Wentworth, introduced by Pearson to Eureka-Gilletteas a finance lessor, presented a lease proposal involving an $841,000purchase of switching equipment by Eureka-Gillette from CopperCom, Inc.,a Florida vendor. Under the terms of the proposed lease, Eureka-Gillettewas to make forty-eight monthly lease payments to Wentworth of $22,486,totaling $1,079,328 over the life of the lease. To demonstrate itscreditworthiness, Eureka-Gillette was required to furnish Wentworth with"[f]inancial statements, tax returns if statement[s] are unaudited,current interim statements and other pertinent information." The leasefurther required that Eureka-Gillette pay a commitment fee equivalent toone monthly payment (to be applied against the first installment on thelease). On July 24, 2000, Eureka-Gillette accepted the proposal andforwarded a check to Wentworth in the amount of $22,486.

5. On August 14, 2001, Jeffrey Buller, Eureka-Gillette's Vice Presidentfor Finance, e-mailed Pearson a package of "due diligence" materials,including copies of Eureka-Gillette's internal financial statements. OnSeptember 6, 2001, Wentworth accepted the CopperCom lease on thecondition that Eureka-Gillette pay the first and last month rents as anadditional deposit. The printed lease form provided that "[t]he Equipmentis and shallPage 3at all times be and remain the sole and exclusive personal propertyof LESSOR, and LESSEE shall have no right, title or interesttherein."1 Attached to the lease was a schedule of the CopperComequipment that Eureka (no longer Gillette) had chosen to purchase. Anaddendum to the lease granted Wentworth a security interest in theequipment, and in the event of a default, an interest in Eureka'saccounts receivable up to the amount of any monthly payment then owing.On that same day, Eureka provided Wentworth with a Delivery andAcceptance form acknowledging receipt of the CopperCom equipment.

6. On October 12, 2001, Buller e-mailed Pearson a list of Eureka'saccounts receivable.2 Buller also confirmed that a check for $22,486,representing the second (October) lease installment, had been mailed toWentworth. Eureka thereafter sent Wentworth checks on a monthly basis forthe November, December, and January 2002 installments, totaling $112,430.

7. On December 20, 2001, Eureka and Wentworth entered a secondfinancing lease for the purchase of additional equipment from CopperComand a second vendor, Marconi. The terms of the second lease wereessentially identical to those of the first. The monthly rental paymentwas $17,057 (for a forty-eight month total of $818,736). The requiredfirst and last month deposit was $34,114. A check in the amount of$51,171 was mailed to Wentworth by Eureka on December 21, 2001,representing the deposit and the first month's payment on the lease. Theparties also entered a purchase option giving Eureka the rightPage 4to acquire the equipment upon termination of the lease.3 Eurekain short order provided Wentworth with an executed Delivery andAcceptance form for the Marconi equipment.

8. On December 22, 2001, CopperCom submitted an invoice to Wentworth inthe amount of $839,340 for the September equipment purchase. On December28, 2001, Copper Com sent additional invoices in the amount of$115,642.06 to Wentworth for the December purchase. The invoices werepayable in full within thirty days of the delivery of the equipment.Wentworth was unable to produce evidence of an invoice from Marconi.Marconi instead billed Eureka directly. On January 10, 2002, Bullere-mailed Pearson, reminding him that Marconi was complaining about nothaving been paid. Buller urged Pearson to contact Marconi's Director ofCredit to arrange payment. Pearson never did.

9. By the end of January of 2002, Eureka had paid Wentworth a total of$163,601 on the leases. Wentworth had paid neither CopperCom nor Marconi.Moreover, Wentworth-Pearson, unbeknownst to Eureka, had neither thecapacity nor the intention of doing so. Pearson made two desultoryattempts to sell the leases to third party investors in late January andlate February of 2002. In the meantime, both Marconi and CopperCom weredemanding payment from Eureka, a continuing theme of Buller's largelyignored e-mails to Pearson. When Pearson did reply, his usual delayingtactic was to request even more "due diligence" information from Eureka.

10. By the end of February, Eureka had lost patience. On February 22,2002, Barry Skidelsky, Eureka's General Counsel, wrote to Pearsonexpressing dismay that CopperCom and Marconi "are now dunning us, eventhough the payment obligation to themPage 5is yours under our lease transactions with you." Skidelsky demandedimmediate assurance that the vendors would be paid. He also stated thatthe monthly lease payments would be withheld until Pearson provided proofthat the vendors had in fact been paid.

11. On April 11, 2002, Eureka's President, Joseph Gillette, wrote toPearson informing him that Marconi had brought suit against Eureka overthe unpaid bill. Gillette stated that Eureka considered Wentworth to bein breach of the leases, and demanded the return of the $163,601 of leasepayments. Pearson never responded. In September of 2002, Eureka settledwith Marconi, agreeing to return the equipment and pay Marconi $180,000.Eureka also eventually returned the CopperCom equipment (which was notperforming to Eureka's satisfaction) and paid a "small" fee toCopperCom.4

12. Pearson-Wentworth never returned the $163,601 to Eureka nor madeany effort to resolve the debt issue with either CopperCom orMarconi.5

13. In November of 2003, after the case had been set for trial, Pearsonmailed some one hundred postcards to customers on the list of accountsreceivable that Eureka had provided him as part of its "due diligence."The postcards were fraudulently embossed with Eureka's corporate logo.The postcards stated that "Our [r]emittance address has changed," anddirected customers to forward all future payments to the Stow post officebox controlled by Wentworth-Pearson. At least one of Eureka's customersforwarded a checkPage 6to the post office box as directed.

Rulings of Law

Eureka's Complaint sets out three counts. Count I alleges breach ofcontract and seeks damages of $163,601 (the total of the rental paymentsmade by Eureka to Wentworth), as well as costs and attorney's fees. CountII alleges the same damages under the rubric of unjust enrichment.6Count III alleges intentional misrepresentation. Wentworth, by way ofcounterclaim, alleges that Eureka is in default on the leases and seeksan acceleration of the payments due (discounted to present value), aswell as costs and attorney's fees.

As a matter of law, this case would seem very simple. A contractexisted betweenPage 7Eureka and Wentworth whereby Eureka was obligated to make monthlypayments on the leases while Wentworth was obligated to pay for theleased equipment. Eureka made the required payments until it discoveredthat Wentworth had not kept its end of the bargain. It is hornbook lawthat a material breach of a contract by one party excuses the other fromfurther performance. Ward v. American Mut. Liab. Ins. Co.,15 Mass. App. Ct. 98, 100-101 (1983). A lease is a contract. Wentworthbreached the leases by failing to pay for the equipment. Eureka was thusexcused from making further payments. As the breaching party, Wentworthis liable for any damages that Eureka incurred as a direct and naturalresult of the breach.7 Greany v. McCormick, 273 Mass. 250,253 (1930).

Wentworth, both at trial and in its post-trial memorandum, agrees thatno material facts are in dispute. It concedes that it received the$163,601 in payments from Eureka.Page 8It admits that it never paid CopperCom or Eureka. And itacknowledges that it was on notice from Eureka that its failure to paythe vendors was deemed by Eureka to be a breach. Rather, Wentworthadvances a progressively astonishing argument in support of itscounterclaim.

The argument, which has a superficial air of plausibility, turns on amisapplication of the Uniform Commercial Code (UCC) and a misreading ofthe First Circuit's decision in Midwest Precision Services,supra. The argument can be summarized as follows. WhenCopperCom delivered the equipment to Eureka and then invoiced Wentworthwithout a demand for immediate payment or the retention of a securityinterest, under the UCC, G.L. c. 106, § 2-401(2), title to theequipment passed to Wentworth as the buyer. Therefore, when in settlementof the payment dispute with CopperCom, Eureka returned the equipment, itconverted property belonging to Wentworth and is thus liable to Wentworthfor the equipment's fair market value.8 While Wentworth admits it isliable to CopperCom for the unpaid purchase price,9 according toWentworth that is a matter solely between itself and CopperCom. "It,therefore, follows that since Lessor was the owner of the leasedequipment and the Lessee was in default on its Leases with the Lessor forfailing to make the required monthly payments, it is immaterial from thestandpoint of the Lessee whether or not the Lessor will pay for theequipment." Defendant's Post-Trial Memorandum, atPage 9(unnumbered page) 8. Wentworth's breathtaking conclusion is thatEureka is liable under the acceleration clause of the CopperCom leasesfor the full amount of the unpaid balances due.10

Fortunately, the answer to all of this is straightforward. Mindful, asJudge Kass pointed out in Mechanics National Bank of Worcester v.Gaucher, 7 Mass. App. Ct. 143, 146 (1979), that the preamble to UCC§ 2-401 cautions that "the rights and obligations of parties underthe Code should be sorted out without traditional dependence on theconcept of title," nonetheless, such a sorting resolves this case. It isuseful to begin where Wentworth does with the UCC's definition of a sale:"the passing of title from the seller to a buyer for a price." UCC §2-106(1). While it is extremely doubtful that one who acquires possessionand title without the intention of paying for the goods ordered couldever invoke a buyer's remedies under the UCC,11 the simple fact isthat Wentworth never qualified as a buyer. A buyer under Article 2 of theUCC is "a person who buys or contracts to buy goods." UCC §2-103(1)(a). Wentworth did not purchase goods from CopperCom (that is, bypaying or tendering payment), nor did it contract to do so. That is thedistinction with Midwest Precision Services. InMidwest, Shawmut Bank found itself caught between the vendor(Midwest) and its lessee (PTM), which had wrongfully rejected thevendor's goods.Page 10Shawmut argued that it was not a buyer under the UCC (and hence notliable to the vendor), but was merely the financing agent for thetransaction. The First Circuit, while agreeing that Shawmut's status as afinance lessor defined its rights and obligations with respect to PTM,that issue was immaterial as no claim was being pressed between the two.

The issue, rather, is Shawmut's status vis-a-vis Midwest. That status is defined by the purchase order issued by Shawmut to Midwest, which purports to be the "complete and exclusive statement" of the agreement between Shawmut and Midwest. It has all the makings of a bilateral contract: there are promises on both sides (Shawmut's promise to pay and Midwest's promise to deliver); duties on both sides (Shawmut's duty to pay and Midwest's duty to deliver); and rights on both sides (Midwest's right to payment and Shawmut's right to delivery). See E. Farnsworth, Contracts 109-10 (1982). Nothing in the agreement expressly states that Shawmut and Midwest have no rights under the contract as against each other. All indications are to the contrary, including language stating that the supplier's express warranties in the purchase order shall be valid and enforceable directly by PTM or Shawmut.Midwest Precision Services, 887 F.2d at 1132. As Wentworthnever contracted with CopperCom by purchase order or any other method, itnever became a "buyer" within the UCC's Article 2 definition andtherefore never acquired title under UCC § 2-401(2).

Eureka is also entitled to recover on its intentional misrepresentationclaim. "To sustain a claim of misrepresentation, a plaintiff must show afalse statement of material fact made to induce the plaintiff to act,together with reliance on the false statement by the plaintiff to theplaintiff's detriment." Zimmerman v. Kent,31 Mass. App. Ct. 72, 77 (1991). See also Acushnet Fed. CreditUnion v. Roderick, 26 Mass. App. Ct. 604, 605 n.1 (1988). A deceit"may be perpetrated by an implied as well as by an expressrepresentation." Briggs v. Carol Cars, Inc., 407 Mass. 391, 396(1990). The misrepresentation in this case consisted of Pearson's holdingout Wentworth as a "finance lessor" ready and able to underwriteequipment purchases for creditworthy borrowers consistent with the rulesPage 11defining finance leasing arrangements.12 Pearson, usingWentworth as a vehicle, was in fact engaged in a scheme, the success ofwhich depended on his ability to sell the leases that he negotiated toinvestors with sufficient capital to fund the equipment purchases. Whenthe effort failed, the scheme unraveled.13 Eureka relied on Pearson'smisrepresentations to its detriment by making the stipulated leasepayments and placing its reputation at risk with its vendors. A plaintiffharmed by a defendant's misrepresentation is entitled to the benefit ofits bargain, that is, to be restored to the position it would have beenin had the situation been as represented by the defendant.Restatement (Second) of Torts, § 549 (1977). A plaintiff isalso entitled to recover any additional expenses it incurred that wereforeseeable as a result of the defendant's misrepresentation.14See Anzalone v. Strand, 14 Mass. App. Ct. 45, 49(1982).

ORDERPage 12

For the foregoing reasons, judgment will enter for Eureka in the sum of$161,301 on its contract and misrepresentation claims, with prejudgmentinterest awarded on the contract claim from the date of Eureka's demandletter of April 11, 2002. See Starr v. Fordham,420 Mass. 178, 194-195(1995). The court will also entertain an applicationfor attorney's fees and costs as indicated in the body of its Memorandum.Eureka will have twenty-one (21) days from the date of this Order tosubmit such an application and a proposed form of Final Judgmentconforming with the court's Memorandum and Order. On the counterclaim,Wentworth shall take nothing.

SO ORDERED.

1. A choice of law clause in the lease stipulated Massachusetts lawas governing the rights and liabilities of the parties.

2. An updated list of accounts receivable was sent to Pearson byBuller on January 3, 2002.

3. The December lease had no security interest addendum.

4. No definitive evidence of the dollar amount of the fee paid byEureka to CopperCom was offered at trial.

5. Pearson testified at trial that he had obtained an oral agreementfrom CopperCom to delay payment for the equipment for six months to ayear. I do not find Pearson credible on this point (as well as mostothers). In any event, his testimony is contradicted by evidence ofCopperCom's efforts in early 2002 to collect directly from Eureka.

6. Unjust enrichment is an equitable claim. In this context, thecourt is being asked to imply a contract in the event that it finds thatno enforceable agreement existed between Wentworth and Eureka and toorder restitution. See Corbin on Contracts, rev. ed.§ 1.20 (1993). Under the doctrine of unjust enrichment a plaintiffseeks restitution of a benefit conferred on another whose retention ofthe benefit at plaintiff's expense would be unconscionable. To satisfythe five elements of unjust enrichment, a plaintiff must show "(1) anenrichment, (2) an impoverishment, (3) a relation between the enrichmentand the impoverishment, (4) the absence of justification and (5) theabsence of a remedy provided by law." LaSalle Nat'l Bank v.Perelman, 82 F. Supp.2d 279, 294-295 (D. Del. 2000), citingJackson Nat'l Life Ins. Co. v. Kennedy, 741 A.2d 377, 393(Del. Ch.1999). The doctrine does not require any contractual or fiduciaryrelationship between the parties as a prerequisite of suit.Greenwald v. Chase Manhattan Mortg. Corp., 241 F.3d 76, 78 n.1(1st Cir. 2001). Where a contract does govern the parties' relationship,the contract provides the measure of the plaintiff's right and no actionfor unjust enrichment lies. McKesson HBOC, Inc. v. New York StateCommon Retirement Fund, Inc., 339 F.3d 1087, 1091 (9th Cir. 2003).This principle is simply an extension of the fifth element of thedoctrine, that is, where a plaintiff has an adequate remedy at law, aclaim of unjust enrichment is unavailable. See id.,at 1093 (Delaware law); Taylor Woodrow Blitman Constr. Corp. v.Southfield Gardens Co., 534 F. Supp. 340, 347 (D. Mass. 1982)(federal common-law); Popponesset Beach Ass'n, Inc. v.Marchillo, 39 Mass. App. Ct. 586, 593 (1996) (Massachusetts law). AsEureka has remedies at law, the unjust enrichment claim isredundant.

7. Eureka argues that in addition to the lease payments, it isentitled to recover the $5,068.07 in attorney's fees that it incurred indefending and settling the suit brought by Marconi and in negotiating asettlement with CopperCom. The authority for an award of these fees isderived from Mut. Fire, Marine and Inland Ins. Co. v. Costa,789 F.2d 83, 88-90 (1st Cir. 1986), which notes that Massachusettsrecognizes an exception to the American rule "when the naturalconsequence of . . . a defendant's breach of contract is to cause theplaintiff to become involved in litigation with a third party. . . ."Eureka also seeks an award of $25,000 in attorney's fees expended for thelitigation and trial of this case. No authority is given for this secondrequest, although Eureka presumably has in mind Mullane v.Chambers, 333 F.3d 322 (1st Cir. 2003), and similar casesrecognizing the equitable power of a court to award attorney's fees wherea party "has `acted in bad faith, vexatiously, wantonly, or foroppressive reasons.'" Id. at 337-338, quoting Chambers v.Nasco, Inc., 501 U.S. 32, 45-46 (1991). The requested fees areattested to in a sworn Declaration submitted by Eureka's attorney. TheDeclaration, however, sets out only gross amounts. In this Circuit, whena lodestar method is to be applied, an attorney must particularize a feerequest by explaining the tasks performed, the hours associated with eachof those tasks, and a justification for his hourly billing rate.Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 527(1st Cir. 1991). Because I am inclined to believe that an award ofattorney's fees on both requests is merited, I will give Eureka anopportunity to conform its fee request to First Circuitrequirements.

8. Wentworth concedes that because it never received an invoice fromMarconi, the logic of its own argument requires that it repay the $41,875advanced by Eureka on the Marconi lease, as title on the Marconiequipment never passed to Wentworth.

9. Pearson testified somewhat improbably at trial (and withoutsupporting documentary evidence) that Wentworth carries the CopperCominvoices on its books as liabilities.

10. Wentworth, through Pearson's testimony at trial and in itscounterclaim, advanced two additional arguments, that CopperCom hadagreed to a postponement of payment on its invoices, and that Eureka hadbreached the leases by failing to provide sufficient financialinformation to demonstrate its creditworthiness. Neither argument isbriefed in Wentworth's post-trial submission and I deem them waived. Inote that there is no evidence supporting the first of these arguments,and overwhelming evidence to refute the second.

11. Under the common-law, the gaining of possession and title by acheat constituted the crime of false pretenses. See Rex v.Pear, 1 Leach 211, 168 Eng.Rep. 208 (1779).

12. While Pearson is not named individually in the lawsuit, there isno dispute that as Wentworth's President and sole shareholder, hisactions were those of Wentworth.

13. Nondisclosure is actionable only where there is a duty todisclose. Wolf v. Prudential-Bache Securities, Inc.,41 Mass. App. Ct. 474, 476 (1996); Swinton v. Wittinsville Sav. Bank,311 Mass. 677, 678-679 (1942). This is not, however, a case ofnondisclosure. It involves half-truths giving rise to a duty of fulldisclosure. Golber v. BayBank Valley Trust Co.,46 Mass. App. Ct. 256, 258 (1999) ("[H]alf-truths may be as actionableas whole lies."). See also Restatement (Second) ofTorts, § 551 (1977). "[A] party who discloses partialinformation that may be misleading has a duty to reveal all the materialfacts he knows to avoid deceiving the other party." V.S.H. Realty,Inc. v. Texaco, Inc., 757 F.2d 411, 415 (1st Cir. 1985). I alsoagree with Eureka that a strong inference that Pearson entered thistransaction with fraudulent intent can be drawn from his arguablycriminal conduct in misusing the financial information that Eurekaprovided to divert payments from Eureka's customers to a post office boxunder his control.

14. These damages would include Eureka's rental payments and thecosts it incurred in settling the disputes with its unpaid vendors. Theseare the same damages that are recoverable under the contract claim.Duplicate damages, of course, are not permitted.

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