TELERENT LEASING CORP. v. PINE STATE PLUMBING & HEATING

231 F. Supp.2d 352 (2002) | Cited 0 times | D. Maine | November 11, 2002

MEMORANDUM OF DECISION AND ORDER GRANTING PLAINTIFF'S MOTION FOR ATTACHMENT AND ATTACHMENT ON TRUSTEE PROCESS

In this action Plaintiff seeks to recover from Defendants for the costof heat and air conditioning equipment sold by Defendants to Plaintifffor purposes of its leasing business. Plaintiff is alleging, inter alia,fraudulent and negligent misrepresentation and breach of contract.Plaintiff has moved for approval of attachment and attachment on trusteeprocess in the amount of $650,000 against the property of Defendants.Motion for Attachment and Attachment on Trustee Process and IncorporatedMemorandum of Law (Pleading No. 3) [hereinafter Motion for Attachment].

I. FACTS

On the record made for purposes of the pending motion the Courtconcludes thatthe facts pertinent to its resolution are thefollowing:1 Plaintiff Vendor Capital Group ("VCG"), a divisionof Telerent Leasing Corp., provides lease and other financing to hotelsand other businesses for the acquisition of machinery, equipment,furniture, fixtures and other goods used in the hotel operation. InDecember of 1997, a partnership known as the Madden Group of Maine(the "Maddens"), applied to VCG for an equipment lease for certainheat and air conditioning equipment ("HVAC") to be installed at theEastland Hotel (the "Eastland") in Portland, Maine, which was ownedby the Maddens at that time. Consistent with its usual practice, VCGadvised the Maddens that any lease entered into with the Maddenswould provide funds only for the cost of the HVAC equipment itself,and not for the expenses of the installation of the equipment orto purchase any other items necessary for the installation.

Soon after VCG so advised the Maddens, the Maddens retained DefendantPine State Plumbing & Heating, Inc. ("Pine State") to design andinstall an HVAC system in the Eastland. Defendants Pine State and SamuelMarcisso, Jr. ("Marcisso"), the president, sole shareholder and chiefexecutive officer of Pine State, were informed by the Maddens that theMaddens were seeking financing from VCG for the HVAC system. Defendantsfurther knew that the Maddens sought and intended to obtain thisfinancing for the entire HVAC contract, inclusive of the cost ofinstallation. See Deposition of Samuel Marcisso, attached to Motion forAttachment, at 33.

Defendant Pine State subsequently provided a breakdown of the equipmentprices, indicating a total equipment cost of $604,483. At the time thisbreakdown was prepared and submitted, Defendant Marcisso had actualknowledge that the costs set forth did not represent the actual cost ofthe equipment only, but that in fact, the actual cost of the equipment byitself was approximately $211,000. The $604,483 represented the totalcost of all equipment, parts and expenses of installation. Nevertheless,on January 22, 1998, Pine State and the Maddens executed a contract forthe HVAC project for the aforementioned amount. VCG, as lessor, thenentered into an equipment lease with the Maddens, as lessees. Paragraph11 of the Master Lease entered into between Plaintiff VCG and the Maddensstated that "INSTALLATION SHALL BE LESSEE'S SOLE RESPONSIBILITY AND ATLESSEE'S SOLE EXPENSE."

In accordance with its obligations under the Master Lease, VCGsubmitted a written purchase order to Pine State for the purchase andinstallation of the HVAC at the Eastland. Between April 1998 and May1999, Pine State acquired and installed HVAC equipment in the EastlandHotel and directly billed VCG in a series of invoices for the equipmenttotaling $604,873. In their aggregate, the invoices sought payment forall of the equipment previously identified and priced in theaforementioned breakdown of costs compiled by Defendants. Just as in theoriginal cost-breakdown, these invoices, unbeknownst to Plaintiff,reflected the total cost of the equipment plus the installation costs,profit and overhead attributable to each piece of equipment.2

As required by the purchase order, the invoices identified theequipment installedby model and serial number. Also as required by VCG'spurchase order, as the various pieces of equipment were delivered,installed, and found to meet the Maddens' specifications, one of theMaddens would sign a Completion Certificate and return it to VCGindicating their satisfaction. VCG attempted to perfect its rights in theequipment by filing what it believed were sufficient financing statementsusing the information and serial numbers contained in the invoices.3However, without telling Plaintiff, at the last moment Defendants hadswitched the brand of equipment they were installing in the Eastland;instead of noting this on the purchase order, they simply made up serialnumbers to correspond with the old equipment that was listed on thePurchase Order.4 Defendants had falsified the serial numbers andmisrepresented the brands and models of the equipment in the invoices.When the Maddens' real estate mortgage was foreclosed in February of2000,5 VCG's ownership and its attempts to recover possession of itsHVAC equipment were challenged and opposed by the purchaser at theforeclosure auction which asserted that it owned the HVAC equipment freeand clear of VCG's lease. It made this assertion based on the claim thatthe description and serial numbers of the equipment actually installed inthe Eastland were different than those specified in the Master Lease andthe UCC Financing Statements. Therefore, according to the purchaser, theleased equipment had become fixtures on the real estate which passed tothe purchaser through the foreclosure free of VCG's lease.

VCG's attempt to obtain possession of the leased equipment in asubsequent Forcible Entry and Detainer action ended in a settlement withPortland Hotel Associates ("PHA"), the successful bidder at theforeclosure action. VCG netted $23,682 from the sale of the equipment toPHA. Plaintiff VCG now claims in the present action to have lost$580,801, the difference between the amount it paid for the equipment andthe net amount it received from the sale of the equipment to PHA. Itfurther claims to have lost $69,131 as the lost benefit of its bargainunder the Master Lease, representing the balance of lease payments itwould have received had all lease payments been made less the aggregateof all lease payments actually made. Given these losses Plaintiff asksfor an attachment on the property of each of the Defendants in the amountof $650,000, on the grounds that it is morelikely than not thatPlaintiff will recover judgment against these Defendants in amounts equalto or greater than the requested attachment amounts, and that there isnot any liability insurance, bond, or other security, or any property orcredits attached by other writ of attachment or by trustee process,available to satisfy the judgments. Motion for Attachment at 11.

II. DISCUSSION

As directed by Federal Rule of Procedure 64, this action for "seizureof person or property for the purpose of securing satisfaction of thejudgment ultimately to be entered" is governed by Maine Rules of CivilProcedure 4A and 4B and the associated interpretive decisions of theMaine Law Court. See FED. R. CIV. P. 64; Hilton Sea, Inc. v. DMR Yachts,Inc., 750 F. Supp. 35, 36 (D.Me. 1990). Maine Rule 4A holds thatattachment may be ordered by the Court upon a finding that

It is more likely than not that the plaintiff will recover judgment, including interest and costs, in an amount equal to or greater than the aggregate sum of the attachment and any liability insurance, bond or other security, an any property or credits attached by other writ of attachment or by trustee process shown by the defendant to be available to satisfy the judgment.

Me.R.Civ.P. 4A(c). This rule contemplates that the only issues indeciding a motion for approval of attachment "are (1) the amount of thejudgment that the plaintiff [will more likely than not recover]6 and(2) the amount of any liability insurance or other security that isalready available to satisfy the judgment." Sinclair v. Anderson,473 A.2d 872, 874-75 (Me. 1984).

In making its Motion for Attachment, Plaintiff asserts that it is morelikely than not that it will prevail in showing that Defendants committedfraud, fraudulent and negligent misrepresentation, and breach ofcontract. Motion for Attachment at 6-10. In support of its Motion,Plaintiff has submitted the Affidavit of Larry Holleman (Pleading No. 2)("Holleman Affidavit"), the vice president and general manager of VCG.

a. Plaintiff's Likelihood of Success

Under Maine law, a defendant is liable for fraud if the followingelements are established by clear and convincing evidence:

The defendant (1) makes a false representation (2) of a material fact (3) with knowledge of its falsity or in reckless disregard of whether it is true or false (4) for the purpose of inducing another to act or to refrain from acting in reliance upon it, and (5) the plaintiff justifiably relies upon the representation as true and acts upon it to his damage.

St. Francis De Sales Fed. Credit Union, et al. v. Sun Ins. Co. of NewYork, No. Ken-01-167, 2002 WL 1770709, at *5 (Me. Aug. 2, 2002) (citingLetellier v. Small, 400 A.2d 371, 376 (Me. 1979)). Plaintiff alleges thatDefendants knowingly made false statements of material facts with theintention of inducing Plaintiff into making payments of $604,483 forequipment that was worth only $211,000. Motion for Attachment at 7.Plaintiff further alleges that it justifiably relied on the statements ofDefendants as to the price, brand and model of the equipment sold, andthat in so doing, incurred damages in the amount of $649,932. Id. at 9.

The Court FINDS, for purposes of acting on the pending motion, thatPlaintiff has shown that it is more likely than not that it will succeedon this claim. Defendant Marcisso admitted in deposition testimony thatthe price he charged VCG for the purchase of the equipment was for thecost not just of the equipment, but of the materials, labor, profit andoverhead as well. Deposition of Samuel Marcisso at 21-22. He furtheradmitted to not only ordering and installing a brand of equipmentdifferent from what was listed on the purchase order provided by VCG,id. at 35-36, but to making up the serial numbers that VCG required benoted on the Purchase Order for each piece of equipment. Id. at 62-63.Defendant Marcisso's testimony reflects that he knew that what he wasdoing was not above-board: he expressed that he had some concerns aboutmaking up serial numbers, but was told that to do otherwise would just"slow it down." Id. at 35-36, 63. Defendant Marcissco admitted, "I justwanted to make sure I got paid for the work I was doing and went alongwith it." Id. at 62.

The following testimony further damages any disclaimer of intent on thepart of Defendant Marcisso with regard to the price charged to VCG:

Q: And the Maddens asked you to frame your proposal as though the equipment alone would cost $604,000, correct?

A: That's what they asked for, yes.

Q: And did they ask you to do this so that they could obtain financing for equipment that would cover not only the equipment but all the installation and labor costs?

A: That's what they asked me to do, yes.

Id. at 68. Defendant Marcisso's testimony suggests that he knew thattaking these actions was the surest way for him to obtain payment for thework he was undertaking. For these reasons, Defendant Marcisso and hiscompany Pine State fraudulently misrepresented both the price of theequipment it was selling to Plaintiff, and the actual nature of theequipment itself, substituting different brands at the last minute andfabricating serial numbers to correspond with the equipment.

The only remaining element of fraudulent misrepresentation to be met isthat of justifiable reliance. Just this year the Maine Law Court hasspoken on this issue: "We have stated that a party `may justifiably relyon the fraudulent misrepresentation of [another] . . . withoutinvestigating the truth or falsity of the representation. Reliance isunjustified only if the plaintiff knows the representation is false orits falsity is obvious to him." St. Francis DeSales, 2002 WL 1770709 at*5 (quoting Sargent v. Sargent, 622 A.2d 721, 723 (Me. 1993) (citationomitted)). See also Ferrell v. Cox, 617 A.2d 1003, 1006 (Me. 1992).Plaintiff received executed Completion Certificates confirming that theequipment set forth in the invoices had been delivered and installed, andthat it met their specifications and was acceptable to them. HollemanAffidavit ¶ 30. Based on Defendants' apparent fulfillment of theirend of the bargain, Plaintiff made payments to the Defendants for a totalamount of $604,873. Id. ¶ 31. There was no obvious reason forPlaintiff not to believe Defendants' representations as to the price ofthe equipment it was selling, or its representations that the equipmentit listed was in fact the equipment that Plaintiff was paying for, andthat the serial numbers were genuine. Plaintiff justifiably relied uponthese representations. "The reliance was justified because plaintiffs didnot know of its falsity, and its falsity was not obvious." Estate ofWhitlock, 615 A.2d 1173, 1176 (Me. 1992).

Plaintiff has shown that it is more likely than not that it willsucceed on its claim offraudulent misrepresentation. Defendants made afalse representation of a material fact that they knew to be false, withthe intention of inducing Plaintiff to provide the financing for the HVACsystem and its installation in the Eastland Hotel. Lastly, Plaintiffjustifiably relied on the false representations that were made.7

Because Plaintiff has shown that it is more likely than not that itwill succeed on its fraud claim, it is unnecessary for purposes of theattachment motion to discuss its chances of success on the negligence andbreach of contract claims. As discussed below, the Court will look to thelikely damages resulting from the fraud to determine the properattachment amount.

b. Liability Insurance

Defendants have not shown that they possess liability insurance thatwill satisfy any potential judgment that may be decided against them.Although Defendants point to a Commercial General Liability insurancepolicy issued by Hanover Insurance Company ("Hanover") as providing thenecessary insurance coverage, the Court is not convinced that thisinsurance policy provides such coverage. Although Hanover has orallyagreed to defend Defendants in this action, see Supplemental Affidavit ofChristopher C. Taintor (Pleading No. 13) ¶ 5, this does not meanthat Hanover will in fact indemnify Defendants if a judgment is enteredagainst them.8 The duty to defend is much broader than the duty toindemnify: a defendant is "entitled to a defense `if there exists anylegal or factual basis which could be developed at trial which wouldobligate [the insurance company] to pay under the policy.'" Endre v.Niagara Fire Ins. Co., 675 A.2d 511, 513 (Me. 1996) (quoting N.E.Properties,Inc. v. Chicago Title Ins. Co., 660 A.2d 926, 927 (Me. 1995)(citation omitted)). However, the insurer's duty to indemnify "`maydepend on the actual facts or legal theory behind the underlying actionagainst the insured by the injured party,'" and therefore a decision asto the duty to indemnify cannot issue "until the trial court has had anopportunity to examine the fully developed facts of the underlying actionand `decide whether the insurance contract language requiringindemnification is met in the present circumstances.'" Id. (quotingMullen v. Daniels, 598 A.2d 451, 453 (Me. 1991)).

It is especially unclear in this case whether there will in fact be aduty to indemnify. Defendants cite the language in Hanover's policy thatcovers "property damage," which is defined as either "physical injury totangible property" or the "loss of use of tangible property that is notphysically injured." Defendants' Memorandum in Opposition to Motion forAttachment and Attachment on Trustee Process (Pleading No. 6) at 12-13.Defendants maintain that conduct which interferes with the possession ofpersonal property inflicts "property damage" within the meaning of thispolicy term, and that if the Court finds that Defendants' actions deprivedPlaintiff of the ability to assert its legal interest in the equipmentagainst the foreclosure purchaser, that this constitutes the "loss of useof tangible property" for which it is covered by Hanover's policy. Id. at13-14.9

It is not clear from the pleadings that such loss will in fact becovered. If anything, rather than meeting the burden of establishingavailable liability insurance, Defendant has shown that the duty of theinsurers to indemnify is in issue and in doubt. Again, as indicatedabove, the duty to indemnify, unlike the duty to defend, depends upon thefacts that are brought out at trial, and not upon how Defendants allegethe facts to be. The Court cannot find at this point on this record thatit is more likely than not that Hanover will be obligated to indemnifyDefendants should a judgment be entered against them. ThereforeDefendants have not shown to the satisfaction of this Court that it hasliability insurance to satisfy a potential judgment.

c. Amount of Attachment

According to Section 549 of the Restatement (Second) of Torts (1976),

(1) The recipient of a fraudulent misrepresentation is entitled to recover as damages in an action of deceit against the maker the pecuniary loss to him of which the misrepresentation is a legal cause, including

(a) the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and

(b) pecuniary loss suffered otherwise as a consequence of the recipient's reliance upon the misrepresentation.

(2) The recipient of a fraudulent misrepresentation in a business transaction is also entitled to recover additional damages sufficient to give him the benefit of his contract with the maker, if these damages are proved with reasonable certainty.

See also Jourdain v. Dineen, 527 A.2d 1304, 1307 (Me. 1987). Plaintiffclaims damages in the amount of $580,941, the difference between what itpaid for the HVAC equipment ($604,873) less the netrecovery it receivedfrom PHA for the equipment ($23,932).10 Plaintiff also claims $69,131in damages as its lost benefit of the bargain,11 for a total of$649,932 in claimed damages. However, the Court is unable to concludethat it is more likely than not that Plaintiff will recover the $69,131claimed as the lost benefit of the bargain; based on the instant record,the Court is not persuaded that it is more likely than not that thePlaintiff will succeed in proving the causation necessary to recover itslost benefit of the bargain from Defendants. Therefore, the Court doesnot include this figure in the amount of the authorized attachment, andFINDS the amount that Plaintiff is more likely than not to recover inthis action to be $580,941. The Court hereby ORDERS that an attachment inthe amount of $580,941 be placed jointly and severally upon the assetsand property of Defendants Pine State and Marcisso to secure satisfactionof any judgment ultimately to be entered.

So ORDERED.

1. The Court stresses that these facts are not conclusive for summaryjudgment or trial purposes.

2. In this cost-breakdown provided by Pine State, Defendants listed inthe left-hand column each of the pieces of equipment that would be sold;the right-hand column appeared to list the price for that piece ofequipment. In fact, that price reflected the lump sum cost of theequipment, plus the installation, labor and cost of materials. SeeExhibit A attached to Motion for Attachment; see also Deposition ofSamuel Marcisso at 32-33.

3. Pursuant to Paragraph 10 of the Master Lease, VCG was to remain thesole owner of the equipment leased to the Maddens, with the latter havingno property interest therein, but only the right to use the equipmentupon the terms and conditions of the lease. The Master Lease stated that

the Equipment shall remain personal property, and no matter how connected with or attached to the premises of Lessee, will not become a part of the realty of the fixture therein. Lessee, if so requested by Lessor, will obtain written consent of or written waiver from any other party holding a mortgage, encumbrance or lien on the premises of Lessee, disclaiming any interest in the Equipment. In the event of sale of same, the Equipment shall remain personal property.

Master Lease Agreement, Attached as Exhibit B to Motion for Attachment(Pleading No. 3).

4. Plaintiff's Purchase Order required that the serial number for eachpiece of equipment be provided before payment could be tendered. SeeExhibit F attached to Motion for Attachment.

5. The Maddens earlier defaulted on their lease payments to VCG, andthe latter gave formal notice of default of the Master Lease to theMadden Group in October 1999.

6. Prior to 1992 the standard for attachment was only "reasonablelikelihood of success;" the rules governing attachment and attachment ontrustee process were amended effective February 15, 1992, to change thisstandard to the "more likely than not" standard. Me. R. Civ.P. 4AAdvisory Committee's Note to1992 Amend., Me. Rptr., 604 A.2d No. 2CXLII-CXLIV.

7. Defendants' attempts to divert attention from the issue of theirfraud is unavailing. Defendants have pointed to Plaintiff's settlementwith PHA as a reason to refute the claim that Plaintiff sustained anyloss. Defendants' Memorandum in Opposition to Motion for Attachment andAttachment on Trustee Process (Pleading No. 6) at 8. Defendants claimthat this settlement interrupts proximate causation, and that in anyevent, Plaintiff must show the settlement was necessary and reasonable.Id. at 8-12. The Court does not accept this argument. First of all, "[i]tis true that a `plaintiff has a duty to use reasonable efforts tomitigate his or her damages.'" Ludington v. LaFreniere, 704 A.2d 875, 879(Me. 1998) (quoting Doughty v. Sullivan, 661 A.2d 1112, 1122 (Me.1995)). Plaintiff's efforts to obtain what it could from PHA for the HVACequipment and then apply that against any loss it is claiming againstDefendants do not disrupt any proximate causation resulting from theactions of Defendants; on the contrary, they are a reasonable effort tomitigate damages.

Moreover, the Supreme Judicial Court of Maine this year rejected the veryargument that Defendants are advancing in this case. In doing so, theCourt cited the collateral source doctrine, which provides that "if aplaintiff is compensated in whole or in part for his damages by somesource independent of the tortfeasor, he is still permitted to have afull recovery against [the tortfeasor]." St. Francis De Sales, 2002 WL1770709 at *3 (quoting Werner v. Lane, 393 A.2d 1329, 1335 (Me. 1978)).The Law Court thus rejected the defendants' contention that thecollateral source evidence in that case showed there to be no proximatecause. Id. at *4. The Court similarly rejects this argument in thiscase.

8. The Court also notes the confusion with regard to the Hanoverpolicy. Defendants attach as Exhibit J to their Motion for Attachment acopy of the insurance contract and policy that it alleges would cover anyjudgment against them, but the name of the insurance company on thatCommercial General Liability Declaration is Massachusetts Bay InsuranceCompany. However, attached to Defendants' counsel's supplementalaffidavit is a copy of what appears to be an identical policy, butDefendant refers to this policy as that issued by Hanover InsuranceCompany. While the relationship between these two companies may be clearto Defendants, it is not clear from the pleadings and therefore not clearto the Court.

9. Defendants' policy also contains an exclusion for "Expected orIntended Injury." See Commercial General Liability Coverage Form,attached to Supplemental Affidavit of Christopher C. Taintor at 1. It isat this point also unclear whether Defendants' alleged deliberatefraudulent misstatements will fall under such an exclusion.

10. As the Court has noted at supra note 7, it appears that thePlaintiff may not be required under Maine law to deduct this amount fromits claim of loss, as it may be deemed to be from a collateral source.See St. Francis De Sales, 2002 WL 1770709 at *3. However, as no issue hasbeen here generated in that respect, the Court has accepted thePlaintiff's voluntary deduction of that amount from its loss claim andintimates no decision on any potential issue in respect thereto.

11. Plaintiff reached this figure by subtracting what it received inlease payments from the Maddens before they defaulted ($254,614) fromwhat it had expected to receive in total profits. ($323,745).

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