Prime All. Bank v. Leasing Innovations, Inc.

Prime Alliance Bank, Inc., Plaintiff, v. Leasing Innovations, Inc., Defendant.

Civil Action No. 20-12107-NMG

United States District Court, D. Massachusetts

May 4, 2022

MEMORANDUM & ORDER

NATHANIEL M. GORTON, UNITED STATES DISTRICT JUDGE

This action arises out of the leasing and financing of certain watermelon packaging equipment. In April, 2018, defendant Leasing Innovations, Inc. (“Leasing Innovations” or “defendant”), an equipment financing company assigned to plaintiff Prime Alliance Bank, Inc. (“Prime Alliance” or “plaintiff”) a 75% interest in an equipment lease agreement (“the Lease Agreement”) that Leasing Innovations had recently entered into with a customer, Quality Fresh Farms. Quality Fresh Farms defaulted on the Lease Agreement later that year and filed for bankruptcy protection in January, 2019.

Prime Alliance alleges that Leasing Innovations intentionally misrepresented certain facts to induce it to agree to the assignment of the Lease Agreement and seeks, inter alia, rescission of that assignment and return of the approximately $940, 000 it paid to Leasing Innovations in consideration. Defendant denies the allegations and assert several counterclaims.

Pending before the Court are 1) the motion of Prime Alliance for summary judgment as to certain elements of its claim for fraud in the inducement and as to Leasing Innovations' breach of contract counterclaim, and 2) the motion of Leasing Innovations for summary judgment as to all Prime Alliance's claims.

For the reasons that follow, defendant's motion (Docket No. 80) will be allowed and plaintiff's motion (Docket No. 77) will be denied.

I. Background

In February, 2018, Quality Fresh Farms, a grower, packer and distributor of fresh produce, engaged Exeter Engineering Inc. (“Exeter”) to purchase watermelon packaging equipment. It hired Leasing Innovations to assist with financing that purchase and, in March, 2018, Quality Fresh Farms and Leasing Innovations entered the Lease Agreement. Pursuant to that agreement, Leasing Innovations was to purchase the watermelon packing equipment from Exeter and lease it to Quality Fresh Farms. Payment from Leasing Innovations to Exeter was to be made in several installments, subject to the approval of Quality Fresh Farms. Quality Fresh Farms agreed, in turn, to make monthly payments to Leasing Innovations in amounts ranging from $5, 000 to $50, 000, according to a set 60-month schedule. The monthly payment varied to reflect the seasonal nature of the watermelon business.

Meanwhile, Leasing Innovations began to discuss an assignment of part or all of the Lease Agreement with plaintiff Prime Alliance, a bank with which it had a longstanding relationship. In April, 2018, Brian Snider (“Snider”), a Leasing Innovations employee, sent a letter to Prime Alliance that included lease and funding documents. Among those documents was a “Certified Copy of a Certificate of Delivery and Acceptance” (“the Certificate”) executed by Quality Fresh Farms certifying that the watermelon packaging equipment had been “duly delivered in good order and duly inspected and accepted” by Quality Fresh Farms. At the time, the equipment had not, however, been delivered to Quality Fresh Farms, accepted or inspected. The parties dispute whether Leasing Innovations was aware that the equipment had not been delivered, accepted or inspected.

In any event, successful negotiations followed and, in late April, 2018, Prime Alliance and Leasing Innovations executed a “Limited Recourse Agreement” pursuant to which Leasing Innovations assigned to Prime Alliance a 75% interest in the Lease Agreement. Prime Alliance paid Leasing Innovations approximately $940, 000 in consideration for the assignment. At around the same time, the parties entered a “Servicing Agreement” which provided that Leasing Innovations would service the Lease Agreement and collect monthly payments from Quality Fresh Farms.

For several months, Quality Fresh Farms made payments to Leasing Innovations in accordance with the Lease Agreement and Leasing Innovations, in turn, remitted 75% of that amount to Prime Alliance. In July, 2018, however, things began to sour. Quality Fresh Farms made the scheduled monthly payment to Leasing Innovations (which forwarded 75% thereof to Prime Alliance) but most of that payment and all of the August, 2018 payment were subsequently rejected by Quality Fresh Farms' bank due to insufficient funds. Around the same time, Quality Fresh Farms became concerned that the watermelon packaging equipment was not functioning properly and withheld its approval from Leasing Innovations to make payments to Exeter for the equipment. Leasing Innovations, accordingly, did not pay Exeter invoices dated July and August, 2018.

The financial condition of Quality Fresh Farms did not improve in the subsequent months, and, in January, 2019, it filed for bankruptcy protection in the Eastern District of California.

In July, 2019, Prime Alliance sued Leasing Innovations in Utah state court, asserting a single count of breach of contract. It later amended its complaint to add causes of action for fraudulent inducement and declaratory judgment.

Leasing Innovations removed the action to the United States District Court for the District of Utah, and, in November, 2020, that Court allowed defendant's motion to transfer the case to the District of Massachusetts in light of a forum selection clause in the Servicing Agreement. See Prime Alliance Bank, Inc. v. Leasing Innovations, Inc., No. 19-cv-00142-DBB, 2020 U.S. Dist. LEXIS 217039 (D. Utah Nov. 19, 2020). After transfer, Prime Alliance filed a second amended complaint which includes claims for fraudulent inducement (Count I), breach of assignment (Count II), declaratory relief in the form of an accounting (Count III) and violation of M.G.L. c. 93A (Count IV). Prime Alliance has since voluntarily dismissed Count IV and does not oppose a pending motion for summary judgment on Count III.

Leasing Innovations timely answered the second amended complaint and asserted counterclaims for breach of contract, unjust enrichment and violation of M.G.L. c. 93A. It has since voluntarily dismissed its M.G.L. c. 93A claim.

In February, 2021, the parties filed the pending motions for summary judgment.

II. Motions for Summary Judgment

A. Legal Standard

The role of summary judgment is “to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991) (quoting Garside v. Osco Drug, Inc., 895 F.2d 46, 50 (1st Cir. 1990)). The burden is on the moving party to show, through the pleadings, discovery and affidavits, “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).

A fact is material if it “might affect the outcome of the suit under the governing law . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists where the evidence with respect to the material fact in dispute “is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

If the moving party satisfies its burden, the burden shifts to the nonmoving party to set forth specific facts showing that there is a genuine, triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The Court must view the entire record in the light most favorable to the non-moving party and make all reasonable inferences in that party's favor. O'Connor v. Steeves, 994 F.2d 905, 907 (1st Cir. 1993). Summary judgment is appropriate if, after viewing the record in the non-moving party's favor, the Court determines that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Celotex Corp., 477 U.S. at 322-23.

B. Application

1. Fraud in the Inducement

Prime Alliance asserts that Leasing Innovations fraudulently induced it to enter the Limited Recourse Agreement. To prevail on a claim for fraud in the inducement under Massachusetts law, the plaintiff must prove that

(1) the defendant made a misrepresentation of fact;

(2) it was made with the intention to induce another to act upon it; (3) it was made with knowledge of its untruth; (4) it was intended that it be acted upon, and that it was in fact acted upon; and (5) damages directly resulted therefrom.

Smith v. Zipcar, Inc., 125 F.Supp.3d 340, 344 (D. Mass. 2015) (quoting Equip. & Sys. For Indus., Inc. v. Northmeadows Constr. Co., Inc., 798 N.E.2d 571, 574 (Mass. App. Ct. 2003)); see also Berwind Prop. Group Inc. v. Envtl. Mgmt. Group, Inc., No. 0411411, 2007 U.S. Dist. LEXIS 96048 at *9 (D. Mass. Feb. 5, 2007) (explaining that a plaintiff pleading fraud in the inducement must establish the elements of common law deceit). The plaintiff's reliance on the misrepresentation must have been reasonable. Masingill v. EMC Corp., 870 N.E.2d 81, 88 (Mass. 2007).

Where there has been no affirmative misrepresentation, an action for fraud requires both concealment of material information and a duty requiring disclosure. Hopkinton Friendly Serv. v. Global Cos. LLC, 490 F.Supp.3d 421, 429 (D. Mass. 2020). It is well-settled in Massachusetts that there is no liability for mere nondisclosure. Smith at 344 (citing Swinton v. Whitinsville Sav. Bank, 42 N.E.2d 808, 809 (1942)). Massachusetts courts have, however, held that a partially truthful or ambiguous statement may be an actionable falsehood when full disclosure is necessary to make the statement not misleading or the nondisclosed fact goes to the essence of the transaction. Id. at 345-46 (collecting cases).

Both parties have moved for summary judgment with respect to Prime Alliance's claim of fraud in...