USA Auto Funding, LLC v Capital City Coach Lines, Inc.
Annotate this CaseDecided on June 21, 2005
Supreme Court, Nassau County
USA AUTO FUNDING, LLC., Plaintiff,
against
CAPITAL CITY COACH LINES, INC., MATTHEW CARSWELL also known as MATTHEW JACKSON CARSWELL, Defendants,
12209-04
COUNSEL FOR PLAINTIFF
Moritt, Hock, Hamroff & Horowitz, LLP
400 Garden City Plaza
Garden City, New York 11530
COUNSEL FOR DEFENDANT
Corey S. Kupfer, Esq.
350 Fifth Avenue - Suite 7116
New York, New York 10119
Leonard B. Austin, J.
Plaintiff moves for summary judgment against the Defendants and to dismiss the Defendants' affirmative defenses.
BACKGROUND
By lease dated October 31, 1996, Defendant, Capital City Coach Lines, Inc. ("Capital City"), leased a bus from Automotive Management Group Ltd. The lease had an addendum and a rider. The addendum provided that the bus would be used solely for commercial or business use. The rider provided that Capital City could purchase the bus at the end of the lease for $36,700.00, if it was not in default.
The lease provided that Capital City was to make an initial payment of $6,930.28 followed by fifty eight (58) monthly payments of $3,465.14. The first payment was due on October 31, 1996 and the remaining payment being due on the last day of each successive month.
Automotive Management Group assigned its interest in the lease to European American Bank. In or about December 1, 2000, USA Auto Funding, LLC ("USA") purchased a portfolio of leases from European American Bank. Included in that sale was the lease between Automotive Management Group and Capital City.
USA claims that Capital City defaulted on the lease by failing to make the final payment that was due on September 30, 2001 in the sum of $3,465.14. USA claims that when Capital City defaulted it attempted to recover possession of the bus but was unable to do so.
Capital City voluntarily surrendered the bus to USA in February 2002. Capital City sold the bus for $5,000.00.
If Capital City did not exercise its option to purchase the bus pursuant to the riser, USA asserts that, upon surrender of the bus, Capital City agreed to pay USA the residual value of bus as established by the rider $36,700.00, with credit to be given for any amount received by USA on the re-sale of the bus.
USA is now seeking to recover the final monthly payment of $3,465.14, the residual value of the bus less the amount received on the sale $31,700.00, late charges of $4,514.20, repossession and transportation charges of $1,693.18 and payments resulting from Capital City's failure to return the bus at the end of the lease of $13,076.00 for a total of $54,448.52. USA also seeks to recover its legal fees in accordance with the terms of lease.
Besides Capital City, USA seeks to recover these sums from the Defendant Matthew Carswell a/k/a Matthew Jackson Carswell ("Carswell"), pursuant to his [*2]guarantee of Capital City's obligation, under the lease.
Capital City and Carswell assert that Capital City timely made all of the payment due under the terms of the lease. Carswell avers that the first time he was advised that Capital City failed to make any payments due under the lease was approximately one year after the lease had terminated and possession of the bus had been delivered to USA..
Carswell further avers that, when the lease ended, he spoke with a representative of USA. Carswell asserts that he advised the USA representative that Capital City was not going to exercise its option to purchase the bus. Carswell requested that Capital City be permitted to retain possession of the bus for an additional week so that Capital City could get the bus in condition to return it to USA. USA consented to this request. He claims that USA advised him that it would send a representative over to pick up the bus. Approximately one week after this conversation is alleged to have taken place, Carswell claims that USA sent over a representative who took possession of the bus. Carswell claims that he observed the bus sitting in a lot for approximately six (6) months unattended and unprotected from the elements seemingly abandoned.
Capital City and Carswell assert that, since all of the payments due under the terms of the lease had been made and since the bus was not disposed of in a commercially reasonable manner, they do not owe anything to USA.
DISCUSSION
A. Summary Judgment - Standard
Summary judgment is a drastic remedy which will be granted only when it is clear that there are no triable issues of fact. Alvarez v. Prospect Hosp., 68 NY2d 320 (1986); and Andre v. Pomeroy, 35 NY2d 361 (1974).
The party seeking summary judgment must establish a prima facie entitlement to judgment as a matter of law. Lesocovich v. 180 Madison Avenue Corp., 81 NY2d 982 (1993); and Zuckerman v. City of New York, 49 NY2d 557 (1980).
Once the party seeking summary judgment has made a prima facie showing of entitlement to judgment as a matter of law, the party opposing the motion must come forward with proof in evidentiary form establishing the existence of triable issues of fact or must demonstrate an acceptable excuse for its failure to do so. Zuckerman v. City of New York, supra; Davenport v. County of Nassau, 279 AD2d 497 (2nd Dept., 2001); and Bras v. Atlas Construction Corp., 166 AD2d 401 (2nd Dept. 1991).
Summary judgment must be denied if the court has any doubt regarding the existence of a triable issue of fact. Kolivas v. Kirchoff, 14 AD3d 493 (2nd Dept. 2005); and Freese v. Schwartz, 203 AD2d 513 (2nd Dept. 2004).
When deciding a motion for summary judgment, the court must view the evidence in a light most favorable to the non-moving party and must also give the non-moving party the benefit of all reasonable inferences which can be drawn from the [*3]evidence. Negri v. Stop & Shop, Inc., 65 NY2d 625 (1985); and Erikson v. J.I.B. Realty Corp., 12 AD3d 344 (2nd Dept. 2004).
B. Affirmative Defenses
Defendants assert three affirmative defenses; to wit: (1) the complaint fails to state a cause of action; (2) the claim is barred by the doctrine of unclean hands; and
(3) the claim is barred by the doctrine of waiver.
1.Failure to State a Cause of Action
The first affirmative defense which states that the complaint fails to state a cause of action must be dismissed. It has long been the rule in the Second Department that the defense of failure to state a cause of action cannot be raised in the answer. It must be raised only by motion made pursuant to CPLR 3211(a)(7). Petracca v. Petracca, 305 AD2d 566 (2nd Dept. 2003); Iannarone v. Gramer, 256 AD2d 443 (2nd Dept. 1998); Platt v. Portnoy, 220 AD2d 652 (2nd Dept.1995); Procopo, Inc. v. Birnbaum, 157 AD2d 774 (2nd Dept., 1990); Bentivegna v. Meenan Oil Co., 126 AD2d 506 (2nd Dept. 1987); Glenesk v. Guidance Realty Corp., 36 AD2d 852 (2nd Dept. 1971); and Falk v. MacMasters, 197 App. Div. 357 (2nd Dept. 1921). Since failure to state a cause of action cannot be raised as an affirmative defense, Defendants' first affirmative defense must be dismissed.
2.Unclean Hands and Waiver
The second and third affirmative defenses which allege that the claim is barred by the doctrine of unclean hands and the doctrine of waiver, respectively, must also be dismissed. Affirmative defenses plead as conclusions of law which are not supported by factual allegations are insufficient and should be dismissed. Petracca v. Petracca, supra; and Bentivegna v. Meenan Oil Co., supra.
In the answer, these affirmative defenses are plead as single sentence conclusions of law devoid of any factual allegations to support those defenses. The deficiency in the pleading is not remedied by the affidavit submitted in opposition to the motion. Therefore, these affirmative defenses must be dismissed.
C. Plaintiff's Motion for Summary Judgment
Plaintiff alleges that Capital City breached the lease by failing to make the final payment and by failing to pay the agreed upon residual value of the bus as set forth in the lease. The lease and the rider provide that, if Capital City defaulted in performing the terms of the lease, Capital City was obligated to pay the amount due on the lease together with the agreed upon residual value, repossession costs, storage costs and repair costs to the lessor. If Capital City chose not to exercise its option to purchase and returned the vehicle at the end of the lease, it was still obligated to pay to Lessor the agreed upon residual value of the bus less the amount realized from the sale of bus.
The determination as to whether Capital City is in default under the terms of the lease is to be determined by the terms of the agreement. Uniform Commercial Code §2-A-501(1). Failure to make payment of any sum due under the terms of the lease [*4]would constitute a default by Capital City. Since the affidavit submitted in support of the motion establishes a breach of the lease; to wit; Capital City's alleged failure to make the final lease payment and to pay the residual value of the bus, USA has established a prima facie entitlement to judgment as a matter of law.
The burden then shifted to Capital City to establish that it has meritorious defense. At this stage in the litigation, Capital City has established the existence of a valid defense so as to avoid summary judgment. Carswell, Capital City's President and CEO, has submitted an affidavit in which he states that Capital City made all of the payment due on the lease. Payment would most certainly be a defense to the portion of the claim which seeks to recover the final month's rental payment. The Court notes that although Defendants could have submitted proof of payment via a cancelled check, bank record or other documentary proof, they have failed to do so. Plaintiff's delay in claiming a default in paying the last lease payment until more than a year after Capital City's alleged default in payment warrants denial of summary judgment at this juncture.
Carswell concedes that Capital City did not pay the residual value of the bus. However, he asserts that USA did not sell the bus in a commercially reasonable manner.
A sale is commercially reasonable if the method used to sell the collateral was designed to obtain the best price and the sale was conducted in a procedurally appropriate manner. Bankers Trust Co. v. Dowler & Co., 47 NY2d 128 (1979); and Federal Deposit Ins. Co. v. Herald Square Fabric Corp., 81 AD2d 168 (2nd Dept., 1981). The secured party must demonstrate that it acted in good faith and in the mutual best interest of both the secured party and the debtor. 108th Street Owners Corp. v. Overseas Commodities Limited, 238 AD2d 324 (2nd Dept. 1997).
The secured party has the burden of establishing that the collateral was sold in a commercially reasonable manner. Associates Commercial Corp. v. Liberty Truck Sales & Leasing, Inc., 286 AD2d 311 (2nd Dept. 2001); and Federal Deposit Ins. Co. v. Dowler & Co., supra.
Plaintiff has not established that the sale of the bus was commercially reasonable. Plaintiff has failed to set forth what procedures were employed to sell the bus or to determine its value. The affidavit of James Moscatello submitted in support of the motion establishes that the bus was sold for $5,000.00.
Capital City asserts that the bus was held is a storage yard for approximately six (6) months after possession of the bus was voluntarily delivered to USA. The record does not indicate what USA did to sell the bus once it took possession of it, what the condition of vehicle was when possession was delivered to USA or what the fair and reasonable value of the bus was when possession was delivered to USA. The record does not establish whether $5,000.00 was a fair and reasonable price for the bus when it was sold.
Since Capital City asserts that it made all of the payments due under the lease and since USA had failed to establish that it sold the bus in a commercially reasonable [*5]manner, questions of fact exist which require a trial. Therefore, USA's motion for summary judgment against Capital City must be denied.
USA also moves for summary judgment on a the personal guarantee given by Carswell.
Plaintiff establishes a prima facie cause of action on a guarantee by establishing the existence of the underlying obligation, the guarantee and the failure of the prime olbigor to make the payments required by the prime obligor. E.D.S. Security System, Inc. v. Allyn, 262 AD2d 351 (2nd Dept. 1999); and I.P.L. Corp. v. Industrial Power & Lighting Corp., 202 AD2d 1029 (4th Dept. 1994).
In this case, USA has established the existence of the underlying obligations and the guarantee but has not yet established that the prime obligor has defaulted. With the
issue of what payments were made and when remaining to be decided, summary judgment is inappropriate.
Likewise, questions of fact exist as to whether the collateral was sold in a commercially reasonable manner. A guarantor may interpose as a defense to its liability for a deficiency that the disposition of the collateral was not commercially reasonable. Associates Commercial Corp. v. Liberty Truck Sales & Leasing, Inc., supra.
The factual disputes in the affidavits create questions of credibility which cannot be decided on a motion for summary judgment. See, Ferrante v. American Lung Assn, 90 NY2d 623 (1997); and Treger v. Ford Credit Titling Trust, 11 AD3d 676 (2nd Dept. 2004). Therefore, Plaintiff's motion for summary judgment must be denied.
D. Legal Fees
Plaintiff's application for legal fees cannot be determined at this time. While the lease provides for the payment of legal fees, USA can recover legal fees only if it is successful in this action. Since the Court is denying Plaintiff's motion for summary judgment, it has not established its right to legal fees. Legal fees will be awarded to Plaintiff only if its ultimately is successful in this action.
Accordingly, it is,
ORDERED, that Plaintiff's motion for summary judgment is granted to the extent of dismissing Defendants' affirmative defenses and is otherwise denied; and it is further,
ORDERED, that counsel for the parties are directed to appear for a preliminary conference on July 20, 2005 at 9:30 a.m.
This constitutes the decision and order of this Court.
Dated: Mineola, NY _____________________________
June 21, 2005 Hon. LEONARD B. AUSTIN, J.S.C.
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