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Ael Financial, LLC v. Countryside Publishing Co., Inc.

United States District Court, Seventh Circuit

November 1, 2013

AEL FINANCIAL, LLC, Plaintiff,
v.
COUNTRYSIDE PUBLISHING CO., INC., ELEASE FUNDING, INC., JAMES SPRECHER, JOSEPH GLENNON, GERALD P. RIGGIN a/k/a JERRY RIGGIN, and GOVERNMENT VERIFICATION LLC a/k/a GOVERNMENT VERIFICATION LLC d/b/a THE VERIFICATION COMPANY, Defendants.

MEMORANDUM OPINION

JOHN F. GRADY, District Judge.

Before the court are the cross-motions for summary judgment of plaintiff AEL Financial, LLC ("AEL") and defendant eLease Funding, Inc. ("eLease"). For the reasons explained below, we deny the parties' motions.

BACKGROUND

Defendant eLease brokers equipment loans. (eLease's Stmt. of Material Facts (hereinafter, "eLease Stmt.") ¶ 3.) It obtains funding for the loans from companies like plaintiff AEL. ( Id. at ¶ 4.) In 2008, defendant Countryside Publishing Company ("Countryside") sought (or purported to seek) financing to purchase computer and telephone equipment from Government Verification LLC d/b/a The Verification Company ("TVC").[1] (See AEL's Stmt. of Facts (hereinafter, "AEL Stmt.") ¶ 7.) According to an itemized proposal dated March 26, 2008, TVC proposed to sell Countryside a "Centralized Telecom Management System" for $315, 833.00. (See Centralized Telecom Mgmt. Proposal, attached as Ex. 2 to Aff. of Nick Kondras (hereinafter "Kondras Aff."), attached as Ex. A to AEL Stmt.)[2] The proposal was executed by defendant Jerry Riggin, who was identified in the proposal as TVC's "Vice President Operations." ( Id. at 2.) Countryside was an existing eLease client, (see AEL Stmt. ¶ 14), and evidently approached eLease to obtain financing for the TVC transaction. On or about March 27, 2008, Countryside entered into an Equipment Finance Agreement ("EFA") with eLease (as "Lender") to borrow an unspecified "Collateral Advance" to acquire the equipment listed in an attached schedule (the "Equipment"). (See EFA, attached as Ex. 5.1 to eLease Stmt.; Schedule A to EFA, attached as Ex. 5.2 to eLease Stmt.) Although AEL was not yet a party to the transaction, it drafted the EFA form and provided it to eLease. (See eLease Stmt. ¶ 20.) Pursuant to the EFA, Countryside agreed to repay eLease over a period of 36 months, and granted eLease a first priority security interest in the Equipment to secure payment. (See EFA at 1; see also id. at 2, ¶ 7 ("SECURITY INTEREST; RECORDING").) Yvonne Shawn, Countryside's president, executed the agreement on Countryside's behalf and agreed to personally guarantee the company's performance. (See EFA at 1.) Four days later, Countryside executed a letter agreement - also drafted by AEL - authorizing eLease to pay TVC $157, 916.50 "even though some or all of the collateral [had] not been delivered to and/or accepted by" Countryside. (See Authorization Letter, executed March 31, 2008, attached as Ex. 7 to eLease Stmt.; see also eLease Stmt. ¶ 20.) On April 3, 2008, AEL sent a letter to eLease preliminarily approving financing in the amount of $295, 000 subject to further due diligence and other conditions. (eLease Stmt. ¶ 14; see also Letter from J. Baltey to T. Williams, dated Apr. 3, 2008, attached as Ex. 8 to eLease Stmt.) The following week, Countryside and eLease amended the EFA to reflect a "Collateral Advance" of $315, 833.00. (See eLease Stmt. ¶ 19; see also Amend. No. 1 to EFA, attached as Ex. 9 to eLease Stmt.)

eLease assigned the EFA to AEL on April 11, 2008. (See Assignment, dated Mar. 31, 2008, attached as Ex. 10 to eLease Stmt.)[3] In the Assignment, eLease represented and warranted that:

(i) the Agreements and all related instruments are genuine, enforceable and duly authorized... (iii) all statements made by [eLease] regarding the Agreements and Property are true; (iv) the Property described in the Agreements has been delivered to, and accepted by, the respective lessees....

(Assignment.)[4] AEL wired $157, 916.50 to TVC's bank account on the same day that it executed the Assignment. (See AEL Stmt. ¶ 31.) A June 3, 2008 invoice from TVC to Countryside reflects a $157, 916.50 "deposit, " half the total amount due. (See TVC Invoice, dated June 3, 2008, attached as Ex. 6 to eLease Stmt.) On June 4, 2008, eLease's Vice President, Mark Williams, emailed Jerry Bertsch at Countryside an "Acceptance Certificate, " see also drafted by AEL. (See AEL Stmt. ¶ 34; eLease Stmt. ¶ 20; see also Email from M. Williams to J. Bertsch, dated June 4, 2008, attached to Dep. of Mark Williams, attached as Ex. D to AEL Stmt. ("Attached is the Acceptance Certificate' for Yvonne Shawn to sign off on for the job. Please have signed, faxed back, and we'll arrange the final verbal authorization' to commence immediately.").) The following day, Shawn executed the Acceptance Certificate acknowledging receipt of the Equipment:

I, acting on behalf of the Borrower named above, acknowledge that I have personally inspected all Equipment described in the above referenced Agreement [the EFA]. The Equipment has been received, inspected and installed to Borrower's satisfaction and is complete, operational and in good condition and working order and satisfactory in all respects and conforms to all specifications in the Agreement and the Supply Contract. Borrower hereby accepts the Equipment and acknowledges that, unless otherwise provided in the Agreement, the Agreement commences on the Date of Acceptance stated below. Borrower further acknowledges that this Agreement is NON-CANCELABLE, ABSOLUTE AND IRREVOCABLE. I understand that Lendor [sic] will, and Borrower hereby authorizes Lendor [sic] to, purchase the Equipment in reliance on this Acceptance Certificate. I am authorized to sign this Acceptance Certificate on Behalf of Borrower.

(See Acceptance Certificate at 1.) On June 6, 2008, AEL wired the remaining $157, 916.50 to TVC. (AEL Stmt. ¶ 36.) Countryside made approximately $203, 000.00 in installment payments before defaulting in September 2010. ( Id. at ¶ 41.) At the time of Countryside's default, it owed AEL $168, 319.38 ($142, 064.72 in future payments due, $21, 181.91 in past due payments, and $5, 073.75 in late charges). (Id.)

The Assignment does not require eLease to indemnify AEL for a simple default. However, AEL contends that it is the victim of a fraud implicating several of eLease's representations and warranties. Yvonne Shawn was Countryside's President in name only. She planned parties and executed documents when they were brought to her by the people who actually ran the company, including Gary Sizemore, Jerry Bertch, Pam Sprecher, Joe Glennon, and James Sprecher. (AEL Stmt. ¶ 10; see also Dep. of Yvonne Shawn ("Shawn Dep."), dated Mar. 16, 2011, at 29-30, 43-44.) James Sprecher, Shawn's husband in 2008 (see Shawn Dep. at 12-13), was convicted of bank fraud in 1996 in the United States District Court for the Middle District of Florida. (See AEL Stmt. ¶ 13.)[5] Although none of the transaction documents disclosed any affiliation between Countryside and TVC, Sprecher testified that Countryside (or an entity affiliated with Countryside) purchased TVC in 2008. (See Sprecher Dep. at 36, 39, 96-98; but see id. at 40 (backing off of his earlier testimony that the acquisition occurred "well before" the eLease/AEL transaction).) Moreover, Sprecher and Glennon controlled the TVC account to which AEL wired the Equipment purchase price.[6] (AEL Stmt. ¶ 32; see also Dep. of Patricia Truluck, attached as Ex. I to AEL's Stmt., at 11.) On April 18, 2008, seven days after it received the first $157, 916.50 installment from AEL, TVC transferred $45, 000.00 to Countryside. (AEL Stmt. ¶ 33.) On June 9, 2008, three days after it received the second $157, 916.50 installment, TVC transferred $158, 000.00 to Countryside. ( Id. at ¶ 38.)

After Countryside defaulted, AEL demanded that Countryside return the Equipment. ( Id. at ¶ 42; see also EFA at 2, ¶ 9.) AEL contends that Countryside did not comply because most of the Equipment never existed. TVC purported to charge Countryside $148, 920.00 for Dell computer equipment. (See AEL Stmt. ¶ 18.) Sandra Brooks, a Dell paralegal, searched Dell's records and confirmed that a company identified as "Verification Co." purchased six products from Dell in May 2008 matching serial numbers listed in TVC's June 3, 2008 invoice. (See id. at ¶ 44; see also Aff. of Sandra Brooks, attached as Ex. C to Dep. of Sandra Brooks, attached as Ex. J to AEL's Stmt. ("Brooks Dep."), ¶ 7.) The serial numbers listed for four other products are not actual Dell serial numbers. (See Brooks Dep. at 14 ("The names refer to Dell systems, but the products - the numbers provided are not Dell service tags.").) The invoice does not list serial numbers for the 96 "Dell Vostro Desktops, " which account for $72, 192.00 of the $148, 920.00 that TVC purported to charge Countryside for Dell equipment. But Brooks was able to use information gleaned from the purchases she was able to verify - specifically, TVC's name and telephone number - to search for other orders placed by the same company. (See Brooks Dep. at 19-20.) Using this information, Brooks was unable to find any record that "Verification Co." purchased the 96 Vostro Desktops from Dell. (See id. at 17-18.) In total, Brooks was able to confirm that "Verification Co." purchased only $64, 640.00 of equipment from Dell. (See AEL Stmt. ¶ 44.)[7] Countryside also purported to purchase $50, 493.00 of "Vicidial" equipment from TVC. (AEL Stmt. ¶ 19.) Vicidial offers its telecommunications software for free - it makes money selling consulting, training, and other services. (See Dep. of Matt Florell ("Florell Dep."), attached as Ex. K to AEL Stmt., at 6.) It does not permit third parties to sell licenses to use its free software. ( Id. at 16-17.) It does sell server equipment, (see id. at 17-18), but not under its own brand name and it could not find any equipment orders placed by TVC in its records. (AEL Stmt. ¶ 50.)

eLease contends that the Equipment was delivered to Countryside, or at least that there is a material dispute about whether it was or not. (See, e.g., eLease Stmt. of Add'l Facts ¶¶ 25-26.) First, it relies on testimony from Gary Sizemore, Countryside's in-house counsel, who testified that Countryside installed a new "dialer system" for its telephone representatives in or around June 2008. (See eLease Stmt. of Add'l Facts ¶ 25; see also Dep. of Gary Sizemore ("Sizemore Dep."), attached as Ex. 11 to eLease Stmt. of Add'l Facts, at 27-33, 171-75.) But he did not know whether the equipment that Countryside installed in 2008 was the equipment identified in TVC's proposal and invoice from that same time period. (See Sizemore Dep. at 173-74.) eLease also relies on James Sprecher's testimony in Yvonne Shawn's bankruptcy case. (See eLease Stmt. of Add'l Facts ¶ 26.) As Sprecher describes it, Jerry Riggin promised to install a sophisticated call center for Countryside at the facility that the two companies shared. (See id. at 36-37, 40; see also id. at 44 (stating that TVC moved into Countryside's facility after the acquisition).) The system did not operate as promised and was "ripped out" after less than a year. ( Id. at 41.) The two companies - TVC and Countryside - "separated" and TVC took at least some of the equipment with it. ( Id. at 42-44.) eLease also cites an "Agreement for Termination of Consulting Agreement, " dated June 3, 2009, between Morgan Fagerman (TVC's President), TVC, and Government Verification, LLC. (See Agmt. for Term. of Consulting Agmt. ("Termination Agreement"), dated June 3, 2009, attached as Ex. 15 to eLease's Stmt. of Add'l Facts.) This agreement terminates a consulting agreement between Fagerman and Government Verification dated February 14, 2008 - approximately five weeks before TVC's initial proposal to Countryside regarding the Equipment.[8] Pursuant to the same agreement, Government Verification also transferred certain equipment to TVC. (See Termination Agreement ¶ 1.) The descriptions of the equipment in the Termination Agreement are at least superficially similar to some of the equipment described in TVC's June 2008 invoice.[9] In particular, the "PowerEdge 1950 III" and "PowerEdge R900" computers may correspond to the equipment that Dell acknowledges selling to "Verification Co." in May 2008 (although the quantities do not entirely match up, see supra n.9). But the Termination Agreement does not include any serial numbers, making it impossible to confirm that any of the listed equipment corresponds to the equipment that TVC purportedly sold to Countryside. Also, it is unclear how Government Verification obtained title to equipment that TVC purportedly sold to Countryside, or why Government Verification would return the equipment to TVC.

Sprecher was also vague about what equipment Countryside still had in its possession at the time of Shawn's bankruptcy in 2011. He testified that he asked Riggin to inspect Countryside's facility for the equipment that AEL had financed. (See id. at 43.) Sprecher's hearsay testimony about what Riggin says he found is difficult to follow. Our best guess is that, according to Sprecher, Riggin did not find any equipment from the "original package" at Countryside's facility. ( Id. ("He identified pieces - a lot that's in the warehouse storage, but he - as far as where we're at right now, there as absolutely nothing that he recalled ever putting in or as part of that original package."). Riggin did identify "numerous pieces" stored in an unidentified warehouse, and apparently some of that equipment was on the "original list." ( Id. at 43-44.) But Riggin acknowledged taking "file servers." ( Id. at 44.) In their motion to withdraw as counsel, Countryside's attorneys represented that the company ...


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