Federal Leasing, Inc. v. Underwriters at Lloyd's

Decision Date17 April 1980
Docket NumberCiv. No. H-79-1088.
PartiesFEDERAL LEASING, INC., Plaintiff, v. UNDERWRITERS AT LLOYD'S et al., Defendants. UNDERWRITERS AT LLOYD'S et al., Counter-Plaintiffs, v. FEDERAL LEASING, INC., Counter-Defendant. UNDERWRITERS AT LLOYD'S et al., Counter-Plaintiffs (Complaint for Interpleader), v. FEDERAL LEASING, INC., Counter-Defendant, and The Bank of California, N.A., et al., Other Counter-Defendants.
CourtU.S. District Court — District of Maryland

COPYRIGHT MATERIAL OMITTED

John Doar, New York City, and Benjamin Rosenberg, G. Stewart Webb, Jr. and Venable, Baetjer & Howard, Baltimore, Md., for plaintiff.

John E. Sandbower, III, Robert J. Carson, Phillips P. O'Shaughnessy and Smith, Somerville & Case, Baltimore, Md., for defendants.

Michael Sandler and Steptoe & Johnson, Washington, D. C., and Joshua R. Treem, and Weinberg & Green, Baltimore, Md., for counter-defendant Suburban Trust Company.

James E. Nesland and Ireland, Stapleton & Pryer, Denver, Colo., and Jervis, Spencer, Finney and Ober, Grimes & Shriver, Baltimore, Md., for intervenors Kirchner, Moore & Co. and Allstate Insurance Co.

ALEXANDER HARVEY, II, District Judge:

In this civil action, an assured is seeking damages and other relief from an insurer because of the failure of the latter to pay large claims allegedly due under various indemnity insurance policies. The plaintiff, Federal Leasing, Inc. (hereinafter "Federal Leasing") is here claiming compensatory and punitive damages for breach of "master declaration computer equipment lease indemnity policies," which were issued by defendants.

Federal Leasing, a Maryland corporation organized in 1974, is engaged in the business of leasing and selling computer equipment to commercial and governmental users. Named as defendants in the complaint are certain Underwriters at Lloyd's and certain other British insurance companies (hereinafter collectively referred to as "Underwriters" or "the defendants"), which sold the policies to Federal Leasing. Presently before this Court are: (1) a motion for a preliminary injunction filed by Federal Leasing; (2) a motion for a preliminary injunction filed by Suburban Trust Company (hereinafter "Suburban"),1 (3) a motion for a preliminary injunction filed by Kirchner, Moore & Company and Allstate Insurance Company (hereinafter "Kirchner" and "Allstate");2 and (4) a motion for a preliminary injunction filed by Underwriters. Extensive briefs have been filed in support of and in opposition to the pending motions, and oral argument has been heard in open court. This Court has also reviewed the voluminous affidavits, exhibits and deposition excerpts submitted by the parties in support of their respective positions.

I The Pleadings

Federal Leasing instituted this suit on June 12, 1979, naming as defendants Underwriters at Lloyd's and seventeen British insurance companies. Federal Leasing's complaint is 168 pages in length and contains 26 Counts in 407 separate paragraphs. In Counts Nos. 1 to 23, plaintiff seeks payment from Underwriters of some $23 million allegedly owed under various different cover notes insuring financial obligations incurred by plaintiff resulting from the early termination of computer leases and conditional sales agreements by users of the equipment. Count No. 24 seeks a declaratory judgment establishing Underwriters' liability for plaintiff's financial obligations in connection with the early termination of any computer leases or conditional sales agreements which might occur in the future. Plaintiff seeks for itself $50 million in consequential damages in Count No. 25 and $50 million in compensatory damages and $500 million in punitive damages in Count No. 26.

In their answer, Underwriters have raised twenty-one separate defenses. Underwriters have also asserted a two-Count counterclaim against plaintiff. The first Count seeks rescission of the cover notes on the ground that they were obtained by misrepresentation. The second Count seeks recovery of $10 million which Underwriters allegedly had overpaid on claims asserted by plaintiff.

Underwriters also filed a complaint for interpleader in which they named Federal Leasing and numerous third-party investors as defendants.3 On September 11, 1979, this Court entered an Order restraining the defendants named in the amended complaints for interpleader from instituting or prosecuting in any other court any suit or proceeding against Underwriters arising out of the matters involved in this action. Several investors promptly moved to dissolve the preliminary injunction. Following a hearing, this Court, on November 5, 1979, rendered an oral opinion, ruling that the injunction previously entered should be dissolved. This Court held that since Federal Leasing and the investors were not adverse claimants, interpleader was not appropriate either under the Interpleader Statute, 28 U.S.C. § 1335, or under Rule 22, F.R.Civ.P.

Subsequently, fourteen of the seventeen investors named as counterdefendants moved to dismiss the second amended complaint for interpleader as to them. These motions were granted by the Court and all but three of these counterdefendants were dismissed from this suit.4 In addition, this Court granted leave to intervene as parties plaintiff to The Bank of California, N.A.; Kirchner, Moore & Company; Allstate Insurance Co.; Chemical Bank; and Chemlease Worldwide, Inc. These parties have asserted claims against both Federal Leasing and Underwriters arising as a result of the termination of the computer leases and conditional sales agreements involving them.

In the pending motions, Federal Leasing, Suburban, Kirchner and Allstate seek a preliminary injunction which would require Underwriters to advance to the moving parties during the pendency of this action the sums allegedly owing under the master insurance policies.5 In their motion for a preliminary injunction, Underwriters seek an Order prohibiting Federal Leasing from commencing or prosecuting in any federal court any suit or claim against Underwriters based upon the indemnity insurance policies in question.

II The Court's Findings of Fact

In granting or denying a motion for a preliminary injunction, a court must set forth its findings of fact which constitute the grounds of its action. Rule 52(a), F.R. Civ.P. Unlike findings made as a part of a ruling on a motion for summary judgment filed under Rule 56, a court may resolve conflicting inferences of fact in ruling on a motion for a preliminary injunction filed under Rule 65. See 11 Wright and Miller, Federal Practice and Procedure, § 2949 at pp. 480-82 (1973).6

Initially, the question is raised in this case whether a motion for a preliminary injunction may be granted or denied without an evidentiary hearing, particularly in a case such as the pending one where some facts in the affidavits are conflicting. See S.E.C. v. Frank, 388 F.2d 486 (2d Cir. 1968). It has been held, however, that once a party joins "the battle of the affidavits," he has consented to a decision based on them and cannot complain about the result if he is the loser. Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197, 1205 (2d Cir. 1970). In Blackwelder Furniture Company v. Seilig Manufacturing Company, Inc., 550 F.2d 189 (4th Cir. 1977), the Fourth Circuit specifically approved the making of findings of disputed facts on a record such as this one where the parties have "willingly joined in the battle of affidavits." 550 F.2d at 192, n.1. This principle has been reaffirmed in other recent cases in this and other courts. Dopp v. Franklin National Bank, 461 F.2d 873 (2d Cir. 1972); Scott & Fetzer Co. v. McCarty, 450 F.Supp. 274, 277 n.3 (N.D.Ohio 1977); Phillips v. Crown Central Petroleum Corp., 376 F.Supp. 1250, 1253 (D.Md.1973).

In this case, none of the parties requested an evidentiary hearing. Instead, all the parties vigorously joined in the battle of the affidavits, exhibits and depositions. Plaintiff's motion for preliminary injunction was filed on September 20, 1979, and up until the date of the hearing on the motion on March 14, 1980, the parties engaged in extensive discovery. A voluminous record has been furnished to the Court, including affidavits, exhibits and excerpts from depositions. Indeed, the record before the Court is in many ways more complete than many other cases in which the Court has held an evidentiary hearing on a motion for a preliminary injunction.

Although the record here discloses that there are some disputes of fact, many of these are not material to the issues presented at this time. Where essential facts or inferences from the facts are disputed, the record here is sufficiently complete for the Court to resolve the disputes, particularly since the parties have joined in presenting the issues to the Court in the manner they did.7 Merely because these motions for a preliminary injunction have been heard on a record consisting of affidavits, exhibits and depositions, the Court is not foreclosed from evaluating the sworn statements in light of the overall record. See Bowers v. Columbia General Corp., 336 F.Supp. 609, 613 (D.Del.1971).

III The Facts8

The business of Federal Leasing consists of marketing computer equipment to both commercial and governmental users. A typical commercial transaction involved the execution of a lease between Federal Leasing as the lessor and the commercial user as the lessee. A typical governmental transaction involved the execution of a conditional sales agreement between Federal Leasing as the conditional vendor and the government user as the conditional vendee. Both types of agreement contained provisions which allowed the user, after a certain period of time9 and upon 180 days' written notice, to terminate the agreement in its sole discretion without penalty. The standard conditional sales agreement also permitted early termination by a governmental user for non-appropriation of the necessary funds by the legislature...

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