Fulcrum Financial Partners v. Meridian Leasing

• Decision Date: 26 October 2000
• Docket Number: 99-2459,Nos. 99-2417,s. 99-2417
• Citation: 230 F.3d 1004
• Parties: (7th Cir. 2000) Fulcrum Financial Partners, Plaintiff-Appellant/Cross-Appellee, v. Meridian Leasing Corporation, Defendant-Appellee/Cross-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1004

230 F.3d 1004 (7th Cir. 2000)

Fulcrum Financial Partners, Plaintiff-Appellant/Cross-Appellee, v. Meridian Leasing Corporation, Defendant-Appellee/Cross-Appellant.

Nos. 99-2417, 99-2459

In the United States Court of Appeals For the Seventh Circuit

Argued April 17, 2000

Decided October 26, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 97 C 6074--John A. Nordberg, Judge. [Copyrighted Material Omitted] Before Fairchild, Posner, and Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge.

Fulcrum Financial Partners (Fulcrum) and Meridian Leasing Corporation (Meridian) worked as partners in the computer leasing business. When the parties' relationship began to break down over a series of disputes, they entered into a comprehensive Settlement Agreement. The question now before us is how much that Agreement really resolved. Fulcrum took the position that it did not cover all disputes between the parties and accordingly brought an action alleging that Meridian owed it money arising from a few discrete business transactions. Meridian and Fulcrum filed cross motions for summary judgment, which the district court granted in part and denied in part. The parties have filed cross-appeals.

I

Underlying this dispute is a tangled web of business relationships. Fulcrum is a general partnership in the business of leasing computer equipment. Until January 25, 1995, Meridian was a general partner of Fulcrum. Article 7 of the partnership agreement appointed Meridian as the remarketing agent in charge of re-leasing or selling Fulcrum's equipment when equipment leases terminated. Meridian was also a general partner in another partnership, FFP Acquisition Partners (FFPA). The other partner in the FFPA partnership was T.I.C. Leasing Corporation (T.I.C.). FFPA, in turn, owned 98 percent of Fulcrum. (T.I.C., which was owned by Turner Broadcasting System, Inc. (TBS), was eventually sold to Computer Systems of America (CSA).)

A series of disputes erupted among the various partnerships, quickly followed by two lawsuits, one in Georgia and the other in Illinois. On January 25, 1995, Meridian, Fulcrum, FFPA, T.I.C., TBS, and CSA entered into a written Settlement Agreement that contained the following language with respect to its coverage

WHEREAS the parties to this Agreement now desire to fully and finally settle all existing disputes and claims among themselves, including, without limitation, the matters raised in the Georgia lawsuit and the Illinois lawsuit and certain other matters resolved under this Agreement;

* * * * *

In consideration of the promises made herein, CSA, TBS and T.I.C., on its own behalf and on behalf of FFPA, and for their administrators, executors, attorneys, successors, assigns, personal representatives, agents, servants, employees, affiliated entities, parents, officers, directors, shareholders, and all other persons claiming by, through and under them, do hereby fully, finally and forever release, remise, discharge and forever acquit Meridian and its administrators, executors, attorneys, successors, assigns, personal representatives, agents, servants, employees, affiliated entities, officers, directors, shareholders, and all other persons claiming by, through and under them, of and from any and all claims or causes of action for damages or injunctive relief, expenses, lost profits, attorneys' fees, liens, punitive damages, penalties and/or other potential legal or equitable relief of every kind and nature including but not limited to any claim which was or could reasonably have been raised in the Georgia lawsuit, except that this release is not intended to, and shall not, act as a release of any claims based in whole or in part on facts or occurrences which were actively concealed by Meridian or which arise, in whole or in part, on or after the date of this Agreement or under this Agreement or the exhibits hereto.

In addition to settling claims, the Settlement Agreement provided that Meridian would withdraw from its partner ships with both FFPA and Fulcrum and transfer its interests in those partnerships to CSA. But the separation was not an unqualified one. Instead, according to the Settlement Agreement, "Meridian [would] remain remarketing and lease administration agent to Fulcrum at no cost to Fulcrum on such terms as set forth in Exhibit D." Exhibit D, in turn, said that "these terms shall govern the remarketing arrangements between Fulcrum and Meridian."

Regrettably, the Settlement Agreement did not provide the global peace that parties usually hope for. Instead, new problems arose over Meridian's remarketing responsibilities, which led to Fulcrum's decision to file the present action on August 29, 1997. Its complaint alleged three separate claims. The first two involved the proper distribution of sales proceeds from one of Meridian's remarketing transactions. The third alleged that Meridian improperly usurped a business opportunity from its former partner. The parties filed cross-motions for summary judgment. Fulcrum prevailed on Count I and Meridian on Counts II and III. We review a grant of summary judgment de novo, Silk v. City of Chicago, 194 F.3d 788, 798 (7th Cir. 1999); the same standard of review also applies to contract interpretation, as it too is a question of law. River v. Commercial Life Ins. Co., 160 F.3d 1164, 1169 (7th Cir. 1998). For the reasons given below, we affirm in part and reverse in part.

II

A. Allocation of Proceeds of September 1996 Remarketing Transaction

Under the Settlement Agreement, Meridian was to serve as a remarketing agent for Fulcrum's equipment. Some of this equipment was subject to subordinated debt owed to Meridian; some was not. In September 1996, Meridian remarketed four groups of equipment, referred to in this case as Schedule #4, Schedule #4A, Schedule #4A-UP, and Schedule #4D (or "the Escon channels"). The parties agree that Schedule #4 was "Equipment" as Exhibit D to the agreement defined the term, and that Schedules #4A and #4A-UP were "Upgrades," also as defined in Exhibit D. The parties therefore agreed that Meridian should receive the proceeds of the sale of the Schedule #4 Equipment and Fulcrum should receive the proceeds of the sale of the Schedules #4A and #4A- UP Upgrades. (We discuss in part C who should receive the proceeds for the Escon channels.) The total sale price for all four groups was $770,000. The parties agreed that the fair market value of the Escon channels was $80,000. They could not, however, agree on a valuation of the remaining Schedules (#4, #4A, and #4A-UP), which meant that it was impossible at that point to allocate the proceeds of the sale between them. Meridian initially proposed a valuation of Schedule #4 of $345,000, leaving the value of Schedules #4A and #4A-UP at $345,000. Fulcrum disagreed and valued Schedule #4 at $230,000. Meridian went ahead with its valuation and sent Fulcrum a check for $340,000, representing its valuation of Schedules #4A and #4A-UP minus a $5,000 remarketing fee. Fulcrum disputed both the allocation amount and the payment of the fee; it therefore refused to cash the check.

At an impasse, the parties invoked Section IX of Exhibit D, which was designed to deal with remarketing transactions taking place after the Settlement Agreement in which both Equipment Subject to Subordinated Debt and regular Equipment and/or Upgrades are at issue

Allocations. In connection with any Remarketing involving both Equipment Subject to Subordinated Debt and Upgrades, any Remarketing proceeds (both sales price and lease rentals) shall be allocated between the Equipment Subject to Subordinated Debt and Upgrades on the basis of fair market value of the respective components as of the effective date of such Remarketing. If Fulcrum and Meridian are unable to agree upon the respective fair market values, the allocation shall be settled by submission of the dispute to four (4) nationally recognized computer dealers . . . . Appraisal reports shall be submitted by each appraiser within seven (7) days after his appointment and the respective fair market values of the Equipment and Upgrade at issue shall be the arithmetic mean of all appraisals; provided, however, if any appraisal deviates from the arithmetic mean by more than twenty percent (20%), said appraisal shall be disregarded. . . .

Unfortunately for all involved, hindsight reveals that this provision left a good deal to be desired. Indeed, it is not even clear how it should be characterized. The parties refer to it as the "arbitration" provision, but this does not seem quite right. Rather than provide for binding arbitration of the allocation issue as a whole, the provision merely lays out a means of appraising the value of individual items in those cases where the parties disagree about fair market value. Moreover, the four "arbitrators" do not come to a decision; instead, each of them merely appraises the value of the Equipment and/or Upgrades and a mathematical formula takes care of the rest. In the end, however, it is not the terminology that matters for this case; because the parties have referred to this as the "arbitration" provision, we will do so as well.

The contract contemplates that the respective fair market value of each item of sold Equipment and Upgrades will be determined independently. Although it would have made logical sense for it also to stipulate that the fair market value of the individual items should add up to the total sale price, nothing in the Agreement so states. Naturally, as believers in Murphy's Law would say, that omission proved to be exactly the problem here.

As required by Section IX of the Agreement, the four arbitrators appraised the separate fair market values of Schedule #4, Schedule #4A, and Schedule #4A-UP. (The parties did not request a fair market valuation for the Escon Channels (Schedule D), because they had already agreed that...