Marlin Finan. & Leasing v. Nationwide Mut.

Decision Date29 July 2004
Docket NumberNo. E2003-01045-COA-R3-CV.,E2003-01045-COA-R3-CV.
Citation157 S.W.3d 796
CourtTennessee Court of Appeals

John B. Curtis, Jr., Chattanooga, Tennessee, for the appellee, Marlin Financial & Leasing Company.


CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which D. MICHAEL SWINEY, J., joined. HOUSTON M. GODDARD, P.J.,1 did not participate in the Court's decision.

This is a declaratory judgment action filed by Marlin Financial & Leasing Corporation ("Marlin") against its insurer, Nationwide Mutual Insurance Company ("Nationwide"), seeking a determination as to coverage under Marlin's insurance policy with Nationwide. Specifically, the suit seeks to obligate Nationwide to pay $8,333.33, the amount of Marlin's settlement of a claim asserted by AmSouth Bank ("AmSouth" or "the Bank"), and associated attorney's fees and expenses of $52,654.05. The trial court granted summary judgment to Marlin, finding that AmSouth's claim against Marlin for "loss of use" of certain property was covered under the business liability feature of the policy and that Marlin was entitled to reimbursement for the amount of its settlement of AmSouth's claim and Marlin's related litigation expenses. The trial court ultimately awarded Marlin prejudgment interest, but it refused to assess a bad faith penalty against Nationwide. Nationwide appeals and both sides raise issues. We affirm.


Marlin is in the business of brokering leases among vendors, customers, and financial institutions. On March 20, 1997, Marlin entered into a lease agreement with Island Cove Marina & Resort ("Island Cove") for boat racks and a dry storage building. Prior to entering into the lease, Marlin arranged for financing through AmSouth Bank. In determining whether to provide financing, AmSouth relied upon financial information it had received from the owners of Island Cove.

The master lease schedule entered into between Marlin and Island Cove provides, in pertinent part, as follows:

F. SPECIAL CONDITIONS: ... (2) Unless otherwise stated in this Schedule, [Island Cove] is hereby given an option to purchase the Equipment at the end of the lease term for an amount equal to its then fair market value.

G. OWNER: The Equipment leased herein is owned by [Marlin] (referred to in the Lease as "Owner").

(Capitalization in original).

The master lease agreement entered into between Marlin and Island Cove provides, in pertinent part, as follows:

* * *

7. EXPIRATION OF TERM AND RETURN OF EQUIPMENT. Upon the expiration of the term of this Agreement ... [Island Cove] shall promptly return the Equipment ... at its sole expense... to such place as [Marlin] may designate.... If [Island Cove] shall retain possession of the Equipment ... after the expiration or earlier termination of this lease, [Island Cove] shall be deemed to be holding over [on] a month-to-month basis, and all terms hereof shall remain in full force and effect, including the payment by [Island Cove] of rent.

[Island Cove] shall make the Equipment available for inspection by prospective buyers at any reasonable time or times prior to [the] Expiration or termination of this Lease. At the option of [Marlin], [Marlin] may keep the Equipment on [the] premises until [Marlin] shall have leased, sold, or otherwise disposed of the Equipment....

8. TITLE OF LESSOR: POSSESSION AND USE OF THE EQUIPMENT. Title to the Equipment shall at all times remain in [Marlin]....

* * *

17. ASSIGNMENT BY LESSOR. [Marlin] may transfer, sell, or assign this Lease, title to the Equipment, and/or any rents or other sums due to become due hereunder, or delegate any of [Marlin's] duties hereunder without prior notice to or the consent of [Island Cove] and in such event [Marlin's] transferee or assignee shall have all the rights, powers, privileges and remedies of [Marlin] under this Lease.

* * *

19. REMEDIES. Upon the occurrence of any Event of Default, and at any time thereafter so long as the same shall be continuing, [Marlin] may declare this Lease in default. Such declaration shall be made by written notice mailed to [Island Cove] at its address specified above. Upon the mailing of such notice, [Island Cove] hereby authorizes [Marlin] at any time and from time to time to enter upon, with or without legal process, any premises where the Equipment may be located and take possession thereof at [Island Cove's] expense. Additionally, upon the mailing of the notice declaring the Lease in default, [Island Cove], without further demand, shall pay to [Marlin] an amount equal to any unpaid rentals or other monies due on or before an Event of Default, plus as liquidated damages, and not a penalty, at an amount equal to the present value of all rentals remaining to be paid under the Lease together with the present value of [Marlin's] residual interest of the Equipment (as if no default had occurred) discounted using a simple interest rate per annum equal to the "Federal Funds Rate" means the average between the high and low Federal Funds money rate published (as of the date of the Event of Default (or the next business day)[)] in The Wall Street Journal such rate representing reserves traded among commercial banks for overnight use in amounts of one million dollars or more. If the value of the residual interest of the Equipment is not specified in the Schedule, it shall be deemed the fair market value of the Equipment at the end of the term of the Lease. Thereupon, [Marlin] shall (i) sell the Equipment at a private or public sale, in bulk or in parcels, with or without notice, and at [Marlin's] option, without having to have the Equipment present at the place of sale, or (ii) lease, otherwise dispose of or keep idle all or part of the Equipment subject, however, to its obligation to mitigate damages, and (iii) at [Marlin's] option, use [Island Cove's] premises for any or all of the foregoing without costs, damages, or otherwise. The proceeds of sale, lease or other disposition of the Equipment shall be applied first (1st) to all of [Marlin's] costs incurred in obtaining possession of and selling the Equipment, second (2nd), to any unpaid sums or other monies due [Marlin] under the Lease, including unpaid rentals, costs, and any indemnification then remaining unpaid; third (3rd) to the liquidated damages due [Marlin] under this Lease; fourth (4th) to any incidental damages of [Marlin]; and fifth (5th) any surplus funds, if any, shall be paid to [Island Cove]. In addition to any remedies set forth herein or otherwise available at law, [Marlin] shall also have all the rights and remedies afforded to [Marlin] under UCC — [L]eases § 47-2A-I 01. et seq., including but not limited to UCC — [L]eases § 47-1-A-508.

In the event [Marlin] shall be entitled to possession of the Equipment pursuant to the Section, due to an Event of Default, [Island Cove] (at its own expense) shall cause the Equipment to be delivered to [Marlin] at such point or points designated by [Marlin] in accordance with Section 7. At the option of [Marlin], [Marlin] may keep the Equipment on any of the premises of [Island Cove] (or where the Equipment is located) until [Marlin] shall have leased, sold, or otherwise disposed of the Equipment. For such purposes, [Island Cove] agrees to use its facilities without charge. [Island Cove] shall pay [Marlin] all costs and expenses, including reasonable attorney's fees, incurred by [Marlin] in exercising any of its rights or remedies hereunder.

No remedy provided herein is intended to be exclusive, but each shall be cumulative, and shall be in addition to any other remedy referred to herein or otherwise available to [Marlin] at law or in equity. The exercise of any of the remedies provided herein shall not be deemed to constitute a termination of this Lease unless [Marlin] so notifies [Island Cove] in writing.

* * *

26. FILING AS TRUE LEASE, SECURITY INTEREST. [Island Cove] shall execute any such documents or financing statements as [Marlin] deems to be necessary or advisable and shall otherwise cooperate to defend the title and interest of [Marlin]. [Island Cove] agrees to pay all costs of preparing and filing any such documentation.... It is expressly agreed that any filings or financing statements shall not be deemed to affect the nature of this Lease as a true and bona fide equipment lease and/or a Finance Lease, but rather to give notice to all interested parties of [Marlin's] interest in the property....

(Boldface type and capitalization in original) (emphasis added).

Upon entering into the lease, Marlin assigned all of its right, title, and interest in the boat racks and dry storage building to AmSouth. Marlin then entered into a second lease with Island Cove on August 28, 1997, for three floating docks. The terms of the second lease are identical to those of the first lease. As before, AmSouth provided the financing, and in return, Marlin assigned its right, title, and interest in the docks to the Bank.

The initial lease assignment from Marlin to AmSouth provides, in pertinent part, as follows:

1. [Marlin] hereby assigns to [AmSouth] its entire right, title and interest in and to that certain Master Lease Agreement ("the Lease") ... between [Marlin] and [Island Cove], together with [Marlin's] right to receive all rent and other monies thereunder, and all of [Marlin's] right, title and interest in and to any guaranties or other rights and interests granted to [Marlin] to secure the payments due under the terms of the Lease. [Marlin] retains the right, title and interest to any amounts paid by [Island Cove] should [Island Cove] exercise its option to purchase the Equipment ... at the end of the lease term. Should [Island...

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