Nostrum Laboratories, Inc. is principally engaged in the pharmaceutical business. From 2007 to the present, Nostrum Laboratories has operated a Kansas City, Missouri facility that manufactures generic pharmaceutical products. To manufacture drugproducts, Nostrum Laboratories acquires and operates equipment through leases and other means. Since 2012, Nostrum Pharmaceuticals LLC has owned all shares of Nostrum Laboratories.3 Balboa Capital Corporation is a financing company.
On August 1, 2011, Donald F. Henson, Jr., then a Vice President of Balboa, sent a lease proposal to Frank Ann, then Controller of Nostrum Laboratories, and Anil Anand, then-Chief Financial Officer of Nostrum Laboratories and financial adviser to Nostrum. Doc. #82-8, at 2-4. Referring to their discussion, Hansen sent a proposal to Ann with what Hansen believed met Ann's expected parameters. Id. at 2. The initial lease proposal sent to Nostrum Laboratories did not contain language about a lease purchase agreement, a buy-out for a nominal fee, or buying the equipment at the conclusion of the lease. Doc. #82-8, at 3-4. Also, the initial lease proposal did not mention return of equipment, payment of a residual, or payment of the fair market value of the equipment. Id.; Doc. #89-4, at 11-12.
During the course of the next month, Anand and Ann regularly communicated with Hansen about the proposed lease transaction. According to Anand and Ann, throughout these discussions, they discussed a "capital lease" with Hansen, and referred to financing and buying the equipment at the conclusion of the scheduled lease payments. Doc. #89-2, at 6; Doc. #89-3, at 3.4 The parties seem to agree a "capital lease" is a finance lease that provides the lessee with an option to purchase the equipment at the conclusion of the lease agreement. Doc. #81-18, at 9; Doc. #89-2, at 6; Doc. #89-3, at 3.
On September 6, 2011, Hansen sent Ann a proposed master lease agreement for signature by Manesh Dixit, Nostrum Laboratories' then-Chief Operating Offer. Ann sent an email that same day asking about a typographical error in the proposed agreement. Ann's email did not include anything about purchase of the equipment, a buy-out, or an amount for a buy-out. In another email sent the same day, Ann asked for revisions to the proposed agreement and asked about the yield rate, which, accordingto Ann, is only relevant when the parties are discussing cost of acquisition. In this second email, similar to the first, Ann did not specifically refer to purchase of the equipment, a buy-out, or an amount for a buy-out.
Eventually, Balboa and Nostrum Laboratories entered into a master lease agreement ("agreement") to lease equipment.5 Doc. #82-12. In the agreement, Balboa is defined as the Lessor, and Nostrum Laboratories is defined as the Lessee. The portions of the agreement upon which the parties base their summary judgment arguments are as follows:
1. LEASE. Lessor shall lease to Lessee and Lessee shall lease from Lessor the items of equipment and other personal property (hereinafter, together with all replacements, repairs, substitutions, additions, accessions and accessories therefor and/or thereto, called the "Equipment") described in the Schedule(s)...now or hereafter from time to time executed by Lessor and Lessee and made a part hereof, all upon the terms and conditions hereinafter set forth as supplemented with respect to each item of Equipment by the terms and conditions set forth in each Schedule.
2. TERM. Each Schedule shall become effective upon acceptance by Lessor by signing and dating each Schedule and the term for any Schedule(s) shall commence on the day the leased property has been delivered to and accepted by Lessee ("Commencement Date").... The base term ("Base Term") of each Lease shall commence at the Lessor[']s sole discretion on any day occurring in the quarter following the Commencement Date and terminate upon the expiration of the number of months specified in each Schedule. Each Lease may be terminated by Lessee at the end of the base term if one hundred twenty (120) days prior to the end of the base term, written notice of such termination is delivered to Lessor via certified mail. Each Lease may be terminated by Lessor at the end of the base term if at least sixty (60) days prior to the end of the base term, written notice of such termination is delivered to Lessee via certified mail. Otherwise the term of each Lease shall automatically be extended for six months following the end of the initial base term at the rent stated on the respective Schedule(s), and shall renew thereafter for successive three month periods until notice of termination is provided by Lessee. During the initial extension period, Lessor, at its sole option, may terminate each lease upon ninety (90) days prior written notice to Lessee via certified mail. After the initial extension period, each Lease may be terminated by either Lessor or Lessee at the end of any calendar month,provided that ninety (90) days prior written notice of such termination is delivered to the other party via certified mail.
3. RENT. The rent payable with respect to any Schedule(s) shall be the amount shown on such Schedule(s). Lessee shall pay to Lessor the rent for each Schedule, in advance, for each period or any part thereof that each Lease is in effect as delineated on the Schedule. The first such payment, with respect to any Schedule, shall be made at the Lessor[']s discretion on any day occurring in the quarter following the Commencement Date.... Lessee agrees to pay taxes and reasonable fees, including but not limited to documentation fees, filing fees, credit fees, equipment inspection fees, title fees, property taxes, sales taxes, use taxes, business taxes and further agrees to pay twenty dollars ($20.00) per collection call and one hundred dollars ($100.00) per collection visit. Lessor may apply remittances received to unpaid rental installments and/or other charges on a due date basis, remittance received being applied to the oldest unpaid rental or charge.
4. FINANCE LEASE STATUS. The parties agree that this Lease is a Finance Lease as defined by Section 10103(a)(7) of the California Uniform Commercial Code ("UCC"). Lessee acknowledges the following: (a) Lessor has not selected, manufactured, or supplied the Equipment; (b) Lessor acquired the Equipment or the right to possession and use of the Equipment in connection with the Lease; (c) Lessee has received, reviewed and approved all written Supply Contracts (as defined by UCC Section 10103(a)(25)) covering the Equipment purchased from the Supplier (as defined by UCC Section 10103(a)(24)) thereof for lease to Lessee on or before signing this Lease Contract (as defined by UCC Section 10103(a)(12)); (d) Lessor has informed Lessee in writing of the identity of the Supplier; (e) Lessor has informed Lessee that Lessor may have rights under the Supply Contract and that Lessee is to contact the Supplier for a description of any such rights, and; (f) Lessor provides no warranties or other rights with respect to the purchase of the Equipment and any and all rights Lessee has with respect to the purchase of the Equipment are solely against supplier, and Lessee may communicate at any time with the supplier prior to executing this Lease.
9. OWNERSHIP. The Equipment...shall at all times be and remain, the sole and exclusive property of Lessor, and Lessee shall have no right, title or interest therein or thereto except as expressly set forth in this Lease. Plates, labels or other markings stating that the Equipment is owned by Lessor shall be affixed to or placed on the Equipment by Lessor or, at Lessor's request or if required by law, by Lessee at Lessee's expense, and Lessee shall keep the same in a prominent position thereon.
10. PERSONAL PROPERTY. The Equipment is, and shall at all times be and remain, personal property notwithstanding that it or any part thereof may now be or hereafter become, in any manner affixed or attached to, or embedded in, real property or any building thereon. Lessee agrees that it will furnish and record, at its own expense, such owners', mortgagees', landlords', or other disclaimers, waivers, or consent as may be necessary or reasonably requested by Lessor in order to give full effect to the intent and provisions of the preceding sentence.
14. LOSS, THEFT AND DAMAGE. Lessee shall at all times after signing this Lease bear the entire risk of loss, theft, damage or destruction of the Equipment from any cause whatsoever, and no loss, theft, damage or destruction of the Equipment shall relieve Lessee of the obligation to pay rent or to comply with any other obligation under this Lease. In the event of damage to any part of the Equipment, Lessee shall place same in good repair at Lessee's expense. If Lessor determines that any part of Equipment is lost, stolen, destroyed or damaged beyond repair,
...
