Orix Credit Alliance, Inc. v. Horten, 96 Civil 1895 (LBS).

• Decision Date: 19 May 1997
• Docket Number: No. 96 Civil 1895 (LBS).,96 Civil 1895 (LBS).
• Citation: 965 F.Supp. 481
• Parties: ORIX CREDIT ALLIANCE, INC., Plaintiff, v. Steven C. HORTEN, Jennie Horten, Robert Lazovich, Louise Lazovich, Harry W. Jessup, and Helen Jessup, Defendants.
• Court: U.S. District Court — Southern District of New York

965 F.Supp. 481

ORIX CREDIT ALLIANCE, INC., Plaintiff, v. Steven C. HORTEN, Jennie Horten, Robert Lazovich, Louise Lazovich, Harry W. Jessup, and Helen Jessup, Defendants.

No. 96 Civil 1895 (LBS).

United States District Court, S.D. New York.

May 19, 1997.

Lewis M. Smoley, New York City, for Plaintiff.

Murphy, Pearson, Bradley & Feeney, Sacramento, CA, for Defendants; Mark E. Ellis, Gregory W. McCracken, of counsel.

OPINION

SAND, District Judge.

Plaintiff Orix Credit Alliance, Inc. ("Orix") sues to enforce a guaranty arising from an equipment lease. Plaintiff now moves for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, we deny Plaintiffs motion for summary judgment, and instead grant summary judgment in favor of Defendants.

I. BACKGROUND

The following statement of facts is taken from Orix's complaint and from the decision of the California Court of Appeal in U.S Roofing, Inc. v. Credit Alliance Corp., 228 Cal.App.3d 1431, 279 Cal.Rptr. 533 (1991), a prior lawsuit involving the leasing arrangement at issue in this litigation.

In 1983, U.S. Roofing, Inc. ("U.S.Roofing") was awarded a contract to perform roofing work at the Alameda Naval Air Station in Oakland, California. U.S. Roofing, 279 Cal. Rptr. at 536. U.S. Roofing determined that a crane would be needed to perform the work, and thus contacted Liquid Asphalt Systems ("LAS"), an equipment supplier, to discuss the acquisition of a crane. Id. Eventually, a leasing arrangement was established in which LAS sold a crane to an entity called Leasing Service Corporation ("LSC"), which in turn leased the crane to U.S Roofing. Id. On July 19, 1983, Defendants Steven C. Horten, Jennie Horten, Robert Lazovich, Louise Lazovich, Harry W. Jessup, and Helen Jessup ("Defendants" or "Guarantors") executed a personal guaranty (the "Guaranty") of all obligations of U.S. Roofing to LSC. See Compl. ¶ 11 & Ex. B. This Guaranty forms the basis for the current suit.¹

U.S. Roofing began to experience problems with the crane's performance soon after its delivery in August 1983. U.S. Roofing, 279 Cal.Rptr. at 537. After attempts were made to repair the crane, U.S. Roofing stopped making lease payments in November 1983 and sent letters to LSC and LAS seeking to revoke the lease. Id. LSC responded by treating the nonpayment as a breach of the lease, invoking the lease's acceleration clause, and repossessing the crane. Id. LSC then held a public sale, at which LSC purchased the crane. Id.

In March 1984, U.S Roofing brought suit in California state court against LSC, LAS, and the crane's manufacturer, alleging breach of warranty. Id. LSC filed a cross-complaint against U.S. Roofing for breach of the lease, id., but the Guarantors were not made parties to the suit. Following trial, the California Court of Appeal upheld a jury verdict in favor of U.S. Roofing against LAS on the issue of liability for breach of warranty, and remanded for a new trial as to damages. Id. at 536. However, the court reversed a verdict in favor of U.S. Roofing against LSC, and instead granted judgment to LSC against U.S. Roofing in the amount of $125,354.60, representing the balance due under the lease. Id. The judgment in favor of LSC against U.S. Roofing was executed in July 1991, and subsequently increased to $190,154.48 with the addition of fees and costs. See Compl. ¶ 9 & Ex. A.

The 1991 judgment against U.S. Roofing was never paid. Id. ¶ 12. Orix, as successor in interest to LSC, filed this lawsuit in 1996 against the Guarantors in an attempt to collect the $190,154.48 amount of the judgment. Id. ¶ 13. On the instant motion, Orix contends that there are no material issues of fact concerning its right to collect on the Guaranty and therefore judgment should enter in its favor as a matter of law. No cross-motion has been filed by the Guarantors; however, the Guarantors have asserted several defenses in opposition to Orix's motion, including statute of limitations, collateral estoppel, and unconscionability.

II. DISCUSSION

A. Summary Judgment Standard

Summary judgment may be granted only where the moving papers and affidavits submitted by the parties show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). The court's role is not to resolve disputed factual issues, but rather to determine whether the record, taken as a whole, supports any issues which require a trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

Summary judgment is "a drastic procedural weapon because `its prophylactic function, when exercised, cuts off a party's right to present his case to the jury.'" Garza v. Marine Transport Lines, Inc., 861 F.2d 23, 26 (2d Cir.1988) (citation omitted). Thus, the moving party has the burden of showing the absence of a genuine issue as to any material fact, and the court must view the evidence in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Garza, 861 F.2d at 26. "[N]ot only must there be no genuine issue as to the evidentiary facts, but there must also be no controversy regarding the inferences to be drawn from them." Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir.1987).

In considering a motion for summary judgment, if our analysis reveals that there are no genuine issues of material fact, but that the law is on the side of the non-moving party, we may grant summary judgment in favor of the non-moving party even though it has made no formal cross-motion. International Union of Bricklayers and Allied Craftsmen v. Gallante, 912 F.Supp. 695, 700 (S.D.N.Y.1996). Summary judgment may be granted to the non-moving party in such circumstances so long as the moving party has had an adequate opportunity to come forward with all of its evidence. Cavallaro v. Law Office of Shapiro & Kreisman, 933 F.Supp. 1148, 1152 (E.D.N.Y.1996); see also 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2720 (2d ed.1983). Notice to the moving party of the intention to grant summary judgment in favor of the non-moving party is not required; rather, the court must simply be satisfied that the moving party will not suffer any procedural prejudice resulting from an inadequate opportunity to fully present its case. Coach Leatherware Co. v. AnnTaylor, Inc., 933 F.2d 162, 167 (2d Cir.1991). The Second Circuit has made clear that procedural prejudice is not a problem where summary judgment is granted to the non-moving party on an issue which has been fully raised by the moving party. See id.

As is more fully set forth below, we grant summary judgment sua sponte in favor of Defendants because we conclude that Orix's action is barred by the applicable statute of limitations. No procedural prejudice will result from such a decision, because the limitations issue was fully briefed and argued by Orix in its summary judgment motion and the facts underlying the limitations analysis are not in dispute. This is purely a question of law, and as such it is a question which the Court can decide in favor of Defendants without a formal cross-motion on their behalf.

B. Statute of Limitations

Under New York law,² a cause of action upon a guaranty is governed by the six-year limitations period applicable to contracts. See N.Y. C.P.L.R. § 213(2) (McKinney 1990); Phoenix Acquisition Corp. v. Campcore, Inc., 182 A.D.2d 1101, 586 N.Y.S.2d 162, 163 (1992), rev'd on other grounds, 81 N.Y.2d 138, 596 N.Y.S.2d 752, 612 N.E.2d 1219 (1993); 63 N.Y. Jur.2d Guaranty and Suretyship § 319 (1987). Such a cause of action accrues, and hence the limitations period begins to run, when the debtor defaults on the underlying obligation. General Phoenix Corp. v. Cabot, 300 N.Y. 87, 89 N.E.2d 238, 241-42 (1949); Phoenix Acquisition, 586 N.Y.S.2d at 163, 63 N.Y.Jur.2d § 319. These well-settled principles are not disputed by Orix.

Applying these principles, we must conclude that the statute of limitations bars Orix from collecting against the Guarantors for the original 1983 lease obligation owed by U.S. Roofing to LSC. U.S. Roofing's default occurred in 1983 when it ceased making lease payments and LSC accelerated the lease debt. Accordingly, the limitations period for the entire lease debt expired six years later, in 1989. See Phoenix Acquisition, 596 N.Y.S.2d at 753-54, 612 N.E.2d at 1220-21 (stating that a cause of action accrues as to the entire indebtedness when the creditor chooses to exercise its acceleration option upon the debtor's default). The Guarantors, who were not parties to the California lawsuit, were sued for the first time when Orix filed the complaint in the current action in 1996. The limitations period thus expired several years before the current action was commenced.

Orix does not dispute this analysis. However, Orix contends that this suit is based not upon the original 1983 lease obligation, but rather upon the 1991 judgment rendered in favor of LSC against U.S. Roofing in the California litigation. Relying upon the common law doctrine of merger, Orix argues that the judgment served to extinguish the original lease obligation, and thus the judgment became a "new" obligation owed by U.S. Roofing to LSC. Orix points to the language of the Guaranty, which covers all debts owed by U.S. Roofing "now or hereafter existing or arising," and contends that the judgment is a debt which is covered by the Guaranty. Hence, according to Orix, this action is timely because it was filed within six years of the entry of the judgment.

Under the doctrine of merger, "[w]hen a valid and final personal judgment is rendered in favor of the plaintiff ... [t]he plaintiff cannot thereafter maintain an action on the original claim or any part thereof, although he may be able to...