Sauer v. Xerox Corp.

• Decision Date: 18 August 1998
• Docket Number: No. 95-CV-6485L.,95-CV-6485L.
• Citation: 17 F.Supp.2d 193
• Parties: Fred SAUER, Plaintiff, v. XEROX CORPORATION, Defendant.
• Court: U.S. District Court — Western District of New York

17 F.Supp.2d 193

Fred SAUER, Plaintiff, v.XEROX CORPORATION, Defendant.

No. 95-CV-6485L.

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

August 18, 1998.

COPYRIGHT MATERIAL OMITTED

Gordon Locke, Gordon Locke Law Offices, New Rochelle, NY, for Fred Sauer.

John P. Coffey, Latham & Watkins, New York City, for Xerox Corporation.

DECISION AND ORDER

LARIMER, Chief Judge.

This contentious case has been pending for over three years and this Decision constitutes my fifth substantive determination concerning the merits of plaintiff's claims.Because I have written previously about the factual background of the litigation, I will not reiterate all the facts discussed in my prior decisions, familiarity with which is assumed.I will discuss only those facts pertinent to the analysis of the motions presently pending before me.

Essentially, this is a contract dispute.Sauer was the purchaser/lessor in a sale-leaseback agreement with Xerox, the seller/lessee, of equipment constituting a so-called photo receptor line.The leaseback agreement (Lease Agreement) was for an initial eight year term, extending from January of 1985 through December of 1993.¹Under the terms of the Lease Agreement, Xerox had the right to renew for two additional two year periods (January 1994 — December 1995; and January 1996 — December 1997), and then purchase back the leased equipment at the end of the renewal periods.SeeLease Agreement at§§ 18, 19.The rent amount for the renewal periods (Fair Market Rental Value), as well as the repurchase price (Fair Market Value), were to be determined in accordance with an appraisal procedure set forth in the Lease which, if necessary, included retention of an independent, third party appraiser selected by the AAA.Lease Agreementat p. 2.The determination of the independent appraiser was to be "binding and conclusive on the Lessor and the Lessee."Id.

In accordance with the terms of the Lease Agreement Xerox timely exercised its right to renew for both renewal periods and also exercised its repurchase rights.However, the parties were unable to agree upon a renewal rent amount or repurchase price, and Sauer challenged many of Xerox' actions related to or arising out of the parties' efforts to establish such amounts.It is the activities surrounding the appointment of the independent appraiser and his final determination that are at the heart of this litigation.Before the appraisal process was concluded, Sauer commenced this lawsuit on July 20, 1995.

To date, six causes of action remain pending against Xerox: two breach of contract claims (causes of action one and three) and four claims sounding in fraud (causes of action two, four, five and eight).²Xerox asserts six counterclaims against Sauer: four breach of contract claims, a tortious interference claim, and a fraud claim.

Presently pending before me are three motions: Xerox' motion for summary judgment, Sauer's motion for partial summary judgment, and Xerox' motion to strike certain affidavits.Xerox moves for summary judgment dismissing all of Sauer's claims.Sauer cross-moves for partial summary judgment in his favor on his two breach of contract claims, and moves against all of Xerox' counterclaims.Finally, Xerox moves to strike certain affidavits submitted in support of Sauer's motion.

For the reasons stated below, Xerox' motion for summary judgment is granted in its entirety.Sauer's motion for partial summary judgment and Xerox' motion to strike are denied in their entirety, as moot.

I.Sauer's Breach of Contract Claims

A.First Cause of Action — Breach of Contract for Failure to Pay Renewal Rent

This lawsuit was commenced on July 20, 1995.In his first cause of action, Sauer alleges that Xerox breached the Lease Agreement by failing to pay any renewal rent during the period following expiration of the Lease on December 31, 1993.Sauer seeks damages equal to the Fair Market Rental Value for the period January 1, 1994 through December 31, 1995, in an amount not less than $3,200,000.

Xerox moves to dismiss Sauer's first cause of action on the grounds that Sauer failed to adhere to the procedural requirements set forth the Lease Agreement — i.e., providing notice and opportunity to cure — prior to asserting this claim.Additionally, Xerox asserts that the cause of action must be dismissed because as of July 1995 no renewal rent amount had been established and, thus, Xerox could not be in default for failure to pay an as yet undetermined amount.Finally, Xerox asserts that it has since paid the full Fair Market Rental Value amount, plus interest.

The Lease Agreement defines pertinent events, including a Default and an Event of Default.A Default is defined as being an event which "after the giving of notice or lapse of time, or both, would mature into an Event of Default."Lease Agreementat p. 3.For instance, with respect to renewal rent payments, an Event of Default occurs when the lessee fails to make payment within five days after receipt of notice that the payment is past due.SeeLease Agreement at§ 20(a).

Upon an Event of Default, the Lease Agreement sets forth the lessor's remedies.Section 21(a) of the Lease Agreement, states that

"[u]pon the occurrence of any Event of Default ... the Lessor may ... declare this Lease to be in default by written notice to such effect given to the Lessee, and at any time thereafter, the Lessor may exercise one or more of the following remedies, as the Lessor in its sole discretion shall lawfully elect:

(i) Proceed by appropriate court action ... to enforce performance by the Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof;

(ii)By notice in writing terminate this Lease, whereupon all rights of the Lessee to the use of the Leased Equipment ... shall absolutely cease and terminate...."(Emphasis added)

Thus, under Section 21(a) of the Lease Agreement the lessor is entitled either to sue to enforce the Agreement, or to terminate the Agreement, upon written notice of the lessee's Event of Default.

In his first cause of action, for the alleged failure to pay renewal rent, Sauer clearly seeks to enforce the Agreement and recover damages pursuant to § 21(a)(i) of the Lease.No attempt is made to terminate the Lease.However, prior to asserting this claim, Sauer not only failed to give Xerox timely written notice of an alleged Event of Default, as required by § 21(a), but no Event of Default, as defined in § 20, had even occurred.

It is undisputed that Sauer's only written notice to Xerox concerning Xerox' alleged failure to pay renewal rent came by letter dated July 21, 1995, one day after this suit was filed.In that letter Sauer notified Xerox that it had failed to make renewal rent payments for the period since January 1994, and that if not cured within five days, an Event of Default would occur.Thus, this written notice suffers from two impediments: because it was sent one day after suit was filed, it does not provide timely and proper written notice of Xerox' alleged Event of Default, as required by § 21(a) of the Lease Agreement.Moreover, as of that date no Event of Default, as defined in § 20(a) of the Lease Agreement, had yet occurred.

The Lease language is clear.Upon an Event of Default written notice is required prior to asserting a lawsuit.In this case Sauer not only failed to wait for an Event of Default to occur with respect to the renewal rent, but he also failed to give written notice prior to asserting this lawsuit.Thus, Sauer's actions violated the clear terms of the Lease Agreement.Xerox had no reasonable opportunity to cure because it had no notice of Sauer's complaints until after he had sued.

It is well established under New York law³ that "the terms of a written agreement define the rights and obligations of the parties to the agreement" and "where the parties have agreed to conduct themselves in a accordance with the rights and duties expressed in a contract, a court should strive to give a fair and reasonable meaning to the language used."Abiele Contracting, Inc. v. New York City Sch. Constr. Auth.,91 N.Y.2d 1, 9-10, 666 N.Y.S.2d 970, 689 N.E.2d 864(1997).Where, as here, the parties have agreed to provide notice and an opportunity to cure prior to suing for performance or asserting termination rights under a contract, those covenants must be adhered to.A party's failure to do so renders ineffective that party's rights to pursue those other remedies.SeeFilmline (Cross-Country) Prod. Inc. v. United Artists Corp.,865 F.2d 513, 518(2d Cir.1989)(where defendant failed to give timely notice and opportunity to cure, as required under agreement, subsequent attempt to terminate agreement was ineffective because it "did not conform with the Agreement")(citingGeneral Supply and Constr. Co. v. Goelet,241 N.Y. 28, 148 N.E. 778(1925));see alsoConsumers Power Co. v. Nuclear Fuel Serv., Inc.,509 F.Supp. 201, 211(W.D.N.Y.1981)(attempt to terminate contract invalidated for failure to comply with contract terms because "where the contract specifies condition precedent to the right of cancellation, the conditions must be complied with").Based upon Sauer's failure to adhere to the notice and cure provisions set forth in the Lease Agreement I find that he is precluded from seeking remedies conditioned thereon.

Even absent this impediment, however, Sauer's actions were particularly rash and unjustified because while it is true that Xerox had not paid any renewal rent, Xerox had made repeated attempts to obtain a renewal rent figure from Integrated but no rental amount had been established.Indeed, the parties were in the last stages of determining that amount when Sauer abandoned those contractual provisions and commenced the lawsuit.

Xerox first notified Integrated of its interest in renewing the lease in April 1992.Van Nort Aff'tat ¶ 8.This was twenty months before the renewal term was to begin.Beginning...