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AT & T CREDIT CORP. v. ZURICH DATA CORP.

February 24, 1999

AT & T CREDIT CORPORATION, PLAINTIFF,
v.
ZURICH DATA CORPORATION AND ZURICH DEPOSITORY CORPORATION, DEFENDANTS/THIRD PARTY PLAINTIFFS, V. AT & T CORPORATION, LUCENT TECHNOLOGIES, INC. AND COMMVAULT SYSTEMS, THIRD PARTY DEFENDANTS.



The opinion of the court was delivered by: Walls, District Judge.

OPINION

This matter comes before the Court on the motion of plaintiff AT & T Credit Corp. ("AT & T Credit") for summary judgment on its claims against defendants Zurich Data Corp. and Zurich Depository Corp. (collectively "Zurich") and dismissal of defendants' counterclaim and the cross-motion of the Zurich defendants for summary judgment to dismiss the complaint. Pursuant to Fed.R.Civ.P. 78, the Court decides these motions without oral argument. Plaintiff AT & T Credit's motion for summary judgment on its claims is granted; AT & T Credit's motion for summary judgment dismissal of the defendants' counterclaim is denied; the Zurich defendants' motion to dismiss the complaint is denied.

FACTS

This action arises out of a lease agreement between plaintiff AT & T Credit and the Zurich defendants wherein plaintiff was to finance defendants' purchase of computer hardware and software from the AT & T Corporation ("AT & T Corp."). Under the Master Equipment Lease Agreement ("the Lease Agreement"), Zurich Data agreed to assign its rights in equipment purchased from AT & T Corp. to AT & T Credit and AT & T Credit agreed to lease back certain computer hardware and software to Zurich Data for thirty-six months beginning July, 1995. Pursuant to an amendment to the Lease Agreement, Zurich Depository agreed to be a co-lessee with Zurich Data, jointly and severally responsible for the payment obligations of the Lease Agreement. On July 5, 1995, when Zurich executed the Lease Agreement by a Commencement Certificate, it acknowledged delivery, acceptance, and proper working condition of the leased equipment. (Lipkin Aff. Ex. V.)

That equipment was the subject of a September 21, 1994 purchase and licensing agreement ("Licence Agreement") between Zurich and AT & T Corp. Under that Agreement, AT & T Corp. agreed to sell to Zurich computer hardware, software, licenses, development rights, and technical support known as a "CommVault" system. The CommVault system would enable Zurich, a data storage business, to receive data for storage from its clients electronically. AT & T Corp. delivered the system to Zurich in November, 1994 and March, 1995. Because AT & T Corp. did not receive payment from Zurich, by letter dated June 30, 1995 it terminated their License Agreement. Although this termination letter was dated before Zurich Data executed its Lease Agreement with AT & T Credit, the termination was not effective until 90 days from the letter's date. Zurich Data contends that although it possessed the equipment, it was not licensed to use it at the beginning of the Lease Agreement because the License Agreement had already been terminated. Zurich argues that the lease was not initiated because AT & T Credit never delivered the licenses to use the equipment.

According to AT & T Credit, in August, 1995 Zurich made a payment under the Lease Agreement and did not make any subsequent ones. (Compl. ¶ 9.) On April 17, 1996, AT & T Credit sued Zurich for breach of the Lease Agreement. By letter to AT & T Credit dated July 16, 1996, Zurich revoked its acceptance of the leased equipment. (Lipkin Aff., Ex. W.) On August 30, 1996, Zurich filed an answer, counterclaim, and a third-party complaint against AT & T Corp., Lucent Technologies, Inc., and CommVault Systems.*fn1 In its counterclaim, Zurich asserts that the equipment never performed to standards set by the License Agreement and that AT & T Corp. and AT & T Credit acted together to breach the License Agreement. Zurich contends that the Lease Agreement was related to the License Agreement with AT & T Corp. Zurich's third-party complaint asserts claims for breach of contract, breach of warranties in the License Agreement, tortious interference with contract, and tortious interference with prospective business advantage.

Earlier, plaintiff moved for summary judgment. This Court held by Letter Order that material issues of fact existed as to whether the Lease Agreement was ever effected — whether plaintiff actually delivered the goods to be leased — and, if so, whether the leased goods were timely rejected by defendant Zurich Data. The Court determined that the lease entered into by AT & T Credit and Zurich was a finance lease defined by the New Jersey Uniform Commercial Code, N.J.S.A. 12A:2A-101 et seq. Notwithstanding defendants' objections, the Court found that the actual status of the Lease Agreement was not affected by the relationship of AT & T Credit to AT & T Corp. as its corporate subsidiary. The Court wrote that in order to effect a finance lease, a lessor must first acquire the goods to be leased, and it was unclear whether AT & T Credit ever acquired the equipment. AT & T Credit maintained that it had acquired the equipment when Zurich Data assigned its rights under the License Agreement to it. However, because the License Agreement was canceled apparently before Zurich executed the Lease Agreement, the Court concluded that it was uncertain what goods, if any, AT & T Credit was entitled to lease defendants after June 30, 1995.

AT & T Credit maintains that after further discovery, these material issues of fact have been resolved. In particular, it contends that the June 30, 1995 letter of termination did not take effect until 90 days later. (Lipkin Aff., Ex. R.) Because of this, the License Agreement was still in effect on July 5, 1995 when the Lease Agreement was executed. And the licenses were "delivered" with the software and hardware. AT & T Credit argues that James Holleran, president/CEO of Zurich, admitted in his deposition that after the June 30, 1995 letter both Zurich and AT & T Corp. continued to operate as if the License Agreement had not been terminated. (Pl.'s Br. in Supp. of Its Mot. for Summ. J. at 15; Lipkin Aff. Ex. G at 100:5-101:6.) As to the second issue of material fact, AT & T Credit claims that the Court need not decide whether Zurich's delay in revoking its acceptance of the leased goods was reasonable, because Zurich, as a matter of law, cannot revoke its acceptance. (Pl.'s Br. in Supp. of Its Mot. for Summ. J. at 18.)

Zurich maintains that the complaint should be dismissed because AT & T Credit never delivered the licenses for the CommVault system, the Lease Agreement was never initiated and therefore cannot be enforced. Zurich argues that it believed the June 30, 1995 termination would be rescinded after payments were made under the lease, but that termination was not rescinded. Hence, AT & T Credit did not obtain the licenses to deliver them to it. Zurich further asserts that AT & T Credit has not established that the Lease Agreement was a finance lease within the irrevocability provisions of N.J.S.A. § 12A:2A-407. It argues that AT & T Credit failed to mitigate its damages by repossessing the equipment from Zurich after Zurich had revoked its acceptance. Finally, Zurich contends that AT & T Credit interfered with Zurich's efforts to sell the leased equipment because it informed the prospective purchaser that Zurich was in default of the Lease Agreement.

DISCUSSION

A. Summary Judgment Standard

Summary judgment is appropriate where the moving party establishes that "there is no genuine issue of fact and that [it] is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A factual dispute between the parties will not defeat a motion for summary judgment unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 24748, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for the nonmovant and it is material if, under the substantive law, it would affect the outcome of the suit. See Anderson, 477 U.S. at 248. The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the nonmoving party to carry its burden of proof. See Celotex v. Catrett, 477 U.S. 317, 318, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts in question." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. See Sound Ship Building Co. v. Bethlehem Steel Co., 533 F.2d 96, 99 (3d Cir. 1976), cert. denied, 429 U.S. 860, 97 S.Ct. 161, 50 L.Ed.2d 137 (1976). At the summary judgment stage the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial. See ...


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