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HFGL Ltd. v. Alex Lyon & Son Sales Managers and Auctioneers

March 25, 2010

HFGL LTD. AND CNH CAPITAL EUROPE LTD., PLAINTIFFS,
v.
ALEX LYON & SON SALES MANAGERS AND AUCTIONEERS, INC., DEFENDANT.



The opinion of the court was delivered by: Joseph E. Irenas, S.U.S.D.J.

OPINION

IRENAS, Senior District Judge

This case involves a dispute arising out of Defendant Alex Lyon & Son Sales Managers and Auctioneers, Inc.'s ("ALS") sale at auction of construction equipment allegedly owned by Plaintiffs HFGL Ltd. and CNH Capital Europe Ltd. (collectively "HFGL and CNH"). HFGL and CNH presently move for summary judgment. For the reasons that follow, their Motion will be denied.*fn1

I.

This case stems from Plaintiffs HFGL and CNH and Defendant ALS's business dealings with a third-party English corporation, Thornycroft 1862 Co. Ltd., and its affiliated companies (collectively "Thornycroft").*fn2 In 2006, when Thornycroft went into administration, the English law equivalent of bankruptcy, HFGL and CNH discovered that Thornycroft had engaged in various deceptive activities. (Samson Aff. ¶ 12.) In summary, HFGL and CNH allege that Thornycroft smuggled construction equipment that rightfully belonged to HFGL and CNH from England to the United States. HFGL and CNH further allege that after the equipment arrived in the United States, Thornycroft provided the equipment to auctioneer ALS to sell at auction. (Pl. Br. at 4.) ALS sold the equipment, and HFGL and CNH did not receive any of the proceeds. (Pl. Rule 56.1 Stmt. ¶ 10, 13-14.)

The record is replete with numerous inconsistencies and conflicts, as well as material issues of disputed fact. Although the factual background remains murky, the Court has pieced together a narrative. A detailed factual account follows.

ALS' Business Arrangement with Thornycroft

Defendant ALS is an American corporation that conducts auctions of construction equipment across the United States. (Lyon Aff. 4-5.) In 2004, Thornycroft, in the guise of an internationally well-connected dealer of construction equipment, and ALS entered into a "handshake deal" for ALS to auction equipment that Thornycroft would ship from England.*fn3 (Lyon Dep. at 45:11-46:8, Jun. 11 2008.)

In accordance with their handshake deal, ALS and Thornycroft entered into the following business arrangement. ALS paid Thornycroft monetary advances, expecting to be repaid from the auction proceeds. (Lyon Aff. ¶ 13.) For its part, Thornycroft sent ALS descriptions of the "packages"*fn4 of equipment it intended to ship to ALS to auction. In its letters, Thornycroft detailed which items of equipment would be included in the packages, but did not provide serial numbers for the items. Thornycroft would then ship the packages to the United States and have them delivered directly to the auction. Upon receipt of the packages, however, ALS often discovered that Thornycroft had sent different items than it had promised. (Zimmerman Aff. Ex. 5.) Despite such discrepancies, ALS nonetheless auctioned the equipment that Thornycroft had supplied. Operating under this model, ALS sold equipment provided by Thornycroft at multiple auctions. (Lyon Aff. ¶ 14.) This relationship continued until 2006 when Thornycroft entered administration. At that time, Thornycroft owed ALS approximately $1.8 million dollars for advance payments that ALS had made. (Lyon Aff. ¶ 13.)

HFGL and CNH's Business Arrangement with Thornycroft

Plantiffs HFGL and CNH are English corporations in the business of purchasing tangible property, including construction equipment, and then leasing it to third-parties.*fn5 (Samson Aff. ¶ 2.) Rather than lease equipment they already have in stock like a car dealership, it appears that HFGL and CNH purchase individual items as needed to execute particular leasing deals. (Lyon Aff. Exs. D, J.) ALS alleges that Plaintiffs' business should be characterized as financing items, including equipment, for customers. (Lyon Aff. ¶ 20.)

In 2005, HFGL and CNH began a business relationship with Thornycroft. HFGL and CNH entered into more than 50 hire purchase agreements with Thornycroft.*fn6 In the instant motion, HFGL and CNH bring claims concerning the following nine items of equipment listed in the chart below (the "Equipment").*fn7

Asset MakeModelSerial No. KomatsuPC130-6K31967 TerexTA40A7771352 TerexTA30A8281122 TerexTA40A7771273 Caterpillar980 GIIAXG00383 CaseCX28301220 CaseCX28301300 CaseCX28301299 CaseCX28300852

These items were the subject of certain hire purchase agreements between Plaintiffs and Thornycroft (the "Hire Purchase Agreements"). The Hire Purchase Agreements pertain to one or more particular pieces of construction equipment. They describe the item or items by make, model and serial number. (Samson Aff. Exs. 1-9.) The Hire Purchase Agreements are all form contracts that share the same contractual provisions, including a choice-of-law provision, stating that the agreements are "governed by English law." (See, e.g., Samson Aff. Ex. 1 § 13.5.)

HFGL and CNH assert that pursuant to the Hire Purchase Agreements, HFGL and CNH agreed to lease construction equipment to Thornycroft in return for a certain number of monthly rental payments. (Samson Aff. ¶ 8.) The Hire Purchase Agreements provided that the equipment belonged to Plaintiffs; however, the equipment could belong to Thornycroft, if it paid all its rental payments, exercised its option to purchase the equipment, and paid an additional "Option to Purchase Fee." (Samson Aff. ¶ 9; Ex. 1 § 9.) HFGL and CNH argue that these contracts should be considered the English law equivalent of lease agreements. However, ALS disputes Plaintiffs' characterization of its business model in general, and the Hire Purchase Agreements in particular. ALS alleges that Plaintiffs' business model should be characterized as financing, rather than leasing, ...


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