GreatAmerica Financial Services Corporation v. Monge & Associates, P.C.

• Court: Court of Appeals of Iowa
• Decided: August 7, 2019
• Docket: 18-1233
• Status: Published

Opinion

IN THE COURT OF APPEALS OF IOWA

No. 18-1233 Filed August 7, 2019

GREATAMERICA FINANCIAL SERVICES CORPORATION, Plaintiff-Appellee,

vs.

MONGE & ASSOCIATES, P.C., Defendant-Appellant. ________________________________________________________________

Appeal from the Iowa District Court for Linn County, Chad A. Kepros, Judge.

Monge & Associates, P.C., appeals from the district court’s order granting

summary judgment in favor of GreatAmerica Financial Services Corporation in this

breach-of-contract action. AFFIRMED.

Samuel E. Jones and Vincent S. Geis of Suttleworth & Ingersoll, P.L.C.,

Cedar Rapids, for appellant.

Randall D. Armentrout and Leslie C. Behaunek of Nyemaster Goode, P.C.,

Des Moines, for appellee.

Considered by Mullins, P.J., Bower, J., and Vogel, S.J.*

*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2019). 2

BOWER, Judge.

Monge & Associates, P.C. (Monge), appeals from the court’s order granting

summary judgment in favor of GreatAmerica Financial Services Corporation

(GreatAmerica) in this breach-of-contract action. Monge contends the trial court

erred in failing to consider the close-connection doctrine it raised as an affirmative

defense. Finding no error, we affirm.

I. Background Facts and Proceedings.

The following facts are undisputed.

GreatAmerica filed a petition contending, Monge (a Florida law firm) leased

telephonic equipment from a Florida corporation, Vertical Communications, Inc.

(Vertical). On March 13, 2017, Monge sought financing of the system, and it

submitted an application for financing through Vertical, which Vertical submitted

directly to GreatAmerica, an Iowa corporation. GreatAmerica pre-approved the

financing application. Monge and Vertical then entered into a Prefund Request

and Authorization/Agreement No. 1234104 (Agreement 1234104) for the lease

and installation of a telephone system involving fifty-five phones worth

approximately $70,000. Additionally, on April 17, 2017, Monge and Vertical

entered into Prefund Request and Authorization/Add-On No. 1234104-001 (Add-

On 1234104-001) for financing for the sale of additional cables, licenses, and

subscriptions, with an additional monthly payment of $363.90 for thirty-four

months. Vertical sought and received preapproval for the financing from

GreatAmerica.

GreatAmerica alleged Vertical assigned the Agreement and Add-On to

GreatAmerica, and GreatAmerica provided financing for Monge. GreatAmerica 3

further alleged Monge failed to make the required payments on the Agreement and

Add-On, constituting a breach of written contract.

Monge answered, generally denying the allegations and asserting

affirmative defenses, including:

(2) Pursuant to the close connection doctrine, the actions of Vertical Communications, Inc. negate [GreatAmerica’s] ability to assert claims as a holder in due course. (3) The subject agreement is unenforceable under the doctrine of impossibility and/or impracticability. (4) The subject agreement is unenforceable under the doctrine of frustration of purpose. (5) The subject agreement is unenforceable under the doctrine of unconscionability. (6) [Monge] is not liable to [GreatAmerica] because of the following defense: (a) Failure of consideration (b) Fraud in the inducement (c) Illegality (d) Estoppel (e) Mutual mistake

GreatAmerica filed a motion for summary judgment, noting Agreement

1234104 between Vertical and Monge includes these provisions:

ASSIGNMENT. You [Monge] may not sell, assign, or sublease the Equipment or this Agreement without our [Vertical’s] written consent. We may sell or assign this Agreement and our rights in the Equipment, in whole or in part, to a third party without notice to you. You agree that if we do so, our assignee will have our assigned rights under this Agreement but none of our obligations and will not be subject to any claim, defense, or set-off that may be assertable against us or anyone else. .... If you do not pay any sum within [ten] days after its due date, or if you breach any other term of this Agreement or any other agreement with us, you will be in default, and we may require that you return the Equipment to us at your expense and pay us: (1) all past due amounts and (2) all remaining payments for the unexpired term, plus our booked residual, both discounted at 4% per annum. We may also use all other legal remedies available to us, including disabling or repossessing the Equipment. You agree to pay all our costs and expenses, including reasonable attorney fees, incurred in 4

enforcing this Agreement. You also agree to pay interest on all past due amounts, from the due date, at 1.5% per month.

Both Agreement 1234104 and Add-On 1234104-001 contain the following

provision:

YOU AGREE THAT YOUR OBLIGATION TO MAKE THE PAYMENTS CALLED FOR UNDER THE AGREEMENT HEREBY COMMENCES IMMEDIATELY. YOU FURTHER AGREE THAT YOUR OBLIGATION TO MAKE THE PAYMENTS CALLED FOR UNDER THE AGREEMENT IS UNCONDITIONAL AND THAT YOU WILL TIMELY PERFORM ALL SUCH OBLIGATIONS WITHOUT ANY CLAIM OF SET-OFF, EVEN IF: (A) YOU DO NOT RECEIVE SOME OR ALL OF THE FINANCED ITEMS; (B) THE FINANCED ITEMS ARE RECEIVED BY YOU, BUT NOT ON A TIMELY BASIS; AND/OR (C) THE FINANCED ITEMS DO NOT, AT THE TIME OF YOUR RECEIPT OR THEREAFTER, OPERATE PROPERLY, ARE INEFFECTIVE, OR THERE IS ANY OTHER NONCONFORMANCE IN ANY SUCH FINANCED ITEM. You agree that any issues you may have concerning delivery, installation, implementation, and/or the quality or fitness of any Financed Item will be resolved exclusively between you and us [Vertical].

GreatAmerica asserted—and supported by an affidavit of its representative

Steve Louvar—that Vertical assigned its rights in the Agreement to GreatAmerica

in exchange for $57,774.89, and at the time of this assignment, GreatAmerica had

no knowledge of any defenses by Monge or any defects in the Agreement, and

Monge made two payments to GreatAmerica but none after May 9, 2017.

Again supported by Louvar’s affidavit, GreatAmerica asserted Vertical

assigned its rights in the Add-On to GreatAmerica in exchange for $9,380.35, and

at the time of the assignment, GreatAmerica had no knowledge of any defenses

by Monge or any defects in the Add-On, and Monge made no payments for the

Add-On. GreatAmerica contends in the event of default, the Add-On incorporates

the terms of the Agreement. 5

GreatAmerica argued summary judgement was appropriate because the

Agreement and Add-On are valid and enforceable, and pursuant to the waiver-of-

defenses clause, GreatAmerica enjoys the status of a holder in due course and is

entitled to payment regardless of any defense Monge may have against Vertical.

Moreover, GreatAmerica argued Monge is unconditionally obligated to make

monthly payments to GreatAmerica pursuant to the “hell-or-high-water clause” and

damages should be calculated pursuant to the formula in the Agreement. It

asserted Monge had raised no real defenses.

Monge resisted, asserting (1) GreatAmerica is not a holder in due course

because it has a close connection with Vertical, (2) GreatAmerica cannot enforce

the waiver-of-defense provision because it is not a holder in due course,

(3) GreatAmerica cannot enforce the hell-or-high-water provision because it is not

a holder in due course, and (4) because it is not a holder in due course, summary

judgment is not appropriate

In support of its resistance, Monge submitted its application for credit to

Vertical, the Vendor Agreement between GreatAmerica and Vertical, and

comments between representatives of both GreatAmerica and Vertical in relation

to Monge’s credit application. In its brief in support of its resistance to summary

judgment, Monge argued there was a close connection between the two entities

and stated, “There is a clear question of fact regarding whether Vertical breached

the underlying contract.”

The district court concluded GreatAmerica had established there were no

genuine issues of material fact and GreatAmerica was entitled to judgment as a

matter of law in its breach-of-contract action because a waiver-of-defense clause 6

is enforceable by an assignee if the assignment is taken for value, in good faith,

and without notice of any claim or defense1 and because a hell-or-high-water

clause is enforceable whether or not the assignee is a holder in due course.2

The district court wrote:

Mr. Louvar’s affidavit, which is unrefuted by [Monge], establishes that [GreatAmerica] took assignment of the Agreement and Add-On for value, in that [GreatAmerica] paid Vertical $67,155.24 in exchange for the assignments. Iowa Code [section] 554.1201(2)(t) defines good faith as “honesty in fact and observance of reasonable commercial standards of fair dealing.” There is no evidence in the record of any behavior by [GreatAmerica] that could be found to be lacking in good faith. Mr. Louvar’s affidavit also establishes that when the assignment was made, [GreatAmerica] had no knowledge of any claims or defense regarding the Agreement or Add-On. Because [GreatAmerica] took the assignment for value, in good faith, and without notice of any claim or defense, the waiver of defense clause in this case is valid, and [Monge] cannot raise its defenses against [GreatAmerica]. [Monge] has not disputed that it entered into the Agreement and Add-On with Vertical; that Vertical assigned its interest in the Agreement Add-On to [GreatAmerica]; that [Monge] is required to make monthly payments pursuant to the terms of the Agreement and Add-On; and that [GreatAmerica] is entitled to a damages award pursuant to the calculation formula in the Agreement and Add-On. [Monge] also has not disputed that [GreatAmerica] was not aware of any claims or defenses by [Monge] with regard to the Agreement or Add-On, or that [Monge] has defaulted on the Agreement and Add- On. While [Monge] has argued that [GreatAmerica] has not established its status as [a] holder in due course, the court notes that the Wolfe court specifically adopted the position that an assignee, in this case [GreatAmerica], may enforce a hell-or-high-water clause regardless of its holder-in-due-course status. In agreeing to the hell- or-high-water clause in the Agreement, [Monge] agreed that its payment obligations were non-cancelable, and [Monge] has not disputed that it failed to make payments.

1 See C&J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65, 76–78 (Iowa 2011). 2 See Citicorp of N. Am., Inc. v. Lifestyle Commcn’s Corp., 836 F. Supp. 644, 646 (S.D. Iowa 1993). 7

The court specifically noted Monge’s close-connection argument but

granted GreatAmerica’s summary judgment motion because “the Iowa Supreme

Court has not specifically adopted the close-connection doctrine.”

Monge appeals, contending the court erred in failing to consider the close-

connection doctrine.

II. Scope and Standard of Review.

We review the grant of summary judgment in favor of GreatAmerica for

errors at law. See Wolfe, 795 N.W.2d at 73. Summary judgment is proper when

the record reveals no genuine issue of material fact and the moving party is entitled

to judgment as a matter of law. Iowa R. Civ. P. 1.981(3). The non-moving party—

Monge—is entitled to have the evidence viewed in the light most favorable to its

position. See Luana Sav. Bank v. Pro-Build Holdings, Inc., 856 N.W.2d 892, 895

(Iowa 2014). “Where reasonable minds can differ on how an issue should be

resolved, a fact question has been generated, and summary judgment should not

be granted.” Wolfe, 795 N.W.2d at 73. “[O]ur review is limited to whether a

genuine issue of material fact exists and whether the district court applied the

correct law.” Id.

III. Discussion.

We begin by noting, “Contracting parties have wide latitude to fashion their

own remedies for a breach of contract and to deny full effect to such express

contractual provisions is ordinarily impermissible because it would ‘effectively

reconstruct the contract contrary to the intent of the parties.’” Id. at 77 (citation

omitted). “Thus, courts generally enforce contractual limitations upon remedies

unless such limitations are unconscionable.” Id. 8

It is undisputed Monge entered into agreements with Vertical containing

both a hell-or-high-water provision and a waiver-of-defenses provision. Monge

argues there remain genuine issues of material fact as to GreatAmerica’s close

connection to Vertical such that it may assert its defenses.

“A hell-or-high-water clause is a contractual provision that requires the

lessee to absolutely and unconditionally fulfill its obligations under the lease in all

events (i.e., come hell or high water).” Id. at 76–77. “Such clauses are common

in the commercial leasing industry.” Colo. Interstate Corp. v. CIT Grp./Equip. Fin.,

993 F.2d 743, 749 (10th Cir. 1993); see Lifestyle Commc’ns Corp., 836 F. Supp.

at 656. While some courts find the two types of clauses indistinguishable and

require a holder-in-due-course status before an assignee may enforce them, our

supreme court has differentiated the provisions: “a hell-or-high water clause

protects the lessor whereas a waiver-of-defense clause protects an assignee of

the lessor.” Wolfe, 795 N.W.2d at 78. Under Iowa law then, “an assignee may

enforce a hell-or-high-water clause irrespective of its holder-in-due-course status.”

Id. at 78.

A. Hell-or-high-water clause. Under the hell-or-high-water clause, Monge

agreed that its obligations to make payments under the Agreement and the Add-

On were to “commence[ ] immediately” and its obligations were “unconditional,”

meaning Monge would be required to meet its payment obligations even if the

equipment was not timely delivered, was not delivered at all, or failed to operate

properly. GreatAmerica, Vertical’s assignee may enforce the hell-or-high-water

clause. See id. 9

The Wolfe court did acknowledge that even though an assignee may

enforce a hell-or-high-water provision, the lessor “may still raise claims and

defenses that relate to contract formation.” 795 N.W.2d at 78. Here, Monge

summarily asserted several affirmative defenses (failure of consideration, fraud in

the inducement, illegality, estoppel, and mutual mistake). Monge asserts

GreatAmerica did not challenge its affirmative defenses and therefore is not

entitled to summary judgment. However, Monge alleges no facts to support any

of these defenses.3 Monge had the burden of proof on alleging facts to support its

affirmative defenses. See Continental Cas. Co. v. Kinney Co., 140 N.W.2d 129,

130 (Iowa 1966). Although the moving party has the burden to show there are no

genuine issues of fact, when a motion for summary judgment is supported—as it

is here—“the nonmoving party must respond with specific facts showing there is a

genuine issue for trial.” Thorton v. Hubill, Inc., 571 N.W.2d 30, 32 (Iowa 1997). “In

order to meet this requirement, the nonmoving party “may not rely on the hope of

the subsequent appearance of evidence generating a fact question.” Id. Even

viewing the record in the light most favorable to Monge, Monge has asserted no

facts in support of its defenses. The district court did not err in granting summary

judgment to GreatAmerica.

B. Waiver-of-defenses clause. The agreements between Vertical and

Monge include a waiver-of-defenses provision in which Monge agreed “[Vertical]

may sell or assign this Agreement and our rights in the Equipment, in whole or in

part, to a third party without notice to you” and the assignee “will have our assigned

3 Monge asserts only that there is a genuine issue as to whether there is a close connection between GreatAmerica and Vertical. 10

rights under this Agreement but none of our obligations and will not be subject to

any claim, defense, or set-off that may be assertable against us or anyone else.”

An assignee may enforce a waiver-of-defenses provision only if assignee

takes assignment for value, in good faith, and without notice of any claim or

defense. Iowa Code § 554.9403(2) (2017); see Citicorp, 836 F. Supp. at 657 (“Due

to the tremendous protection these waiver of defense clauses bestow upon lease

assignees, these clauses are enforceable by an assignee only if the assignee

takes the assignment for value, in good faith and without notice of any claim or

defense.”).

GreatAmerica supported its motion for summary judgment with Louvar’s

affidavit in which he asserted GreatAmerica took the assignment for value, in good

faith, and having no notice of a claim or defenses. Monge relies upon the close-

connection doctrine to negate GreatAmerica’s assertion of an assignment taken in

good faith.

With respect to the close-connection doctrine, our supreme court has

stated:

The close-connection doctrine developed in the context of negotiable instrument transactions to prevent holder-in-due-course status where the transferor was closely affiliated with the transferee. “[A] transferee does not take an instrument in good faith when the transferee is so closely connected with the transferor that the transferee may be charged with knowledge of an infirmity in the underlying transaction.”

C & J Vantage Leasing Co. v. Outlook Farm Golf Club, LLC, 784 N.W.2d 753, 761

(Iowa 2010)) (quoting Arcanum Nat’l Bank v. Hessler, 433 N.E.2d 204, 209 (Ohio

1982) (alterations in original). “[T]he doctrine of close connectedness was

developed in part because of the difficulty of proving the transferee’s actual 11

knowledge of problems in the underlying transaction. The doctrine allows the court

to imply knowledge by the transferee when the relationship between the transferee

and transferor is sufficiently close to warrant such an implication.” Arcanum, 433

N.E.2d at 211.

“The allowable defenses against a holder in due course are limited to ‘real

defenses’ such as infancy, duress, lack of capacity, and ‘fraud in factum.’ See

Iowa Code § 554.3305(2).” GreatAmerica Fin. Servs. Corp. v. Meisels, No. 15-

0933, 2016 WL 5480718, at *5 (Iowa Ct. App. Sep. 28, 2016). Monge alleged

none of the “real defenses” to a holder in due course, mentioning only “fraud in

inducement” as an affirmative defense. Even assuming we recognize the close-

connection doctrine, Monge has asserted no infirmity in the underlying transaction

about which GreatAmerica may be inferred to know.

Finding no error, we affirm summary judgment in favor of GreatAmerica.

AFFIRMED.