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Pnc Equipment Finance, LLC, A Delaware Limited Liability Company, As Successor To v. California Fairs Financing Authority

July 11, 2012

PNC EQUIPMENT FINANCE, LLC, A DELAWARE LIMITED LIABILITY COMPANY, AS SUCCESSOR TO NATIONAL CITY COMMERCIAL CAPITAL CORPORATION,
PLAINTIFF,
v.
CALIFORNIA FAIRS FINANCING AUTHORITY, A CALIFORNIA JOINT POWERS AUTHORITY; 15TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA; 18TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA; 21ST DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA; 26TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA; 27TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA; 30TH DISTRICT AGRICULTURAL ASSOCIATION, A STATE INSTITUTION OF THE STATE OF CALIFORNIA; EL DORADO COUNTY FAIR ASSOCIATION, INC., A CALIFORNIA CORPORATION; AND MADERA COUNTY LIVESTOCK ASSOCIATION, A CALIFORNIA CORPORATION,
DEFENDANTS.



The opinion of the court was delivered by: Garland E. Burrell, Jr. Senior United States District Judge

ORDER AND RELATED CROSS-CLAIMS AND COUNTER-CLAIMS.

Plaintiff PNC Equipment Finance, LLC ("PNC") moves under Federal Rule of Civil Procedure ("Rule") 12(b)(6) for dismissal of Defendant El Dorado County Fair Association, Inc.'s ("El Dorado") counterclaims. PNC argues El Dorado's counterclaims are barred by the statute of limitations and fail to state viable claims. PNC also moves under Rule 12(f) for an order striking fifteen of El Dorado's thirty-two affirmative defenses, arguing the defenses are insufficient as a matter of law to provide PNC with fair notice of what is claimed. El Dorado filed an opposition brief.

I. LEGAL STANDARDS

A. Rule 12(b)(6)

Decision on PNC's Rule 12(b)(6) dismissal motion requires determination of "whether the complaint's factual allegations, together with all reasonable inferences, state a plausible claim for relief." Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 (9th Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

When determining the sufficiency of a claim, "[w]e accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the non-moving party[; however, this tenet does not apply to] . . . legal conclusions . . . cast in the form of factual allegations." Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (citation and internal quotation marks omitted). "Therefore, conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Id. (citation and internal quotation marks omitted); see also Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555) (stating "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do'").

B. Rule 12(f)

Rule 12(f) prescribes: "The court may strike from a pleading an insufficient defense . . . ." "[T]he function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial . . . ." Sidney--Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). "To determine that a defense is insufficient as a matter of law, the court must be convinced that there are no questions of fact, that any questions of law are clear and not in dispute, and that under no set of circumstances could the defense succeed." United States v. Global Mortg. Funding, Inc., No. SACV 07-1275, 2008 WL 5264986, at *2 (C.D. Cal. May 15, 2008) (internal quotation marks and citations omitted).

"The procedural sufficiency of a pleaded . . . defense in federal court is governed by the federal rules, even though the defense relied on may be a state defense." Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Rule 8(c) "governs the pleading of an affirmative defense." J & J Sports Prods., Inc. v. Gidha, No. CIV-S-10-2509, 2012 WL 537494, at *2 (E.D. Cal. Feb. 17, 2012). "The key to determining the sufficiency of pleading an affirmative defense is whether it gives plaintiff fair notice of the defense." Wyshak, 607 F.2d at 827.

II. BACKGROUND

This case concerns several related agreements concerning the lease of solar equipment between a finance company, PNC; a joint powers authority formed by California counties and agricultural district associations, California Fairs Financing Authority ("CFFA"); and several California agricultural, livestock, and county fair associations ("Individual Fairs"), including El Dorado. El Dorado "incorporates [into its counterclaims] as though set forth in full . . . the allegations of [PNC's First Amended Complaint ('FAC')] . . . solely for the purpose of illustrating the nature of [the claims] in this matter[.]" (El Dorado's Countercl. ("Countercl.") ¶ 5.) Relevant allegations from PNC's FAC provide context for decision on the motions.

A. Master Lease and Use Agreements

In June 2006, PNC's predecessor in interest, National City Commercial Capital Corporation ("National City"), and CFFA entered into an agreement ("Master Lease"), in which National City agreed to lease solar equipment to CFFA for use by the Individual Fairs; and CFFA agreed to "pay National City periodic installments of principal and interest[.]" (PNC's First Am. Compl. ("PNC's FAC") ¶¶ 13-14.) "[T]o secure [CFFA's] obligations to National City under the [Master] Lease, [CFFA] granted National City a first priority security interest in, among other things, the Use Agreements and User Fees [from the Individual Fairs.]" Id. ¶ 14.

"'Use Agreements' refer to agreements between [CFFA] and [Individual Fairs], . . . pursuant to which [CFFA] granted the right to use a designated portion of the [e]quipment to each [Individual Fair] in return for periodic payments of principal and interest ('User Fees')." Id. "The [s]econd full paragraph of [each] Use Agreement expressly incorporates the [Master Lease] by reference." (Countercl. ¶ 12.) "Section 1(b) of the Use Agreement states that the Use Agreement and [each Individual Fair's] 'rights [t]hereunder shall at all times be subject and subordinate to the [Master Lease], without the need for any further act or agreement by [an Individual Fair].'" Id.

B. El Dorado's Use Agreement

"In or about January 2005, [El Dorado] began having discussions with Tom Baker, an Executive Officer of [CFFA] . . . regarding the possibility of installing [solar] equipment at the [El Dorado County F]airgrounds[.]" Id. ¶ 7. "On several occasions between January 2005 and August 9, 2006, Tom Baker represented to [El Dorado] that contracts concerning [the installation of solar equipment at the El Dorado County Fairgrounds] would require [El Dorado] to enter into a lease-purchase agreement whereby [El Dorado] would lease the equipment for a contract term of 10 years, and . . . would own the . . . equipment" at the end of the contract term. Id. ¶ 8.

"On or about July 3, 2006, [CFFA] sent [El Dorado] a cover letter enclosing both the [Master Lease] and the [Use Agreement] between [CFFA] and [El Dorado]." Id. ¶ 10. "In that letter, [CFFA] confirm[ed] prior verbal representations . . . that [El Dorado] would own the [solar] equipment after the contract term." Id. El Dorado alleges it executed two identical Use Agreements in July and August 2006 (collectively, "Use Agreement"), "based on [CFFA's] verbal and written representations that [El Dorado] would own the equipment after the contract term, effectively purchasing the equipment over ten years[.]" Id. ¶¶ 11-12.

C. PNC's FAC

PNC alleges CFFA breached the Master Lease beginning in March 2011 "by . . . failing and refusing to make" the required payments. (PNC's FAC ¶ 50.) PNC further alleges that under "Section 20 of the [Master] Lease, upon an event of default, [PNC] has the right to . . . exercise its rights and remedies under the Use Agreements with respect to [the Individual Fairs], including . . . the right . . . to collect the User Fees owing from . . . El Dorado . . . to [CFFA]." Id. ¶ 51.

PNC alleges it notified El Dorado in a May 2011 writing that CFFA defaulted under the Master Lease and that under the terms of the Use Agreement and the Master Lease, El Dorado is required to make payments directly to PNC in the event of CFFA's default. Id. ¶ 108. PNC alleges "El Dorado has failed and refused, and continues to fail and refuse, to pay the User Fees to [PNC]." Id. PNC alleges a breach of contract claim against El Dorado, in which PNC seeks damages in an amount representing unpaid User Fees since March 2011. Id. ¶¶ 188-97. PNC also alleges specific performance and declaratory relief claims, in which it seeks an order directing El Dorado to pay future User Fees directly to PNC. Id. ¶¶ 106-14. PNC alleges similar claims against the other Individual Fairs and CFFA.

D. El Dorado's Counterclaims

El Dorado alleges in its counterclaims that "[a]t all relevant times until mid-November 2011, [El Dorado] understood it would own the [solar] equipment, which was permanently installed in the roof at its fairgrounds, at the end of the Use Agreement term." (Countercl. ¶ 18.) El Dorado alleges that "[c]ontrary to the multiple [verbal and written] representations by [CFFA] . . . that [El Dorado] would own the equipment after the 10 year contract term, both the [Master Lease] and the Use Agreement state otherwise." Id. ¶ 13. El Dorado further alleges "[it] would ...


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