GreatAmerica Financial Services Corporation v. Monge & Associates, P.C. ( 2019 )

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).
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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
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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.
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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
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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).
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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.
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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.
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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.
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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
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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.