Summary
recognizing the enforceability of "hell or high water" provisions in certain finance lease transactions
Summary of this case from U.S. Bank, Nat'l Ass'n v. RosenbergOpinion
Civil Action No. 04-cv-3334.
February 9, 2005
MEMORANDUM
In this contract dispute, Plaintiff, Lyon Financial Services, Inc. d/b/a U.S. Bank Portfolio Services, alleges that Woodlake Imaging, L.L.C. and its members, Oliver Hunter, Michael Zamir, and Sara Saderion, breached various contracts and guarantees. Woodlake has counterclaimed, charging that the underlying agreements are unenforceable and illegal. Lyon moves to dismiss Woodlake's Counterclaims and affirmative defenses pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(c). Lyon has also moved pursuant to Rule 12(f) to strike portions of Woodlake's pleadings as scandalous or immaterial. I grant in part and deny in part.
Background
DVI Financial Services, Inc. (Lyon's assignor) provided financing to commercial entities, either through secured loans or equipment leases. (Amended Compl. at ¶ 11). On August 23, 2002, DVI and Woodlake entered into a Master Equipment Lease, which provided that DVI and Woodlake could enter into equipment lease schedules, each of which would constitute a separate contract with an "absolute and unconditional" obligation to make prescribed rental payments. (Id. at ¶¶ 11-12). The Master Equipment Lease provides:
2.2 Lease Payments. Obligor will pay all sums due under each Schedule at such time and in such amounts as set forth in that Schedule. DVI and Obligor acknowledge and agree that each Equipment Schedule will constitute a net lease and that Obligor's obligation to pay all rent and any and all amounts payable by Obligor under any Equipment Schedule shall be absolute and unconditional, and shall not be subject to any abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment, for any reason whatsoever, and that such payments shall be and continue to be payable in all events.
3.6 Disclaimer of Warranties, Waivers . . . (b) If the Equipment fails to comply with any representation or warranty made by the supplier or manufacturer thereof, or is defective, improperly assembled or installed or otherwise unsatisfactory for any reason, Obligor shall make claim on account thereof against the vendor or manufacturer thereof, and Obligor shall nevertheless pay all rent and perform all other obligations under this Lease without asserting any claim against DVI.
* * *
(f) Obligor hereby waives its rights and remedies under the Uniform Commercial Code Section 2A-508 through 2A-522 of the Code with respect to Obligor's right to: (i) cancel any Equipment Schedule, (ii) reject any of the Equipment, (iii) recover damages, or (iv) exercise any other rights and remedies provided thereunder in connection with any default by DVI or any other circumstances therein provided.
(Master Equipment Lease at §§ 2.2, 3.6, attached as Ex. D to Pl.'s Brief) (emphasis added).
On August 23, 2002, Defendants Hunter, Zamir, and Saderion also entered into an irrevocable, unconditional, and absolute Guaranty of all of Woodlake's obligations to DVI. The Guaranty, which accrued to the benefit of DVI's successors, endorsees, and assigns provides:
2. The Guaranty. Surety hereby irrevocably, unconditionally, and absolutely guarantees to DVI, its successors, endorsees and assigns (a) the prompt payment when due, whether at maturity or upon earlier acceleration, of all Guaranteed Obligations . . .
3. Guaranteed Obligations Absolute and Unconditional. This Agreement will constitute an (a) agreement of suretyship as well as of guaranty and (b) absolute and unconditional undertaking by Surety with respect to the payment and performance of the Guaranteed Obligations by each Obligor . . .
(Guaranty, §§ 2(a), 3(a)).
Between August 2002 and May 2003, Woodlake and DVI entered into three separate Schedules to the Master Equipment Lease, which provided for the lease and hire of certain medical equipment. Pursuant to the Schedules, Woodlake obtained new medical equipment and services from Hitachi, Universal Shielding, and Konica Medical Imaging. According to the Schedules, DVI was obligated to advance $920,000 to Hitachi, $33,150 to Konica, and $30,059 to Universal. (Pl.'s Brief at Exhibits E, F, G).
Upon delivery of the equipment, Defendant Hunter executed three identical Delivery and Acceptance Certificates. Each Certificate includes the following provision:
1. (c)[Woodlake] has no defenses, set-offs or counter-claims to any of its obligations [to DVI] arising under the Schedule or any of the other Lease Documents.
(Delivery and Acceptance Certificate ¶ 1(c)).
These various contracts obligated Woodlake to make payments to DVI totaling $1,544,675.52 over sixty-three months. Through a series of transactions, DVI assigned to Lyon all its income, right, title, and interest in the Woodlake contracts. (Amended Compl. at ¶ 21-29). DVI also contracted with Lyon to serve as loan administrator and collection agent.
The parties agree that DVI made over $700,000 in payments under the Master Equipment Lease or Schedules. Citing DVI's failure to meet all its funding obligations, Woodlake has refused to make any payments required by the Lease and Schedules. On August 25, 2003, DVI filed for bankruptcy under Chapter 11.
Lyon is the court-appointed successor to DVI in the bankruptcy proceeding, and is the assignee of the leases. On July 15, 2004, Lyon filed the present action, seeking to recover from Woodlake approximately $1.3 million. Lyon alleges that Woodlake owes Lyon as assignee the amounts set out in the Master Equipment Lease and Schedules 1, 2, and 3. Noting Woodlake's failure to make any payments for the medical equipment it has been using since 2003, Lyon charges breach of contract; replevin for the equipment; assemblage and turnover of the equipment; unjust enrichment; replevin of additional collateral; and assemblage and turnover of additional collateral.
Woodlake's Counterclaim
Woodlake alleges that Lyon's right to enforce the terms and conditions of the commercial paper is no greater than that of its assignor, DVI. (Counterclaim at ¶ 2). Although Woodlake acknowledges that DVI made over $700,000 in payments, because DVI did not fund the full $983,209 as promised in the Master Equipment Lease and Schedules, Woodlake contends that the contracts are unenforceable. (Id. at ¶¶ 22-23). Woodlake asks for a declaratory judgment that Lyon's $1.3 million claim is invalid. Woodlake also claims that Lyon violated the Fair Debt Collection Practices Act and Pennsylvania's Fair Credit Extension Uniformity Act. In addition, Woodlake seeks recovery based on breach of contract, promissory estoppel, and unjust enrichment.
Legal Standards
Because this Court's jurisdiction is based on diversity, I must apply Pennsylvania law and predict how the Pennsylvania Supreme Court would decide this case. 2-J Corporation v. Tice, 126 F.3d 539, 541 (3d Cir. 1997); see also U.S. Underwriters Ins. Co. v. Liberty Mutual Ins. Co., 80 F.3d 90, 93 (3d Cir. 1996).
In deciding Lyon's Rule 12(b)(6) Motion, I may look only to the allegations in Woodlake's Counterclaim and its attachments and must accept as true all well pleaded factual allegations in the Counterclaim, viewing them in the light most favorable to Woodlake. See Jordan v. Fox, Rothschild, O'Briend Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994); Angelastro v. Prudential-Bache Securities, Inc., 764 F.2d 939, 944 (3d Cir. 1985). I must consider the facts alleged in Woodlake's Counterclaim, as well as the provisions of the contracts that are the basis of this dispute. Jordan, 20 F.3d at 1261. I may also consider any documents that are essential to Woodlake's Counterclaim. See Lum v. Bank of America, 361 F.3d 217, 222 n. 3 (3d Cir. 2004); see also Tlush v. Mfrs. Res. Ctr., 315 F. Supp. 2d 650, 654 (E.D. Pa. 2002). In addition, I may consider those documents whose authenticity the parties do not dispute. See Pension Benefit Guar. Corp. v. White Consul. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993); see also Cuchara v. Gai-Tronics Corp., 2004 U.S. Dist. LEXIS 11334 (E.D. Pa. 2004). I may grant Lyon's Motion only if Woodlake cannot prove any set of facts that would entitle it to relief. See Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).
If Woodlake's Counterclaim is insufficient "as a matter of law," Federal Rule 12(c) permits judgment on the pleadings.Certain Underwriters and Lloyd's, London v. Brownies Plymouth, Inc., 24 F. Supp. 2d 403 (E.D. Pa. 1998). Rule 12(c) motions are decided under the same standard as Rule 12(b)(6) motions, with the nonmoving party given the benefit of all reasonable inferences. County Council of Northhampton County v. SHL Systemhouse Corp., 55 F. Supp. 2d 334 (E.D. Pa. 1998) (citingMoore v. Reliance Standard Life Ins. Co., 1999 U.S. Dist. LEXIS 6699, *1 (E.D. Pa. 1999)).
Under Federal Rule 12(f), any pleading material deemed "redundant, immaterial, impertinent or scandalous" may be stricken. FED. R. CIV. P. 12(f). A court may strike any material "so unrelated to [a party's] claims as to be unworthy of any consideration." Becker v. Chi. Title Ins. Co., 2004 U.S. Dist. LEXIS 1988, at *18 (E.D. Pa. 2004) (internal citations omitted).
Discussion
A. Woodlake's Waiver of Its Right to Raise Counterclaims or Affirmative DefensesLyon contends that the clauses contained in the Master Equipment Lease, Guaranty, and Delivery and Acceptance Certificates — commonly known as "hell or high water provisions" — obligate Woodlake to make payments under any circumstances, regardless of any alleged breach by DVI. Accordingly, Lyon asks me: to rule that Woodlake on three separate occasions waived all its defenses; and to dismiss the Counterclaim and affirmative defenses in their entirety.
Courts regularly enforce "hell or high water" provisions, particularly in finance lease transactions where the lessor's only obligation is to provide money. See e.g., Colorado Interstate Corp. v. The CIT Group/Equipment Financing, Inc., 993 F.2d 743 (10th Cir. 1993); Siemens Credit Corp. v. Amer. Transit Ins. Co., 2001 U.S. Dist. LEXIS 264 (S.D.N.Y. 2001); The Philadelphia Savings Fund Soc. v. Deseret Management Corp., 632 F. Supp. 129 (E.D. Pa. 1985). Despite the harsh consequences for lessees, courts have enforced these provisions in cases of incomplete funding, cases of potential "double payments," and cases where the equipment was never delivered. See Wells Fargo Bank Minnesota, N.A. v. Nassau Broadcasting Partners, L.P., 2003 U.S. Dist. LEXIS 18285 (S.D.N.Y. 2003) (rejecting argument that lessee's obligation did not vest until lessor "fully paid the cost of leased equipment"); Colorado Interstate, 993 F.2d at 749 ("sub-lessee's obligation to pay continued" despite lessor's bankruptcy "and the threat of a replevin action" by vendor);Hinkel Excavation Construction, Inc. v. Construction Equipment International, Ltd., 2001 U.S. Dist. LEXIS 10601 (N.D. Iowa 2001) (rejecting plaintiff/lessee's claims for rescission of underlying lease despite nondelivery of equipment).
As one court noted:
The essential practical consideration requiring liability as a matter of law in these situations is that these clauses are essential to the equipment leasing industry. To deny their effect as a matter of law would seriously chill business in this industry because it is by means of these clauses that a prospective financer-assignee of rental payments is guaranteed meaningful security for his outright loan to a lessor. Without giving full effect to such clauses, if the equipment were to malfunction, the only security for this assignee would be to repossess equipment with substantially diminished value.West Virginia, Department of Finance and Administration v. Hassett, (In re O.P.M. Leasing Services, Inc.) 21 B.R. 993, 1007 (S.D.N.Y. 1982) (citing R. Contino, Legal and Financial Aspects of Equipment Leasing Transactions, 29, 87 (1979)).
Customarily, Article 2A of the Uniform Commercial Code governs "hell or high water" lease provisions. UCC § 2A-407; 13 Pa. C.S. § 2A407. Under Article 2A, such provisions — which, in effect, strip the lessees of all defenses to lessor enforcement actions — are fully enforceable. Id.
Woodlake contends that UCC Article 9 (not Article 2A) governs the "hell or high water" provisions at issue here. (Counterclaim at ¶ 71). In support, Woodlake alleges that the Master Equipment Lease and Schedules are not true leases, but are actually "disguised" sales. The Schedules include the notation "(CSA-$101)," which Woodlake alleges stands for "conditional sales agreement." (Id. at ¶ 72). If the contracts are, in fact, sales agreements rather than leases, then Article 9 would govern the agreements, and the "hell or high water" provisions might not be enforceable.
The UCC allows the Court to enforce Woodlake's defense waivers as long as Lyon is a "holder in due course" of the subject contracts. UCC §§ 3-305, 9-403; 13 Pa. C.S. §§ 3305, 9403. Under Article 9, Lyon may not be deemed a holder in due course unless it meets certain requirements:
[A]n agreement between an account debtor and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable by an assignee that takes an assignment:
(1) for value;
(2) in good faith;
(3) without notice of a claim of a property or possessory right to the property assigned; and
(4) without notice of a defense or claim in recoupment of the type that may be asserted against a person entitled to enforce a negotiable instrument under Section 3-305(a).
UCC § 9-403(b); see also 13 Pa. C.S. § 9403(b).
Woodlake alleges that because Lyon does not meet these requirements, the Court may not enforce the "hell or high water" provisions in the contracts. (Counterclaim at ¶¶ 86-93).
Woodlake's contentions seem dubious. First, the documents themselves are titled "leases," and are replete with lease transaction terminology. (See Master Equipment Lease; Schedules 1, 2, and 3 attached as Exhibits D, E, F, and G to Pl.'s Brief). Moreover, the contracts include explicit references to UCC Article 2A respecting both the parties' rights and the meaning of contractual terms. (Master Equipment Lease at §§ 3.6(e), 3.6(f)). They include no mention of Article 9, however. All of this strongly suggests that at the time they concluded these agreements, the parties believed them to be leases. See Keblish v. Thomas Equipment, LTD., 541 Pa. 20, 25 (1995).
Moreover, Lyon argues that the "hell or high water" provisions are fully enforceable regardless of whether the disputed contracts are leases or sales contracts. In almost all the cases cited by Lyon, however, the parties did not dispute that the subject contracts were leases. See State of W. Va., Dept. of Fin. Admin., (In re O.P.M. Leasing Servs., Inc.), 21 B.R. 993 (Bankr. S.D.N.Y. 1982); see also Philadelphia Savings Fund Society v. Deseret Management Corporation, 632 F. Supp. 129, 137 (E.D. Pa. 1985) (noting that "hell or high water provisions are fully enforceable," and that a lessor's alleged breach "is not a bar to summary judgment"). Lyon has cited to only one case in which the court held that it would enforce a "hell or high water" provision in favor of an assignee regardless of whether the underlying transaction was a lease or a sale. See Wells Fargo Bank Minnesota v. Brooks America Mortgage Corp., 2004 U.S. Dist. LEXIS 18573 (S.D.N.Y. 2004). The court reasoned that even if the transaction were a sale, the assignee was able to meet the four requirements set out in UCC § 9-403(b), and thus, as a holder in due course, was entitled to enforcement of the "hell or high water" provision. Id. at *15, *33-37. In the instant case, I cannot yet determine whether Lyon can qualify as a holder in due course.
In sum, at this early stage, I cannot decide as a matter of law that the subject agreements are leases or sales contracts. Indeed, until there is an evidentiary record before me, I cannot even determine the legal significance of that decision, once I am able to make it. Accordingly, I deny without prejudice Lyon's Motion to Dismiss Woodlake's Counterclaim and affirmative defenses.
B. Woodlake Agrees That it Has Failed to State a Claim Under the Fair Debt Collection Practices Act
At oral argument, Woodlake conceded that it had failed to state a claim under the Fair Debt Collection Practices Act. (N.T. at 8:13-9:1). More surprising than this concession is that Woodlake ever brought the claim at all.
The FDCPA was enacted "to protect consumers against debt collection abuses." 15 U.S.C. § 1692(e). Consumers who have been subjected to abusive, deceptive, and unfair debt collection practices may recover damages and attorney's fees and costs. 15 U.S.C. § 1692k(a). A prerequisite to the application of the FDCPA is that the complained of conduct was used in an attempt to collect a "debt" as defined by the statute:
[T]he term `debt' means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes, whether or not such obligation has been reduced to judgment.15 U.S.C. § 1692a(5). Collection of commercial debt "is beyond [the Act's] coverage." Staub v. Harris, 626 F.2d 275, 278 (3d Cir. 1980) (citing S. Rep. No. 382, 95th Cong. 1st Sess. at 3 (1977), reprinted at 1977 U.S.C.C.A.N. 1695, 1697); see also Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168-69 (3d Cir. 1987); Sheehan v. Mellon Bank, 1995 U.S. Dist. LEXIS 13457 (E.D. Pa. 1995) (noting that "the FDCPA is inapplicable to the collection of commercial debt").
Woodlake has alleged that Lyon violated the FDCPA "by using false, abusive, ruse or oppressive tactics to pursue collection of monies that were never paid to or on the Woodlake Group' [ sic] behalf." (Counterclaim at ¶ 105). This obligation is certainly commercial debt. Woodlake identifies itself as a "business enterprise," and indicates that the debt at issue originated in "a dialogue with DVI concerning means by which it could grow its operations." (Counterclaim at ¶¶ 7, 19). Woodlake leased medical equipment from original equipment manufacturers to develop its medical practice, and also negotiated with "its commercial landlord" to expand its space. (Id. at ¶¶ 38-39) (emphasis added).
Clearly, Woodlake's debt was not incurred "primarily for personal, family or household purposes." 15 U.S.C. § 1692a(5). Accordingly, I dismiss Count II of Woodlake's Counterclaim.
C. Woodlake Agrees That it Has Failed to State a Claim Under Pennsylvania's Fair Credit Extension Uniformity Act
Pennsylvania's Fair Credit Extension Uniformity Act provides that "[i]t shall constitute an unfair or deceptive debt collection act or practice under this act if a debt collector violates any of the provisions of the Fair Debt Collection Practices Act." 73 P.S. § 2270.4(a). As Woodlake conceded at oral argument, because it failed to state a claim under the FDCPA, it has also failed in Count III of the Counterclaim to state a claim under the FCEUA. (N.T. at 8:22-9:1). Accordingly, I dismiss Count III.
D. Woodlake Has Failed to State a Claim for Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing
In Count IV of its Counterclaim, Woodlake alleges that Lyon "has failed to act in good faith with respect to this transaction." (Counterclaim at ¶ 129). Woodlake alleges that Lyon "and its assignor made commitments to assist the Woodlake Group in upgrading and improving their medical practice, including the acquisition of certain medical equipment." (Id. at ¶ 125). Woodlake further alleges that Lyon "is seeking to recover monies from DVI based on the infirmities with the subject commercial paper, as well as attempting to, among other things obtain unfunded amounts, and assess artificially inflated interest and excessive attorney's fees against the Woodlake Group." (Id. at ¶ 128). In Woodlake's view, Lyon has thus breached both its contract with Woodlake, and its covenant to deal fairly with Woodlake.
Woodlake has not adequately alleged how Lyon breached its contract. Woodlake's pleading is not a model of clarity. Assuming, however, that Woodlake bases its claim on DVI's failure to fund fully the purchase of medical equipment, the Master Equipment Lease bars Woodlake from suing DVI's assignees for DVI's failure to perform. The Master Equipment Lease provides:
8.5 Binding Effect; Assignment. This Agreement and the other Lease Documents are binding upon and inure to the benefit of Obligor and DVI and their respective successors and assigns, except that Obligor will not have the right to assign, sublease or delegate its rights or obligations under any of such documents or with respect to any Equipment . . . [Woodlake] acknowledges and agrees that: (a) any such Transferee shall have and be entitled to exercise any and all discretion, rights and powers of DVI hereunder or under any Schedule, but that such Transferee shall not be obligated to perform any of DVI's obligations hereunder or under any Schedule; provided, however, that such Transferee shall not disturb Obligor's quiet and peaceful possession of the Equipment and use thereof for its intended purpose during the terms hereof so long as Obligor is not in default of any provision hereof and such Transferee continues to timely receive all amounts of rent payable under such Schedule . . .
(Master Equipment Lease, at § 8.5) (emphasis added).
Under these explicit terms, even if DVI breached the Master Equipment Lease or Schedules, that conduct cannot give rise to a breach of contract claim against Lyon. Count IV for breach of contract is thus defective as a matter of law.
As to the second part of Woodlake's Count IV, it is difficult to see how Lyon has failed to act in good faith here. Woodlake does not dispute that before its bankruptcy declaration, DVI paid over $700,000 to fund Woodlake's acquisition of medical equipment. Nor does Woodlake dispute that it has had the beneficial use of the equipment since 2003 and paid nothing for it. In these circumstances, Woodlake has not remotely pled how Lyon has acted in bad faith.
In Pennsylvania, a covenant of good faith and fair dealing is implied in every contract. McAllister, et al. v. Royal Caribbean Cruises, LTD., et al., 2003 U.S. Dist. LEXIS 24287, *13-14 (E.D. Pa. 2004). Pennsylvania law does not, however, recognize an independent claim for breach of the implied covenant of good faith and fair dealing. Id.; see also Blue Mountain Mushroom Co. v. Monterey Mushroom, Inc., 246 F. Supp. 2d 394, 400 (E.D. Pa. 2002). Any claim for breach of the covenant of good faith and fair dealing is maintained as a breach of contract action. See Blue Mountain, 246 F. Supp. 2d at 401. Because Woodlake has failed adequately to plead the elements of a cause of action for breach of contract, its claim for breach of the implied covenant must also fail.
Moreover, the Third Circuit has held that "[a] party is not entitled to maintain an implied duty of good faith claim where the allegations of bad faith are identical to a claim for relief under an established cause of action." Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 91-92 (3d Cir. 2000) (affirming dismissal of separate claim for breach of implied covenant of good faith); see also Grider v. Keystone Health Plan Central, Inc., 2003 U.S. Dist. LEXIS 16551, *96-98 (E.D. Pa. 2003) (declining to allow a duty of good faith and fair dealing claim when it could have been brought as a claim for fraud); Caudill Seed and Warehouse Company, Inc. v. Prophet 21, Inc., 126 F. Supp. 2d 937, 939 (E.D. Pa. 2001) (noting that "under Pennsylvania law, `a party is not entitled to maintain an implied duty of good faith claim where the allegations of bad faith are `identical to' a claim `for relief under an established cause of action'").
Here, Woodlake's allegations in Count IV mirror those in Count I for declaratory judgment, where Woodlake alleged that Lyon brought this lawsuit in "an absence of good faith, and might rise to the level of bad faith by the assignee seeking payment in full." (Counterclaim at ¶ 92). Woodlake repeats this allegation in Count IV, asserting that Lyon "has failed to act in good faith with respect to this transaction." (Id. at ¶ 129).
In these circumstances, Woodlake may not maintain its claim that Lyon breached the implied covenant of good faith. Accordingly, I dismiss Count IV of Woodlake's Counterclaim.
E. Woodlake Has Failed to State a Claim for Promissory Estoppel
Woodlake next alleges that Lyon is estopped from disowning DVI's purported promises. Once again, the claim fails as a matter of law.
Promissory estoppel permits the enforcement of promises that are unsupported by consideration to prevent or remedy manifest injustice:
A cause of action is made out where the asserted promise is such that: (1) the promisor should reasonably expect to induce a definite action or forbearance on the part of the promisee; (2) it actually induces such action or forbearance; and (3) injustice can be avoided only by its enforcement.4 Storage v. Amerco Real Estate Co., 1994 U.S. Dist. LEXIS 6252, *9 (E.D. Pa. 1994) (quoting Paul v. Lankenau Hospital, 375 Pa. Super. 1, 543 A.2d 1148, 1152 (Pa.Super. 1988) (rev'd on other grounds, 524 Pa. 90, 569 A.2d 346 (Pa. 1990)).
Woodlake's promissory estoppel claim is based entirely on DVI's alleged promises. (Counterclaim at ¶¶ 131-139). Woodlake's belief that "[a]s collection agent and now assignee, U.S. Bank steps into the shoes of DVI for all purposes of this litigation" is incorrect. (Counterclaim at ¶ 135). Section 8.5 of the Master Equipment Lease explicitly provides that Lyon "shall not be obligated to perform any of DVI's obligations" under the Master Equipment Lease or the Schedules. Because Woodlake fails to plead that Lyon itself made any promises to Woodlake, I dismiss Count V of Woodlake's counterclaim.
F. Woodlake Fails to State a Claim for Unjust Enrichment
Under Pennsylvania Law, to plead unjust enrichment, a claimant must allege: 1) the conferring of benefits by the complaining party; 2) defendant's realization of those benefits; and 3) defendant's retention of the benefits under circumstances in which it would be inequitable to do so without payment of value in return. See Bunnion v. CONRAIL, 108 F. Supp. 2d 403, 427 (E.D. Pa. 1999), aff'd, 230 F.3d 1348 (3d Cir. 2000).
Woodlake fails to allege what benefits it conferred upon Lyon. Accordingly, I dismiss Count VI of the Counterclaim.
G. Woodlake's References to Discrimination
Throughout its Counterclaim, Woodlake suggests that Lyon's collection actions are motivated by racial bias. For example, Woodlake alleges that Lyon commenced this suit because Woodlake "is a minority owned and controlled business," and that Lyon has used "ultra-aggressive collection and takeover tactics against ethnic minorities." (Counterclaim at ¶¶ 110-11). In its Answer, Woodlake claims that Lyon's claims are barred "by the anti-discrimination laws of the federal and state government which prohibit attempts by financial institutions from threatening, intimidating or harassing ethnic minorities." (Answer at 31).
Lyon contends that "all this mudslinging" is "unfounded." (Pl.'s Brief at 14). Lyon argues that allowing Woodlake to take discoveryinto these "inflammatory," purportedly baseless allegations will be "intrusive" and "costly." (Id.). Accordingly, Lyon asks me to strike Woodlake's allegations of racial bias pursuant to Federal Rule of Civil Procedure 12(f).
As I stated earlier, there is no evidentiary record before me at this early stage. The parties agree, however, that DVI spent over $700,000 to fund Woodlake's acquisition of medical equipment, and that Woodlake, having had the beneficial use of this equipment for well over a year, has yet to pay for it. Lyon, as DVI's assignee, sues here simply to recover the money it believes it is owed, and the equipment DVI has largely paid for. In these circumstances, Lyon's indignation at Woodlake's allegations is not surprising. Still, the law is clear that motions to strike should be denied "unless it can be shown that no evidence in support of the allegations would be admissible."Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir. 1976). "The courts should not tamper with the pleadings unless there is a strong reason for so doing." Id. (citing Nagler v. Admiral Corp., 248 F.2d 319, 325 (2d Cir. 1957)).
At this stage of litigation, I will deny Lyon's motion without prejudice. As I explained at oral argument, to prevent unnecessary expense and potential abuse, I will initially limit Woodlake's discovery in this area to the deposition of a corporate designee. See FED. R. CIV. P. 30(b)(6). If, during the course of discovery, Woodlake learns that there is no evidentiary basis for its claims of racial bias, then Woodlake is obligated withdraw those allegations. FED. R. CIV. P. 11 (c)(1)(B); Herron v. Jupiter Transp. Co., 858 F.2d 332, 336 (6th Cir. 1988) (attorneys are required to dismiss action after discovering claims lack merit); see also In re Pennie Edmunds LLP, 323 F.3d 86, 89-91 (2d Cir. 2003) (noting that under Rule 11, a court may sua sponte impose sanctions if a party fails to correct or withdraw a submission that has no evidentiary basis). If I determine that any party is litigating abusively or in bad faith, I will impose the appropriate sanctions. See, e.g., FED. R. CIV. P. 11; 28 U.S.C. § 1927.
An appropriate order follows.