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Agfa Photo USA Corp. v. Parham

June 5, 2007

AGFA PHOTO USA CORPORATION, PLAINTIFF,
v.
FRED PARHAM, INDIVIDUALLY AND D/B/A PRO-PHOTO 1 HOUR & CUSTOM LAB AND D/B/A PRO-PHOTO IMAGING, DEFENDANT.



The opinion of the court was delivered by: R. Allan Edgar United States District Judge

Edgar

MEMORANDUM

Plaintiff Agfa Photo USA Corporation ("Agfa Photo") brings a motion to dismiss the affirmative defenses and counterclaim of Defendant Fred Parham, individually and d/b/a Pro-Photo 1 Hour & Custom Lab and d/b/a Pro-Photo Imaging ("Pro-Photo"). [Court Doc. No. 17]. Pro-Photo opposes the motion. [Court Doc. No. 19]. Pro-Photo also moves to stay this action, and Agfa Photo opposes the motion to stay. [Court Doc. Nos. 10, 16].

The Court has reviewed the relevant pleadings and applicable law relating to this motion and has determined that Agfa Photo's motion to dismiss will be GRANTED IN PART and DENIED IN PART. Pro-Photo's motion to stay will be DENIED.

I. Background

Agfa Photo filed its initial complaint on September 8, 2006 in the Chancery Court of Hamilton County, Tennessee claiming breach of contract against Pro-Photo. [Court Doc. Nos. 1-3, 1-1]. Pro-Photo removed the case to this Court on October 10, 2006 on the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1332. [Court Doc. No. 1-1].

Agfa Photo's complaint alleges that beginning in October 2003, Pro-Photo leased photo processing equipment from Agfa Corporation. Agfa Photo alleges that Pro-Photo and Agfa Corporation, a predecessor to Agfa Photo, entered into a lease agreement ("Lease Agreement") on October 14, 2003. Agfa Photo further alleges that Pro-Photo breached the Lease Agreement by failing to pay its monthly lease payments. It contends that due to Pro-Photo's breach of the Lease Agreement, all payments due to Agfa Corporation under the Lease Agreement have been accelerated by its terms and are due and payable immediately. Agfa Photo asserts that Agfa Corporation assigned all of its rights and interest under the Lease Agreement to Agfa Photo. Agfa Photo seeks its payments under the Lease Agreement, as well as prejudgment interest, attorneys' fees, costs, and possession of its equipment and assets.

The Lease Agreement attached to Agfa Photo's complaint was almost illegible due to the font size of its provisions. The record is unclear whether the attached Lease Agreement represents the exact size of the Lease Agreement signed by the parties. This Court magnified the size of the attached Lease Agreement to render its provisions legible.

The Lease Agreement states that it "CORRECTLY SETS FORTH THE ENTIRE AGREEMENT BETWEEN LESSOR AND LESSEE WITH RESPECT TO THE USE, POSSESSION AND LEASE OF THE EQUIPMENT" and that "NEITHER PARTY SHALL BE BOUND BY ANY STATEMENT NOT CONTAINED IN THIS AGREEMENT." [Court Doc. No. 1-3, Lease Agreement]. It provides that in exchange for the use of certain leased photography development equipment, Pro-Photo will pay Agfa Corporation sixty monthly payments of $3,773.04 each for a total price of $218,347.45.

The Lease Agreement contains many other provisions, mostly written to benefit Agfa Corporation and its assignees. It is unclear whether the parties negotiated any specific terms of the Lease Agreement or whether Pro-Photo obtained an attorney to aid in reviewing the Lease Agreement. The Lease Agreement states that "Lessor may assign or transfer this Agreement and Lessee waives notice of any such assignment. Lessee hereby waives any and all claims, setoffs, and defenses whatsoever against Lessor's assignee." Lease Agreement, ¶ 8.

The Lease Agreement also excludes several warranties and states: LESSEE LEASES THE EQUIPMENT "AS IS." LESSOR MAKES NO WARRANTY OR REPRESENTATION EITHER EXPRESS OR IMPLIED AS TO THE DESIGN OR CONDITION OF, OR AS TO THE QUALITY OF THE EQUIPMENT, ITS MATERIAL, OR ITS WORKMANSHIP. LESSOR MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE OR AS TO ITS TITLE TO THE EQUIPMENT OR ANY COMPONENT THEREOF, OR AS TO ANY OTHER MATTER. LESSEE AGREES THAT ALL SUCH RISK AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE, AND THE BENEFITS OF ANY AND ALL IMPLIED WARRANTIES OF LESSOR ARE HEREBY WAIVED.

Lease Agreement, ¶ 10. The Lease Agreement further states that:

To the extent permitted by applicable law, Lessee hereby waives any and all rights and remedies conferred upon a Lessee by Article 2A of the Uniform Commercial Code as adopted in any jurisdiction, including but not limited to Lessee's rights to: (a) cancel this Lease; (b) repudiate this Lease; (c) reject the Equipment; (d) revoke acceptance of the Equipment; (e) recover damages from Lessor for any breaches of warranty or for any other reason . . .

Id., ¶ 12. Upon default of the Lease, including failing to make a monthly payment, the Lease Agreement provides that "the entire amount of rent remaining to be paid over the balance of the lease term of all Equipment from the date of default, shall become immediately due and payable . . . . Id., ¶ 17. The Lease Agreement further provides that it should be interpreted in accordance with the laws of Massachusetts. Id., ¶ 24.

On October 25, 2006 Pro-Photo filed its answer to the complaint. [Court Doc. No. 2].

The answer also states counterclaims against Agfa Photo and raises eighteen separate affirmative defenses, including unconscionability, unenforceability of the Lease Agreement as a contract of adhesion, and fraud in the inducement. Id.

In its answer Pro-Photo alleges that it is a small photography business involving unsophisticated principals. It further contends that Agfa Photo entered into a warranty agreement with Pro-Photo. However, the Agfa Limited Equipment Warranty attached to the counterclaim only provides a warranty for a period of either six months or twelve months from the date of installation, depending on the equipment model. [Court Doc. No. 2-2]. The Limited Equipment Warranty attached to the counterclaim also does not specifically state that it applies to Pro-Photo. Pro-Photo contends in its counterclaim that "AGFA Corporation made Pro-Photo aware of extended warranty service that would be available to maintain the Equipment" and that Pro-Photo entered into a further extended service agreement with AGFA Corporation, but that its leased equipment never performed adequately to serve Pro-Photo's business needs. [Court Doc. No. 2]. Despite these allegations Pro-Photo did not attach a copy of any additional service agreement to its counterclaim, and it further admits in its opposition briefing to the motion to dismiss that Pro-Photo could not maintain an additional service maintenance agreement and that "[a]dmittedly, Pro-Photo was no longer being serviced by a formal service maintenance agreement and received its maintenance on a pay as you go basis." [Court Doc. No. 19, p. 11].

Pro-Photo alleges that it relied on Agfa Corporation's representations that it would service its equipment pursuant to an extended warranty agreement or on a cost per service basis that would be less than the market price for such services. Pro-Photo alleges that the representations regarding the service agreement or extended warranty were essential to its willingness to enter into the Lease Agreement and such a service agreement was essential to the value of the leased equipment. Pro-Photo alleges that Agfa Corporation and its successors breached their obligations under the alleged extended service agreement.

The counterclaim also alleges that Agfa Corporation engaged in a conspiracy with other business entities, including Agfa Photo and two entities known as Leaf Financial Corp. and LEAF Funding, Inc. (collectively "LEAF entities"), relating to Agfa Corporation's lease agreements with photography development businesses across the country. The alleged conspiracy involved selling the rights to collect money under the lease agreements while avoiding any continuing obligation to provide ongoing maintenance and servicing of the leased equipment. [Court Doc. No. 2, Answer and Counterclaim]. Pro-Photo asserts that Agfa Corporation transferred its lease agreements to Agfa Photo on November 2, 2004 and "initiated a scheme to raise cash by selling the Lease Agreements free and clear of obligations under the Service Maintenance Agreements." Id. at ¶ 44. However, Pro-Photo has not joined any of the other alleged conspirators to this action.

Pro-Photo alleges that the actions of Agfa Corporation and Agfa Photo have rendered its equipment valueless and that, as a consequence, it has suffered lost sales and profits. Pro-Photo brings counterclaims against Agfa Photo for declaratory judgment regarding its rights under the Lease Agreement. Pro-Photo seeks a declaration from this Court that Agfa Photo and/or its predecessors breached the Lease Agreement and were parties to fraud, that the Lease Agreement is unenforceable and must be cancelled or rescinded, that Pro-Photo owes Agfa Photo no damages, and that Agfa Photo owes Pro-Photo damages. Pro-Photo also brings a claim of revocation of acceptance of goods pursuant to the Uniform Commercial Code, as adopted by Tennessee law, breach of the implied covenant of good faith and fair dealing, breach of the implied warranty of merchantability under Tennessee law, violation of the implied warranty of fitness for particular purpose under Tennessee law, and violation of the Tennessee Consumer Protection Act, Tenn. Code Ann. §§ 47-18-101 et seq. ("TCPA").

In support of its counterclaims, Pro-Photo has attached several documents to its answer and counterclaim. These documents include: a document purporting to be an Agfa Limited Equipment Warranty provided to Pro-Photo; a letter from Agfa Corporation to an unspecified customer regarding divestiture of its photo activities; a letter from Agfa Photo to an unspecified customer regarding the insolvency of Agfa Photo's German parent company; a letter from Agfa Photo's President and CEO to an unspecified customer regarding the sale of that customer's lease agreement to LEAF Funding, Inc.; a letter from Agfa Photo's President and CEO to an unspecified customer regarding a new service and parts ...


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