Opinion
No. C99-156-MJM
December 26, 2000
OPINION and ORDER
Before this Court are the above captioned parties' cross motions for summary judgment, seeking this Court's interpretation of their lease agreement. (Doc. Nos. 7 and 11) Plaintiff, H.R. Lubben Company ("Lubben"), initially filed its complaint in state court, asking the state court to terminate said lease agreement. The case was removed to this Court on December 6, 1999. (Doc. No. 1) Lubben now moves for summary judgment, again asking this Court to reform or terminate the lease agreement. Defendant, Coinmach Corporation ("Coinmach") resists Lubben's motion and moves for summary judgment in its own right, seeking this Court to enforce the terms of the lease.
SUMMARY JUDGMENT STANDARD
"Under Rule 56(c), summary judgment is proper `if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986) (quoting Fed.R.Civ.Pro. 56); see also krentz v. Robertson Fire Protection District, 228 F.3d 897, 902 (8th Cir. 2000).
A court considering a motion for summary judgment must view all the facts in the light most favorable to the nonmoving party, and give the nonmoving party the benefit of all reasonable inferences that can be drawn from those facts. See Matshusita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Rabushka, ex rel. U.S. v. Crane Co., 122 F.3d 559, 562 (8th Cir. 1997), cert denied, 532 U.S. 1040 (1998). A court must not however, "weigh the evidence, make credibility determinations, or attempt to determine the truth of the matter" when evaluating a motion for summary judgment. Quick v. Donaldson Co., 90 F.3d 1372, 1376-77 (8th Cir. 1996) (citing Anderson v. Liberty Lobby Inc., 477 U.S. 242, 256 (1986). Instead, a court should simply determine whether there are genuine issues of material fact for trial. See id.; Johnson v. Enron Corp., 906 F.2d 1234, 1237 (8th Cir. 1990). "An issue of material fact is genuine if it has a real basis in the record." Hartnagel v. Norman, 953 F.2d 394 (8th Cir. 1992) (citing Matsushita, 475 U.S. at 586-87). As to whether a factual dispute is "material," the Supreme Court has explained, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248; see also Beyerbach v. Sears, 49 F.3d 1324, 1326 (8th Cir.), abrogated on other grounds by Johnson v. Jones, 515 U.S. 304 (1995); Hartnagel, 953 F.2d at 394.
When bringing a motion for summary judgment, "[p]rocedurally, the movant has the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record which show a lack of a genuine issue." Hartnagel, 953 F.2d at 394, (citing Celotex, 477 U.S. at 323). Once the moving party has carried its burden under Rule 56(c), the nonmoving party must do more than simply show there is "some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586; see also Herring v. Canada Life Ins. Co., 207 F.3d 1026, 1029 (8th Cir. 2000). It must go beyond the pleadings, and by affidavits, or by the "depositions, answers to interrogatories, and admissions on file," designate "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e)
With these standards in mind, the Court will recite the facts, citing where necessary, those facts that are in dispute by the parties.
FACTS
Lubben is the agent of multiple apartment complexes located in Cedar Rapids, Iowa. (Complaint ¶ 1) On July 11, 1989, Lubben entered into three commercial leases with Excalibur Laundries, Inc. ("Excalibur") to provide coin-operated laundry equipment for those apartment complexes. (Complaint ¶ 1) The leases were negotiated by Keven Lubben, the President of Lubben, and Jay White, an agent of Excalibur. (White Aff. ¶ 3) Macke Laundry Services later acquired Excalibur, and Coinmach took over the leases in March of 1998. (Kline Aff. ¶ 3)
The present dispute centers largely around the language of paragraph four of these leases (hereinafter referred to as "paragraph four", or "unilateral renewal option"). It reads:
The initial term of this Lease shall be for a period of ten (10) years, beginning on the 17th day of July, 1989 and terminating on the 16th day of July, 1999. Said Lease shall be renewed for a successive like term unless terminated by Lessee at least Thirty (30) days prior to the expiration of the initial term. Any such notice shall be sent by certified mail. (Lease ¶ 4)
On March 24, 1998, Lubben notified Coinmach via certified mail, that is was not going to renew said lease for another ten years. (Doc. No. 14, Coinmach's Statement of Material Facts ¶ 3) Coinmach, the Lessor, did not give written notice of termination of the lease thirty days before the expiration of the ten year term. (Winick Aff. ¶ 4)
In his deposition testimony, Mr. Lubben testifies that he misread paragraph four of the lease, and he instead believed it to read that Lubben was the Lessee. Accordingly, it was Mr. Lubben's understanding that Lubben could terminate the lease thirty days prior to the expiration of the initial term. (Lubben Dep. p. 38) Mr. Lubben attributes this misreading of the contract to the fact that Lubben, was "usually the lessee most all the time" in the leases he was accustomed to reading. (Lubben Dep. p. 38) However, Lubben is generally the Lessor, because it owns apartments which it rents to renters, or lessees. (Lubben Dep. p. 38-39). Mr. Lubben maintains he never would have signed a lease for coin-operated laundry equipment that he could not terminate after the first ten years. (Lubben Dep. p. 41) Likewise, Donald Schirm, the general manager of Lubben, maintains he "never would have signed a contract that locked [Lubben] into twenty years of laundry service with one company." (Schirm Aff. ¶ 2)
Mr. Lubben also contends that during the lease negotiations Mr. White assured him that Lubben was only bound to the terms of the lease for ten years. (Lubben Dep. p. 42) Indeed, Mr. Lubben avers that when Lubben sent Coinmach a termination letter at the end of the lease Boyd Kline, a regional Vice-President for Coinmach, responded by offering Lubben new proposals.
Coinmach rejects Mr. Lubben's assertions outright. Specifically, Mr. White maintains he never told Mr. Lubben that Lubben had the right of renewal or termination of the contract at the end of its first term. (White Dep. p. 15) And Mr. Kline contends that at the time he offered the new proposals to Mr. Lubben, he was unaware that Lubben attempted to terminate the lease, and he had no knowledge of the unilateral renewal option in paragraph 4. (Kline Dep. pp. 38 and 42-3) Mr. Kline instead maintains that he made the proposals at the behest of a regional vice president, when he did learn of the unilateral renewal provision, he rescinded those proposals. (Kline Dep. p. 43)
Coinmach has, at all times, performed its duties under the lease. (Kline Aff. ¶ 3-6) The lease has not been amended altered, or modified by written agreement of both parties. (Kline Aff. ¶ 7)
DISCUSSION
Lubben's precise basis for equitable relief has been difficult for the Court to identify. Lubben's initial assertion was that paragraph four, the unilateral renewal provision, essentially renders the lease unconscionable. In making this argument, however, Lubben cites cases dealing with lack of mutuality of agreement. Although in some ways similar, unconscionability and the lack of mutuality are distinct doctrines, requiring a separate analysis. See Smith v. Harrison, 325 N.W.2d 92, 94 (Iowa 1982) (stating standard for unconscionability); but see Standard Oil Co. v. Veland, 224 N.W. 467, 469 (Iowa 1929) (discussing standard for mutuality in contract). Lubben also argues that the contract is void because of the parties' mutual mistake about whether paragraph four was in fact a unilateral renewal option. This appears to be a separate attack from Lubben's previously stated mutuality of agreement claim, although Lubben relies on largely the same case law. Here again, however, the doctrines of mutual mistake and mutuality are distinct. See, e.g, Gouge v. McNamara, 586 N.W.2d 710, 713 (Iowa App. 1998) (discussing distinct analysis for claims of mutual mistake).
With this lack of precision duly noted, the Court will assume for purposes of this Opinion that Lubben challenges the lease agreement on three separate legal grounds: (1) unconscionability, (2) lack of mutuality of agreement, and (3) mutual mistake. As the moving party on these three grounds, Lubben is apparently arguing that there are no genuine issues of material fact, and the Court can resolve these issues as a matter of law.
Lubben also raises the issue of restraint of trade and indefinite right of first refusal in its "Supplemental Brief in Support of Motion for Summary Judgment." (Doc. No. 19). Coinmach has moved this Court to strike this brief arguing it is untimely and unauthorized under Local Rule 7.1. (Doc. No. 23)
Local Rule 7.1 sets forth the appropriate briefing schedule for motions: a resistance must be filed within fourteen (14) days of the initial motion, and any reply brief must be filed within five (5) days of the resistance. In the present case, Lubben moved for summary judgment on April 17, 2000. (Doc. No. 7). Coinmach then filed a timely resistance on May 3, 2000, fifteen (15) days later. (Doc. No. 11) Also on May 3, 2000, Coinmach moved for summary judgment in its own right. (Doc. No. 12). On May 18, 2000, fifteen (15) days after Coinmach's filing, Lubben filed a timely resistance to Coinmach's motion for summary judgment. (Doc. No. 18). On that same day, Lubben also filed what it has titled, a "Supplemental Brief" in support of its own motion for summary judgment, the document Coinmach seeks to have stricken. (Doc. No. 19).
In support of its motion to strike, Coinmach argues that Local Rule 7.1 does not authorize the unsolicited submission of supplemental briefs. However, Lubben did not file a reply brief to Coinmach's resistance to summary judgment; thus Lubben's supplemental brief' could be characterized as its "reply" to Coinmach's resistance.
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The Court is aware that a reply brief must be filed within five days of service of the resistance, and in this case, Lubben filed this brief some fifteen days after the resistance. Nonetheless, the Court is not inclined to disregard Lubben's supplemental/reply brief where the prejudice to Coinmach appears to be minimal.
Having said all this, the Court notes Lubben's supplemental/reply brief raises two entirely new legal challenges to the leases, which were not addressed in its original motion for summary judgment or Coinmach's resistance to the same. Local Rule 7.1(f) permits briefs only to assert newly decided authority or to respond to new and unanticipated arguments made in the resistance. These arguments fit in neither category. Moreover, the whole of Lubben's argument is the statement "[g]enerally courts are reluctant to enforce contracts in restraint of trade, since they are against public policy," citing to a 1941 state case out of Michigan, but making no effort to tie this leal authority to the facts of the present case. Accordingly, the Court will reference Lubben's supplemental/reply brief only to the extent it further illuminates the Court on issues addressed in Lubben's original motion or Coinmach's resistance. The Court will not, therefore, address Lubben's new claims of restraint of trade and indefinite right of first refusal.
On the other hand, Coinmach also maintains there are no genuine issues of material fact, but instead moves this Court to enforce the terms of the lease because, as it asserts, they are unambiguous and were fairly negotiated. While Coinmach is moving summary judgment in its own right, its brief is organized by its defenses to the three grounds for summary judgment raised by Lubben in its affirmative motion. Therefore, in order for Coinmach to prevail on its motion, the Court would need to find that there are no genuine issues of material fact as to any of Lubben's claims, and Lubben could not prevail as a matter of law. Given this framework, the Court will address each of Lubben's legal claims in turn, considering Coinmach's defenses in its analysis of those claims.
1. Unconscionability
The defense of unconscionability originated in equity and was later recognized as a defense in contract as well. See Casey v. Lupkes, 286 N.W.2d 204, 207 (Iowa 1979). Whether a contractual term is unconscionable is a question of law for the courts. See Iowa Code § 554.2302(1) and comment 3. In reviewing such claims, courts have repeatedly stated that "[a] bargain is [considered] unconscionable if it is such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other." Federal Land Bank of Omaha v. Reinhardt, 428 N.W.2d 672, 673 (Iowa App. 1988) (concurring/dissenting opinion) (citing Smith, 325 N.W.2d at 94). Yet, "[b]ecause of its equitable purpose, neither courts nor the legislature have attempted to give [unconscionability] a precise definition." Smith, 325 N.W.2d at 94. Instead, courts determining whether a contract is unconscionable examine the following factors: assent, unfair surprise, notice, disparity of bargaining power, and substantive unfairness. See Gentile v. Allied Energy Products, Inc., 479 N.W.2d 607, 609 (Iowa App. 1991) (citing C J Fertilizer v. Allied Mut. Ins. Co., 227 N.W.2d 169, 181 (Iowa 1975)); see also Brunsman v. Dekalb Swine Breeders, Inc., 138 F.3d 358, 359 (8th Cir. 1998).
Lubben, as the party claiming invalidity of the lease, has the burden of proving that the lease is unconscionable. See Estate of Ascherl v. Ascherl, 445 N.W.2d 391, 392 (Iowa App. 1989). Other than citing what it believes to be an unconscionable, inequitable lease term, Lubben has placed no facts in the record to underpin a showing of assent, unfair surprise, notice, disparity of bargaining power, and/or substantive unfairness. On the contrary, the record, as it stands presently, reveals that Mr. Lubben and Mr. White negotiated the lease terms "at arms-length," that there was no disparity in bargaining power, that Mr. Lubben read the lease in its entirety and was neither forced nor coerced into signing it, and finally, that the contested provision in the lease was conspicuous and unambiguous. Lubben's argument for unconscionability appears simply to assert that a unilateral renewal option is unfair. "The unconscionability doctrine does not exist, however, to rescue parties from mere bad bargains." Smith, 325 N.W.2d at 94; see also Gentile, 479 N.W.2d at 609 (finding where "the parties were of equal bargaining power" and plaintiff "was not under any financial pressure" to sign contested contract and "[t]he language of the agreement was clear and easily read," contract was not unconscionable); see also Brunsman, 138 F.3d at 359 (finding where parties agreed to terms of contract, there was no disparity of bargaining power, no plausible claim of unfair surprise or lack of notice, and contract's plain language was "intelligible to a layman, and was printed in the most emphatic typeface on the front of the contract" contract not unconscionable). Because Lubben has made no showing sufficient to establish that the unilateral renewal provision of the contract was unconscionable as a matter of law, Lubben's motion for summary judgment on unconscionability grounds is denied.
2. Lack of Mutuality
Lubben's second line of attack against the lease is that it lacks mutuality and is therefore unenforceable. Again this argument is premised on the provision allowing Coinmach the unilateral right of termination at the end of the first term of the contract. A similar fact scenario was addressed by the Iowa Supreme Court in Standard Oil Co. v. Veland, 224 N.W. 467 (Iowa 1929). There the parties entered into a lease agreement for one year which contained a provision allowing only one party, the plaintiff, the right of termination at will. See id. at 468. Like here, the defendant argued such a contract lacked mutuality and was therefore unenforceable. See id. Justice Evans, writing for the court, states the following principle with regards to mutuality:
If the lack of mutuality amounts to a lack of consideration, then the contract is invalid. But mere lack of mutuality in and of itself does not render a contract invalid. If mutual promises be the mutual consideration of a contract, then each promise must be enforceable in order to render the other enforceable. Though consideration is essential to the validity of a contract, it is not essential that such consideration consist of a mutual promise. A promissory note for a consideration is valid, though no mutuality appear thereon. This is true of all unilateral contracts which are supported by a consideration.
See Id. at 469. He went on to explain how this principle affected lease agreements and cited authority supporting the proposition that the unilateral right to terminate a lease does not, in and of itself, render that lease invalid. See id, (citing Pratt v. Prouty, 73 N.W. 1035 (Iowa 1898); Doige v. Bruce, 119 N.W. 624 (Iowa 1909); Hall v. Henninger, 121 N.W. 6 (Iowa 1909); Pearson v. Howell, 169 N.W. 368 (Iowa 1918); Neola Elevator Co. v. Kruckman, 171 N.W. 743 (Iowa 1919)). Justice Evans further explains:
The fact that a lease for a fixed period provides for its termination before the expiration of such period at the option of the lessor or the lessee will not prevent it from creating a valid term for years.
The lease may provide for its termination before the expiration of the term fixed at the option of either of the parties. An agreement is not invalid although it gives the lessor or the lessee alone the right to terminate the lease.
In this state we have uniformly sustained option provisos, and have never deemed them invalid for want of mutuality. And this is true not only as to option contracts, but as to optional provisions contained in other contracts. A lease may properly contain an option to the lessee to purchase the leased property at the expiration of the lease. In its very nature there can be no mutuality to an option; but there can be a consideration therefor. It gets its validity from the consideration. If lack of mutuality were fatal, then no option contract would be possible.
Standard Oil, 224 N.W. at 469 (internal quotations omitted); quoted with approval in Collins v. Parsons College, 203 N.W.2d 594, 598 (Iowa 1973) and Des Moines Blue Ribbon Distributors, Inc. v. Drewrys Ltd., U.S.A., Inc., 129 N.W.2d 731, 736 (Iowa 1964).
Thus, the question for this Court becomes one of consideration. The consideration for the present contract is Lubben's obligation to allow Coinmach on the premises to service and collect monies from its coin-operated laundry machines, and Coinmach's obligation to service those machines and make timely lease payments for the use of the premises.
Citing Midwest Management v. Stephens, 291 N.W.2d 896, 913 (Iowa 1980), Lubben argues a provision which reserves the right of unilateral renewal or termination is unenforceable because it lacks mutuality. As an initial matter, the court in Midwest found the contested provision did not constitute a unilateral right to terminate the contract and ultimately enforced the contract. See Id. at 913. Its holding notwithstanding, the Midwest court premised its mutuality analysis on the principle that mutual promises constitute mutual consideration and cites with approval Des Moines Blue Ribbon Distributors, 129 N.W.2d at 736-37 (adopting Justice Evans' analysis of mutuality and consideration cited supra). The Midwest court additionally cited Kazos v. Ginsberg's Inc., a court which also recognized "[t]he terms `consideration' and `mutuality of obligation' are sometimes confused," — as appears to be the case here. 41 N.W.2d 30, 35 (1950) (quoting Meurer Steel Barrel Co. v. Martin, 1 F.2d 687 (3rd Cir. 1924). Indeed, the Kazos court explains further that
[c]onsideration is essential; mutuality of obligation is not unless the want of mutuality would leave one party without a valid or available consideration for his promise. The doctrine of mutuality of obligation appears therefore to be merely one aspect of the rule that mutual promises constitute considerations for each other. Where there is no other consideration for a contract, mutual promises must be binding on both parties. But where there is any other consideration for the contract, mutuality of obligation is not essential.
Id. (quotations omitted).
Lubben has not alleged, nor does the record reflect, a lack of consideration for the lease agreement. Where there is consideration for the agreement "[i]t is [the] duty of the courts to give effect to the language of the contract in accordance with its plain and ordinary meaning," which in this case allows Coinmach the unilateral right of renewal of the lease agreement. Mopper v. Circle Key Life Ins. Co., 172 N.W.2d 118, 124 (Iowa 1969). Contrary to Lubben's assertions "[a] contract does not lack mutuality merely because its terms are harsh or its obligations unequal, or because every obligation of one party is not met by an equivalent counter obligation of the other party." Kazos, 41 N.W.2d at 35 (internal quotation omitted). Because the record does not reflect a lack of consideration for the contract, the Court denies Lubben's motion for summary judgment for alleged lack of mutuality.
3. Mutual Mistake
Finally, Lubben raises the issue of mutual mistake in its resistance to Coinmach's motion for summary judgment. "[C]ourts of equity have jurisdiction to relieve parties against the consequences of mutual mistake of fact, and to grant reformation in case of such a mistake." Gouge v. McNamara, 586 N.W.2d 710, 713 (Iowa App. 1998) (stating "[a] contract may be voidable, or reformed, if clear, satisfactory, and convincing evidence proves mutual mistake") (internal citations omitted); see also Breitbach v. Christenson, 541 N.W.2d 840, 844 (Iowa 1995); Davenport Bank and Trust Co. v. State Cent. Bank, 485 N.W.2d 476, 480 (Iowa 1992). The parties must be mistaken about a basic assumption on which the contract was made at the time they signed the contract. See Restatement (Second) of Contracts § 152 (1981), accord Davenport, 485 N.W.2d at 480. A mistake regarding a "basic assumption" is one that will affect the very essence of the contract. See Davenport, 485 N.W.2d at 480 (citing Restatement § 152 comment, b); see also Bach v. Interurban Ry. Co., 171 N.W. 723, 727, modified 174 N.W. 333 (Iowa 1919) (finding mistake of fact is one of the fundamental grounds of equitable relief, and that, if an agreement is entered into by mutual mistake between two parties as to their relative and respective rights, either is entitled to have it set aside).
In the present case, Lubben contends that the parties were mutually mistaken about who had the right to terminate the contract. Because Lubben raises this defense, it has the burden of showing a mutual mistake existed. Gouge, 586 N.W.2d at 713; see also Wilden Clinic, Inc. v. City of Des Moines, 229 N.W.2d 286, 290 (Iowa 1975) (stating burden of showing mutual mistake is on party seeking reformation of instrument on basis of such alleged mutual mistake). Again, Lubben must show the mistake was both mutual and material in order to prevail. See id. (citing Gentile, 479 N.W.2d at 609.)
In an attempt to fill this burden, Lubben points to the deposition testimony of Mr. Lubben. In his testimony Mr. Lubben maintains that he understood the lease agreement to mean Lubben could terminate the lease thirty days prior to the expiration of the initial term. Mr. Lubben explains that Lubben is "usually the lessee most all the time," and when he read the provision that gave the Lessee the right to terminate or renew the lease, Mr. Lubben assumed the Lessee was Lubben. In point of fact, Lubben, the owner of apartments, is the Lessor most of the time because it rents its owned apartment to renters, or more appropriately, Lessees. Lubben attempts to obvert this fact by contending Mr. White, the representative of Excalibur who negotiated the lease agreement, assured Mr. Lubben during the lease negotiations that Lubben was only bound to the terms of the lease for ten years. Furthermore, Mr. Lubben claims that he would never sign a lease for laundry equipment that would bind Lubben in contract for twenty years nor would Donald Schirm, the general manager of Lubben, sign such a lease.
However, the terms of the lease clearly and unambiguously invest the sole right to renewal in Coinmach. Lubben's contention that it improperly read the lease agreement at the time of negotiations becomes suspect in the face of such overt, unambiguous language. This is particularly true in the light of the fact that Lubben is in fact the Lessor in the vast majority of leases it is accustomed to signing, and this lease is no exception.
Lubben points to the fact that after sending a termination letter to Coinmach, Boyd Kline, a regional Vice-President for Coinmach, responded by offering new proposals. Lubben contends this was in essence a recognition that Lubben also had the right of renewal or termination. Mr. Kline, however, was not a party to the negotiations and Lubben bears the burden of establishing the mutual mistake occurred at the time the lease was signed. See Restatement (Second) of Contracts § 152 (1981), accord Davenport, 485 N.W.2d at 480. Moreover, Kline explains that at the time he offered the new proposals, he was unaware that Lubben attempted to terminate the lease, and was unaware of any unilateral renewal option in paragraph 4. When he learned of the renewal provision of paragraph four, Mr. Kline rescinded the new proposals.
This Court finds Lubben has failed to produce facts sufficient to establish a mistake occurred and more importantly that the mistake was mutual. For these reasons, Lubben's motion for summary judgment is denied as to mutual mistake.
CONCLUSION
Because the parties' cross-motions for summary judgment are somewhat cryptic about what grounds they believe warrant summary judgment in their favor, the Court will now summarize its ruling with some specificity.
The Court finds there are no issues of material fact and no legal basis for a claim of unconscionability. As such, the Court denies Lubben's motion for summary judgment on grounds of unconscionability. Likewise, the Court finds there are no issues of material fact with regards to the claim of lack of mutuality. Lubben's motion for summary judgment on grounds of mutuality is also denied. Finally, the Court finds Lubben has failed to carry its burden in establishing a claim of mutual mistake. As such, Lubben's motion seeking this Court to find there is a mutual mistake as a matter of law is denied.
Conversely, because the Court finds there are no genuine issues of material fact and Coinmach's summary judgment seeking this Court to enforce the terms of the contract is granted. Finally, Coinmach's motion to strike Lubben's Supplemental Brief in Support of Motion for Summary Judgment is denied.
ORDER
Accordingly, IT IS ORDERED:
Plaintiff's Motion for Summary Judgment is DENIED. (Doc. No. 7)
Defendant's Motion for Summary Judgment is GRANTED. (Doc. No. 11)
Defendant's Motion to Strike Plaintiff's Supplemental Brief is DENIED. (Doc. No. 23).