REPORT AND RECOMMENDATION

GABRIEL GORENSTEIN, Magistrate Judge

In this diversity action, plaintiff and counterclaim defendant Rhythm Hues, Inc. ("RH") alleged that defendant The Terminal Marketing Company, Inc. ("Terminal Marketing") violated its obligations to pay RH's suppliers under an equipment financing agreement secured by various leases. Terminal Marketing did not answer the complaint and RH has requested its default. Wells Fargo Bank Minnesota, National Association ("Wells Fargo"), to whom the leases were allegedly assigned, intervened. Wells Fargo has counterclaimed against RH, alleging that RH improperly refused to make required lease payments to Wells Fargo, as assignee.

Both RH and Wells Fargo have now moved for summary judgment on the issue of the validity of the lease assignments to Wells Fargo. In addition, Wells Fargo has moved for summary judgment with respect to the issue of the enforceability of a waiver-of-defenses clause contained in the leases and RH has moved for summary judgment on certain of Wells Fargo's counterclaims. For the reasons set forth below, RH's motions should be denied and Wells Fargo's motion should be granted.

I. INTRODUCTION

A. Factual History

The following facts are undisputed, except as otherwise noted:

1. Agreements Between RH and Terminal Marketing

RH is a film production studio that specializes in producing visual effects for motion pictures, television commercials, theme park attractions, music videos, and computer games. Declaration of Richard Castaldo and Exhibits in Support of Rhythm Hues' Opposition to Wells Fargo's Motion for Partial Summary Judgment, dated November 19, 2001 ("Castaldo Decl.") (reproduced as Ex. S to Declaration of Judith Beall in Opposition to Wells Fargo's Motion for Partial Summary Judgment and in Support of Rhythm Hues' Cross-Motion for Summary Judgment, filed December 18, 2003 (Docket #69) ("Beall Decl.")), ¶ 3. As part of its business, RH uses various pieces of highly advanced technical equipment. Id. ¶ 17. From time to time, RH has financed the purchase of such equipment through Terminal Marketing. Id. Under this arrangement — commonly called a "sale and leaseback" — Terminal Marketing would order the equipment selected by RH from various suppliers and then lease it back to RH for an agreed-upon price. Id. ¶ 18. Terminal Marketing would pay the suppliers and RH would pay Terminal Marketing. Id.

a. Line of Credit Agreement and Lease No. 3855. In April 2000, RH and Terminal Marketing entered into an agreement under which Terminal Marketing agreed to extend RH a line of credit for working capital ("Line of Credit Agreement"). Rhythm Hues' Local Rule 56.1 Statement of Undisputed Material Facts, filed December 18, 2003 (Docket #68) ("RH 56.1 I"), ¶ 3; Castaldo Decl. ¶¶ 4-5. Under this agreement, RH was entitled to exercise up to three "take-downs" on the line of credit for a total of $1.5 million. RH 56.11 ¶ 4; Castaldo Decl. ¶ 4, 11; Hughes Decl. ¶ 10. Payments were due 30 months after each take-down. RH 56.1 I ¶ 5; Castaldo Decl. ¶ 11; Hughes Decl. ¶ 10. Equipment previously purchased and owned free and clear by RH was used as collateral for the Line of Credit Agreement. RH 56.1 I ¶ 14; Castaldo Decl. ¶ 5; Hughes Decl. 110.

As part of the transaction, RH executed a number of documents in April and May 2000, including Lease No. 3855 — a standard form agreement for an equipment lease. RH 56.1 I ¶¶ 9-13, 18-19, 23; see Lease No. 3855, dated May 9, 2000 ("Lease No. 3855") (reproduced as Ex. A1 to Declaration of John C. Weidner, filed January 13, 2004 (Docket #70) ("Weidner Decl.")). Lease No. 3855 calls for RH to pay 30 monthly rental payments of $57,066.47 to Terminal Marketing. Lease No. 3855 at 1. It states — in what is commonly called a "hell or high water" provision — that "[RH's] obligation to pay [Terminal Marketing] all amounts due hereunder is absolute and unconditional" and that "[RH] shall not be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect" to any of this rent.Id. ¶ 5. Lease No. 3855 also states that it "may be assigned by [Terminal Marketing] without notice to [Ramp;H]" and it contains a waiver-of-defenses provision providing that "[t]he assignee's rights . . . shall be free from all defenses, setoffs or counterclaims which [RH] may be entitled to assert." Id. ¶ 14.

No commencement date is listed on the lease. See id. at 1. RH claims that the purpose of Lease No. 3855 was to secure its first take-down on the Line of Credit Agreement and that the lease was not effective until it actually made a take-down. RH 56.1 I ¶¶ 6, 15-17; Castaldo Decl. ¶ 13; Hughes Decl. ¶¶ 11-12. RH further claims that it never took any take-down or leased any equipment through Terminal Marketing that would have activated its obligations under Lease No. 3855. RH 56.1 I ¶¶ 24-25; Castaldo Decl. ¶ 14; Hughes Decl. ¶ 13. RH states that, on May 3, 2001, it cancelled the Line of Credit Agreement with Terminal Marketing. Castaldo Decl. ¶ 16.

b. The Equipment Financing Agreement and Lease No. 3989. In addition to the Line of Credit Agreement, RH and Terminal Marketing entered into an equipment financing agreement. Id. ¶¶ 17-19. Under this "sale and leaseback" arrangement, Terminal Marketing agreed to order equipment from various manufacturers, pay for the equipment, and then lease it to RH for agreed-upon monthly payments. Id. ¶ 18.

On June 23, 2000, RH entered into an agreement with Terminal Marketing to obtain equipment worth $774,375.00. Id. ¶¶ 19, 21-22. Coterminously, RH executed a number of other documents, including Lease No. 3989 — a standard form agreement for an equipment lease. Id. ¶ 19; see Lease No. 3989, dated June 23, 2000 ("Lease No. 3989") (reproduced as Ex. A2 to Weidner Decl.). Lease No. 3989 calls for 24 monthly payments of $35,078.00 and contains identical wording to Lease No. 3855, including the "hell or high water" clause containing the "absolute and unconditional" language and the waiver-of-defenses provision providing for assignment "free from all defenses, setoffs or counterclaims." Lease No. 3989 at 1 ¶¶ 5, 14.

At the time that Lease No. 3989 was entered into, Terminal Marketing allegedly told RH that it was in sound financial condition and that it would meet its obligations to all equipment suppliers. See Complaint, filed May 31, 2001 (Docket #1) ("Complaint"), ¶ 10. Notwithstanding Terminal Marketing's representation, the company was apparently in a dire financial condition. See id. ¶ 12. Because of this, many of RH's suppliers have not been paid and have refused to provide any additional equipment to RH. See Castaldo Decl. ¶¶ 23, 26, 29.

2. Securitization Agreement

Wells Fargo is the indenture trustee for the noteholders of a series of contract-backed and lease-backed notes that were issued by a subsidiary of Terminal Marketing, Terminal Finance Corporation II ("Terminal Finance"). Weidner Decl. ¶ 4; Declaration of John Battiloro, dated December 19, 2001 ("Battiloro Decl.") (reproduced as Ex. U to Beall Decl.), ¶ 3. According to Wells Fargo, it engaged in a transaction with Terminal Marketing and Terminal Finance commonly known as a "securitization." Weidner Decl. ¶¶ 5-6. The securitization arrangement called for Terminal Marketing to sell to Terminal Finance the right to payments due from various equipment leases. Id. ¶ 5. Terminal Finance obtained the money necessary to purchase these rights by obtaining loans from the noteholders. Id. ¶¶ 5, 9. To secure re-payment from Terminal Finance on these loans, Wells Fargo allegedly was assigned — as indenture trustee for the noteholders — the right to payments under the leases.Id. ¶¶ 6, 9.

This transaction was allegedly effectuated through a series of agreements. The first was the sale of certain leases from Terminal Marketing to Terminal Finance by means of lease acquisition agreements. The second was the assignment of those leases from Terminal Finance to Wells Fargo by means of indenture agreements. Neither Lease No. 3855 nor Lease No. 3989 was covered by the original agreements. However, the agreements contained provisions for the assignment of additional leases. Wells Fargo does not dispute that the exact manner by which the assignment of additional leases was to be made under these agreements was not followed. See, e.g., Wells Fargo's Memorandum of Law in Reply to Rhythm Hues' Opposition to Plaintiff's Motion for Partial Summary Judgment and Opposition to Rhythm Hues' Cross-Motion for Summary Judgment on Assignment, filed January 13, 2004 (Docket #74) ("Wells Fargo Reply Mem."), at 3. Instead, Wells Fargo argues that documents called "Warehouse Funding Reports" properly effected the assignment of these additional leases. See, e.g., id. at 4.

Prior to discussing the Warehouse Funding Reports, we will first consider the lease acquisition agreements and the indenture agreements and their provisions for the assignment of additional leases.

a. Lease Acquisition Agreements Between Terminal Marketing and Terminal Finance.

The first lease acquisition agreement was entered into in August 1995.See Lease Acquisition Agreement, dated August 1, 1995 ("First Lease Acquisition Agreement") (reproduced as Ex. 3 to Declaration of Aaron Mowbray, filed July 17, 2002 (Docket #43) ("Mowbray Decl. I") and as Ex. E to Beall Decl.). Under this agreement, Terminal Finance acquired Terminal Marketing's interest in certain leases. See id. § 2.02. The agreement also stated that its terms could "not be changed orally but only by an instrument in writing signed by the party against which enforcement is sought." Id. § 7.01.

The agreement provided that when Terminal Marketing entered into additional leases not contemplated in the agreement, certain steps were required in order to effect an assignment of those additional leases to Terminal Finance. First, any additional lease had to be in full force and effect on the date the lease was to be assigned to Terminal Finance. See id. §§ 3.01(a)(vi), 3.04(b)(2)(i). Second, the equipment relating to the lease had to be delivered as of the date of the assignment. See id. §§ 3.01(a)(xii), 3.04(b)(2)(i). Third, the agreement provided that any additional assignment had to be accompanied by the following:

an Amendment to Lease Acquisition Agreement for New Lease Contracts substantially in the form of Exhibit A hereto subjecting such Lease Contract to the provisions hereof and providing with respect to such . . . Additional Lease Contract, an Amended Lease Schedule (a copy of which will be delivered to the Noteholders).

"Exhibit A," referenced in the above-quoted section, consisted of a form stating briefly that the leases identified on an attached schedule "are hereby sold, assigned, transferred and delivered by [Terminal Marketing] to [Terminal Finance] in accordance with this Lease Acquisition Agreement." First Lease Acquisition Agreement, Ex. A. The attached "amended lease schedule" provided space for information regarding the new leases thereby assigned. See id.

Terminal Marketing and Terminal Finance entered into a new lease acquisition agreement in August 2000. See Amended and Restated Lease Acquisition Agreement, dated August 1, 2000 ("Second Lease Acquisition Agreement") (reproduced as Ex. 4 to Mowbray Decl. I and as Ex. G to Beall Decl.). Like the First Lease Acquisition Agreement, this agreement contained an identical provision specifying the requirements for assigning additional leases to Terminal Finance and an identical "Exhibit A." See id. § 3.04(b)(2) Ex. A. The new agreement also contained the same provision requiring a writing to effect any amendment. See id. § 7.01.

Both of the agreements contained two signature lines, one for Terminal Marketing's President and the other for Terminal Finance's President.See First Lease Acquisition Agreement at 30; Second Lease Acquisition Agreement at 28. The same individual — Sanford Schneiderman — signed the agreements on behalf of both companies. See First Lease Acquisition Agreement at 30; Second Lease Acquisition Agreement at 28.

b. Indenture Agreements Between Terminal Marketing. Terminal Finance, and Wells Fargo. On July 1, 1998, Terminal Marketing, Terminal Finance, and Wells Fargo entered into an indenture agreement under which Terminal Finance agreed to assign to Wells Fargo all of its rights under the leases Terminal Marketing had assigned to it under the First Lease Acquisition Agreement. See Second Amended and Restated Indenture, dated July 1, 1998 ("Second Indenture Agreement") (reproduced as Ex. 1 to Mowbray Decl. I and as Ex. I to Beall Decl.), at I. The agreement also delineated the requirements for the assignment of additional leases not originally covered by the First Lease Acquisition Agreement:

[Terminal Finance] shall comply with the requirements relating to . . . Additional Lease Contracts as set forth in the Lease Acquisition Agreement within the time periods set forth therein. In addition, each acquisition by [Terminal Finance] of any Additional Lease Contract . . . is subject to the satisfaction of the following conditions precedent . . .:

. . . .

(ii) the delivery by [Terminal Finance] to [Wells Fargo] and the Noteholders . . . of an Amended Lease Schedule accompanied by an Amendment to Indenture for New Lease Contractsand [sic] Amendmentto [sic] Lease Acquisition Agreement for New Lease Contracts executed by [Terminal Finance] and [Terminal Marketing], as appropriate.

Included as Exhibit B to both Indenture Agreements was a form document to be utilized for the assignment of additional leases from Terminal Finance to Wells Fargo. The document — captioned "Form of Amendment to Indenture for New Lease Contracts" — stated that it was intended to comply with section 4.05(a)(ii) of the Indenture Agreements, quoted above, and that the leases identified on its attached schedule "are hereby Granted by [Terminal Finance] to [Wells Fargo] in accordance with the Indenture." Second Indenture Agreement, Ex. B; Third Indenture Agreement, Ex. B. The attached schedule, captioned "Amended Lease Schedule" or "Amended Contract Schedule," apparently was meant to include information regarding the additional leases and the equipment covered by such leases. See Second Indenture Agreement, Ex. B; Third Indenture Agreement, Ex. B.

Both of the Indenture Agreements were signed by Schneiderman on behalf of both Terminal Finance and Terminal Marketing. See Second Indenture Agreement at 87; Third Indenture Agreement at 87.

c. Warehouse Funding Reports. As indicated, Wells Fargo does not dispute that the written provisions for assigning additional leases under the Lease Acquisition and Indenture Agreements were not followed. See, e.g., Wells Fargo Reply Mem. at 3. Instead, Wells Fargo contends that these additional leases, including Lease Nos. 3855 and 3989, were assigned to it through documents called "Warehouse Funding Reports," which were prepared by Wells Fargo, signed by Terminal Finance as "Issuer," and transmitted normally twice per month from Terminal Finance to both Terminal Marketing and Wells Fargo. See, e.g., Mowbray Decl. I ¶ 7; Weidner Decl. ¶¶ 8-9; Deposition of Eileen O'Connor, November 6, 2003 ("O'Connor Dep.") (reproduced in part as Ex. 4 to Declaration of Ellen Bass, filed November 18, 2003 (Docket #65) ("Bass Decl. I") and in part as Ex. Z to Beall Decl.), at 14-16, 29-33, 57; Video Deposition of Eileen O'Connor, February 20, 2003 ("O'Connor Dep. in Nassau Broadcasting Partners") (reproduced in part as Ex. 3 to Bass Decl. I and in part as Ex. 3 to Second Declaration of Ellen Bass, filed January 13, 2004 (Docket #73) ("Bass Decl. II")), at 21.

The first Warehouse Funding Report was sent on June 12, 2000 and lists a number of leases entered into by Terminal Marketing. See Warehouse Funding Report, dated June 12, 2000 ("June 2000 Warehouse Funding Report") (reproduced as Ex. 7 to Mowbray Decl. I and as Ex. Q to Beall Decl.). Included on the schedule of leases is Lease No. 3855. See id. The second Warehouse Funding Report was sent on August 22, 2000 and included Lease No. 3989 on its schedule. See Warehouse Funding Report, dated August 22, 2000 ("August 2000 Warehouse Funding Report") (reproduced as Ex. 8 to Mowbray Decl. I and as Ex. R to Beall Decl.). Each schedule included a list of leases subject to the report, stating for each lease: the lessee and lease number, the amount of notes being sold and purchased, the payment schedule, the then-current value, and the amount being paid to Terminal Finance by the noteholders and being paid to Terminal Marketing by Terminal Finance. See June 2000 Warehouse Funding Report; August 2000 Warehouse Funding Report.

The actual leases were sent to Wells Fargo by Terminal Marketing along with form delivery certificates signed by RH. Mowbray Decl. I ¶¶ 4, 6; Weidner Decl. ¶ 11; O'Connor Dep. at 31-34; see Delivery and Acceptance Certificate and Lessee's Acknowledgment and Consent: Lease No. 3855, dated May 9, 2000 ("Lease No. 3855 Delivery Certificate") (reproduced as Ex. Dl to Weidner Decl.); Delivery and Acceptance Certificate and Lessee's Acknowledgment and Consent: Lease No. 3989, dated June 28, 2000 ("Lease No. 3989 Delivery Certificate") (reproduced as Ex. D2 to Weidner Decl.). The Warehouse Funding Reports were then issued by Terminal Finance and, according to the accompanying cover letter to Wells Fargo and Terminal Marketing, were sent "[p]ursuant to Section 4.05" of the Indenture Agreements. Letter from Yunlong Pan, Treasury Analyst, Terminal Finance, to various recipients, dated June 12, 2000 ("Pan June 2000 Letter") (reproduced as Ex. 7 to Mowbray Decl. I), at 1; Letter from Pan to various recipients, dated August 22, 2000 ("Pan August 2000 Letter") (reproduced as Ex. 8 to Mowbray Decl. I), at 1.

B. Relevant Procedural History

RH filed its complaint in this action on May 31, 2001, naming Terminal Marketing as defendant. According to RH, Terminal Marketing failed to fulfill its obligations under the equipment financing agreement by not paying all monies owed to RH's suppliers. See Complaint ¶¶ 16-28. Terminal Marketing did not answer the complaint and RH has requested its default. See Application for Certificate of Default by the Clerk, filed July 31, 2001 (Docket #6). On June 27, 2001, Wells Fargo moved for leave to intervene pursuant to Fed.R.Civ.P. 24(a). See Motion of Wells Fargo Bank Minnesota, National Association, to Intervene, filed June 27, 2001 (Docket #4). Wells Fargo's motion was granted without opposition. See Order, filed August 28, 2001 (Docket #8).

In addition to answering the claims made by RH in its complaint, see Answer in Intervention of Wells Fargo Bank Minnesota National Association, filed October 16, 2001 (Docket #16), Wells Fargo also interposed several counterclaims against RH. See Counterclaim in Intervention of Wells Fargo Bank Minnesota, National Association, filed October 16, 2001 (Docket #14). The counterclaims alleged that RH had failed to pay Wells Fargo sums owed under Lease Nos. 3855 and 3989, that RH's owner had breached a guarantee on those leases, and that Wells Fargo is entitled to a declaratory judgment that the leases were valid and enforceable. See id. ¶¶ 50-79.

On October 22, 2001, Wells Fargo moved for partial summary judgment seeking a ruling that RH was liable to make payments to it under Lease Nos. 3855 and 3989. See Memorandum of Law in Support of Motion for Summary Judgment, filed October 22, 2001 (Docket #18), at 6-18. The motion was denied on June 19, 2002. See Rhythm Hues. Inc. v. Terminal Mktg. Co., 2002 WL 1343759 (S.D.N.Y. June 19, 2002). Specifically, the court found that summary judgment was inappropriate as to Lease No. 3855 because ambiguity existed as to what RH's obligations were under that lease and whether those obligations had yet arisen. See id. at *6. As to Lease No. 3989, the court ruled that summary judgment was inappropriate pending further discovery as to the validity of the alleged assignments from Terminal Marketing to Terminal Finance and from Terminal Finance to Wells Fargo — specifically, whether the transactions were intended to defraud RH and whether Wells Fargo was complicit in any such fraud. See id. at *7.

Discovery in the case then proceeded. On June 20, 2002, RH filed a motion for partial summary judgment on the issue of the assignment to Wells Fargo of Lease Nos. 3855 and 3989. See Memorandum of Law in Support of Rhythm Hues' Motion for Summary Judgment, filed June 20, 2002 (Docket #37), at 12-18. A month later, Wells Fargo filed a cross-motion for partial summary judgment on the same issue. See Wells Fargo's Memorandum of Law in Opposition to Rhythm Hues' Motion for Summary Judgment and in Support of its Cross-Motion for Partial Summary Judgment, filed July 17, 2002 (Docket #42) ("Wells Fargo Mem. I") (reproduced in Wells Fargo's Memorandum in Support of Motion for Partial Summary Judgment on Assignment and Good Faith, filed November 18, 2003 (Docket #63) ("Wells Fargo Mem. II")), at 4-10.

At a conference before the undersigned on July 21, 2003, the parties agreed to withdraw their motions without prejudice to renewal at the close of discovery. See Order, filed July 22, 2003 (Docket #57), at 1. Discovery is now complete and the parties have filed the instant three motions for summary judgment. See Notice of Motion, filed November 18, 2003 (Docket #62); Rhythm Hues' Notice of Cross-Motion for Summary Judgment, dated December 16, 2003 (Docket #78); Rhythm Hues' Notice of Motion for Summary Judgment, dated December 16, 2003 (Docket #79). Collectively, these motions raise the following three issues: (1) the validity of the lease assignments to Wells Fargo; (2) the validity of RH's waiver of its right to assert any defenses to its obligations under the leases; and (3) RH's obligation to make payments under Lease No. 3855.

II. SUMMARY JUDGMENT STANDARD

A district court may grant summary judgment only 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." Fed.R.Civ.P. 56(c): see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue is one that "may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A fact is material if it "might affect the outcome of the suit under the governing law." Id. at 248. Thus, a genuine issue of material fact exists "if 'the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Gayle v. Gonyea, 313 F.3d 677, 682 (2d Cir. 2002) (quoting Anderson, 477 U.S. at 248). When determining whether a genuine issue of material fact exists, all factual inferences must be drawn and all ambiguities resolved in favor of the nonmoving party. See, e.g., Savino v. City of New York, 331 F.3d 63, 71 (2d Cir. 2003) (citing Anderson, 477 U.S. at 255); McPherson, 174 F.3d at 280. However, "[c]onclusory allegations, conjecture, and speculation . . . are insufficient to create a genuine issue of fact." Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998) (citation omitted); accord Harlen Assocs. v. Incorporated Vill. of Mineola, 273 F.3d 494, 499 (2d Cir. 2001).

"In moving for summary judgment against a party who will bear the ultimate burden of proof at trial, the movant may satisfy [its] burden by pointing to an absence of evidence to support an essential element of the nonmoving party's claim." Vann v. City of New York, 72 F.3d 1040, 1048 (2d Cir. 1995) (citing Celotex, 477 U.S. at 322-23). "A defendant moving for summary judgment must prevail if the plaintiff fails to come forward with enough evidence to create a genuine factual issue to be tried with respect to an element essential to its case." Alien v. Cuomo, 100 F.3d 253, 258 (2d Cir. 1996) (citing Anderson, 477 U.S. at 247-48); accord Nebraska v. Wyoming, 507 U.S. 584, 590 (1993); Chase Manhattan Bank v. Am. Nat'l Bank Trust Co. of Chi., 93 F.3d 1064, 1072 (2d Cir. 1996).

III. DISCUSSION

As indicated, the parties' motions raise three issues: (1) the validity of the lease assignments to Wells Fargo; (2) the validity of RH's waiver of its right to assert any defenses to its obligations under the leases; and (3) RH's obligation to make payments under Lease No. 3855. We discuss each in turn.

A. The Validity of the Lease Assignments to Wells Fargo

Wells Fargo does not dispute that the assignments of Lease Nos. 3855 and 3989 from Terminal Marketing to Terminal Finance and from Terminal Finance to Wells Fargo did not comply with the written terms of the Lease Acquisition and Indenture Agreements inasmuch as the specific documents attached to them as exhibits were never executed. See, e.g., Wells Fargo Reply Mem. at 3. Wells Fargo's argument is instead that the Warehouse Funding Reports were sufficient to meet the requirements of the Lease Acquisition and Indenture Agreements. See, e.g., Wells Fargo Mem. I at 5-7. Wells Fargo also argues that it has offered evidence that the parties intended the Warehouse Funding Reports to fulfill this function.See, e.g., id. at 7-10. RH, on the other hand, claims that the parties never intended the Warehouse Funding Reports to effect any assignment under the Lease Acquisition or Indenture Agreements and that the reports in fact did not bring about any assignment because they failed to comply with the relevant sections of the Lease Acquisition and Indenture Agreements. See, e.g., RH Mem. I at 14-22; Rhythm Hues' Reply in Support of its Cross Motion for Summary Judgment, filed February 5, 2004 (Docket #76) ("RH Reply Mem."), at 4-7.

1. New York Law Governing Assignments

The Lease Acquisition and Indenture Agreements specify that New York law governs their construction. See First Lease Acquisition Agreement § 7.02; Second Lease Acquisition Agreement § 7.02; Second Indenture Agreement § 13.10; Third Indenture Agreement § 13.10. In addition, the parties in their briefs have cited New York law exclusively, thereby signaling their consent to the application of New York law. See, e.g., Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (citing Tehran-Berkeley Civil Envtl. Eng'rs v. Tippetts-Abbett-Mc Carthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989)).

Under New York law, "'[a]n assignment is a transfer or setting over of property, or of some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, or chattel, or other thing.'" In re Stralem, 303 A.D.2d 120, 122 (2d Dep't 2003) (quoting Griffey v. N.Y. Cent. Ins. Co., 100 N.Y. 417, 422 (1885)). "[A]n assignment need not utilize any particular phraseology or form." Miller v. Wells Fargo Bank Int'l Corp., 540 F.2d 548, 557 (2d Cir. 1976) (discussing New York law);accord Wells Fargo Bank Minn. v. Nassau Broad. Partners, 2003 WL 22339299, at *5 (S.D.N.Y. Oct. 10, 2003) ("Under New York law, '[n]o particular words or phrases are necessary to effect an assignment. A valid assignment merely requires a completed transfer of the entire interest of the assignor that divests the assignor of all control over the right assigned.'" (quoting Richstone v. Chubb Colonial Life Ins., 1999 WL 287332, at *6 (S.D.N.Y. May 7, 1999))); Leon v. Martinez, 84 N.Y.2d 83, 88 (1994) ("No particular words are necessary to effect an assignment; it is only required that there be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things assigned." (citations omitted)). Instead, New York law requires only "some 'act or words' that manifest an intent to assign." Prop. Asset Mgmt., Inc. v. Chi. Title Ins. Co., 173 F.3d 84, 87 (2d Cir. 1999) (quoting Miller, 540 F.2d at 557).

Parties to an agreement may prohibit or restrict the ability to assign rights and obligations under that agreement. See, e.g., Allhusen v. Caristo Constr. Corp., 303 N.Y. 446, 452 (1952). However, "[u]nder New York law, only express limitations on assignability are enforceable."Pravin Banker Assocs., Ltd. v. Banco. Popular del Peru, 109 F.3d 850, 856 (2d Cir. 1997) (emphasis in original) (citing cases); accord Stralem, 303 A.D.2d at 122 ("[C]ontracts are freely assignable absent language which expressly prohibits assignment." (citing cases)).

"It is elementary ancient law that an assignee never stands in any better position than his assignor." Int'l Ribbon Mills. Ltd. v. Arian Ribbons, Inc., 36 N.Y.2d 121, 126 (1975); accord Trans-United Indus., Inc. v. Cohn, 351 F.2d 605, 606 (2d Cir. 1965) (per curiam) ("[A]n assignee gets no better rights that those of his assignor."). Accordingly, under New York law, an assignee may receive an interest in the assigned property only if the assignor held the property or right it claims to have assigned. See, e.g., Sea Spray Holdings. Ltd. v. Pali Fin. Group, Inc., 269 F. Supp.2d 356, 362 (S.D.N.Y. 2003) ("[An assignee] is not entitled to any more rights than [the assignor] because [the assignor] cannot convey . . . an interest greater than that which it possessed."); accord Septembertide Publ'g v. Stein Day, Inc., 884 F.2d 675, 682 (2d Cir. 1989) ("[A]n assignor cannot assign that which it no longer owns or controls." (citing Int'l Ribbon Mills, 36 N.Y.2d at 126)).

Wells Fargo has the burden of proving the validity of the assignments.See, e.g., Prop. Asset Mgmt., 173 F.3d at 88: Klein v. Carey Printing Co., 199 N.Y.S. 19, 20 (Sup.Ct. App. Term 1923).

2. Validity of the Assignments

Under the terms of the Indenture Agreements, two steps were necessary for Wells Fargo to receive an assignment of the leases at issue: first, Terminal Marketing needed to transfer its lease rights to Terminal Finance; and second, Terminal Finance needed to assign its lease interests to Wells Fargo. See Second Indenture Agreement § 4.05(a); Third Indenture Agreement § 4.05(a).

As noted, Wells Fargo does not deny that the leases at issue were not assigned using the documents annexed as exhibits to the Lease Acquisition and Indenture Agreements. See, e.g., Wells Fargo Reply Mem. at 3. Instead, Wells Fargo argues that the Warehouse Funding Reports were sufficient to effect both steps for completion of the assignments. See, e.g., Wells Fargo Mem. I at 5-7; Mowbray Decl. I ¶ 7; Weidner Decl. ¶¶ 8-9. Wells Fargo also notes that it took physical delivery of the actual leases and that the noteholders in fact paid for the equipment covered by the leases. See Wells Fargo Mem. I at 7-10. RH, on the other hand, argues that the fact that the Warehouse Funding Reports did not precisely conform to the requirements of the Lease Acquisition and Indenture Agreements is fatal to Wells Fargo's claim of assignment. See, e.g., RH Mem. I at 14-17, 21-22. In addition, RH contends that the parties did not intend the Warehouse Funding Reports to effect any assignment and that no assignment was carried out because the Warehouse Funding Reports do not contain any language of assignment. See, e.g., id. at 1-2, 18-21; Rhythm Hues' Local Civil Rule 56.1 Statement in Opposition to Wells Fargo's Motion for Partial Summary Judgment and in Support of Rhythm Hues' Cross-Motion for Summary Judgment, dated December 16, 2003 (Docket #81) ("RH 56.1 II"), ¶ 33.

a. Assignment from Terminal Marketing to Terminal Finance. Under the terms of the Lease Acquisition Agreements, a transfer of any additional lease from Terminal Marketing to Terminal Finance had to comply with section 3.04(b). This provision, which is identical in the two agreements, required any additional assignment to be accompanied by "an Amendment to Lease Acquisition Agreement for New Lease Contracts substantially in the form of Exhibit A hereto subjecting such Lease Contract to the provisions hereof and providing with respect to such . . . Additional Lease Contract, an Amended Lease Schedule (a copy of which will be delivered to the Noteholders)." First Lease Acquisition Agreement § 3.04(b)(2)(iv); Second Lease Acquisition Agreement § 3.04(b)(2)(iv). "Exhibit A" to these agreements recited that the leases identified on the attached schedules "are hereby sold, assigned, transferred and delivered by [Terminal Marketing] to [Terminal Finance] in accordance with this Lease Acquisition Agreement." First Lease Acquisition Agreement, Ex. A; Second Lease Acquisition Agreement, Ex. A.

The Lease Acquisition Agreements — but not the Indenture Agreements, as will be discussed shortly — state that the amending document needed to be only "substantially in the form of Exhibit A." Thus, by their own terms, the Lease Acquisition Agreements do not require exact conformity with Exhibit A. The issue is therefore whether the Warehouse Funding Reports are "substantially in the form" of Exhibit A.

Exhibit A to the Lease Acquisition Agreements required that any amending document had to "include information regarding" the leases that were being assigned. First Lease Acquisition Agreement, Ex. A; Second Lease Acquisition Agreement, Ex. A. RH's contention to the contrary notwithstanding, see RH Mem. I at 15 ("The [Warehouse Funding] Reports look nothing like the amendments to the Trust Documents as they are completely different in content and form."), the Warehouse Funding Reports and their accompanying lease schedules in fact provide such "information." They include, among other information, the leases being sold by Terminal Marketing (listed by lessee and lease number), the amount of notes being sold and purchased, the payment schedule for each lease being transferred, the then-current value of each lease, and the amount being paid by Terminal Finance to Terminal Marketing. See June 2000 Warehouse Funding Report; August 2000 Warehouse Funding Report. The leases at issue in the instant dispute are so described in the reports. See June 2000 Warehouse Funding Report (Lease No. 3855); August 2000 Warehouse Funding Report (Lease No. 3989).

For RH, the disposition of this issue turns on the fact that the Warehouse Funding Reports do not contain assignment language similar to that contained in Exhibit A to the Lease Acquisition Agreements — namely, that the identified leases "are hereby sold, assigned, transferred and delivered." See, e.g., RH Mem. I at 16. However, even by their own terms, the Lease Acquisition Agreements do not require exact compliance but only call for the amending document to be "substantially in the form" of Exhibit A.

In addition, reference to the Indenture Agreements demonstrates that the parties used the Warehouse Funding Reports to effect assignments from Terminal Marketing to Terminal Finance under the Lease Acquisition Agreements. In the Second Indenture Agreement, the term "Additional Lease Contract" is defined as a lease "acquired by [Terminal Finance] pursuant to the Lease Acquisition Agreement with funds obtained in accordance with Section 12.02(d)(vii)(A) or pursuant to a Warehouse Funding." Second Indenture Agreement § 1.01 (emphasis added). The Third Indenture Agreement defines "Additional Contract" as a lease "acquired by [Terminal Finance] pursuant to the Lease Acquisition Agreement with funds obtained pursuant to a Warehouse Funding." Third Indenture Agreement § 1.01 (emphasis added).

Accordingly, it is clear that the parties used the Warehouse Funding Reports to transfer Terminal Marketing's interest in Lease Nos. 3855 and 3989 to Terminal Finance.

b. Assignment from Terminal Finance to Wells Fargo. Under the terms of the Indenture Agreements, each acquisition of an additional lease by Wells Fargo required the delivery by Terminal Finance to Wells Fargo of "an Amended Lease Schedule accompanied by an Amendment to Indenture for New Lease Contractsand [sic] Amendmentto [sic] Lease Acquisition Agreement for New Lease Contracts executed by [Terminal Finance] and [Terminal Marketing]." Second Indenture Agreement § 4.05(a)(ii); Third Indenture Agreement § 4.05(a)(ii). The form of this document was included as Exhibit B to the Indenture Agreements, along with a blank page for the amended lease schedule. See Second Indenture Agreement, Ex. B; Third Indenture Agreement, Ex. B. Unlike the Lease Acquisition Agreements, the Indenture Agreements do not contain any clause that explicitly allows a variation from these terms — such as the "substantially in the form" language of the Lease Acquisition Agreements. Compare Second Indenture Agreement § 4.05(a)(ii) and Third Indenture Agreement § 4.05(a)(ii) with First Lease Acquisition Agreement § 3.04(b)(2)(iv) and Second Lease Acquisition Agreement § 3.04(b)(2)(iv). Thus, RH argues that because the Warehouse Funding Reports do not contain the language exactly matching the form contained in Exhibit B to the Indenture Agreements — namely, that the identified leases "are hereby Granted" — no assignment was effected. See, e.g., RH Mem. I at 16.

As already discussed, however, New York does not require any special "phraseology or form" to effect an assignment. Miller, 540 F.2d at 557;accord Exp.-Imp. Servs., Inc. v. Int'l Eng'rs, Inc. (In re Int'l Eng'rs, Inc.), 812 F.2d 78, 79 (2d Cir. 1987) ("[N]o particular mode, form, or phraseology is necessary to effect a valid assignment. . . ." (internal quotation marks and citation omitted)); Nassau Broad, Partners, 2003 WL 22339299, at *5 ("Under New York law, no particular words or phrases are necessary to effect an assignment." (internal quotation marks and citation omitted)); Leon, 84 N.Y.2d at 88 ("No particular words are necessary to effect an assignment; it is only required that there be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things assigned." (citations omitted)); see also Aini v. Sun Taivang Co., 964 F. Supp. 762, 778 (S.D.N.Y. 1997) ("The substance, not the form, prevails in determining whether a particular transaction constitutes an assignment."). aff'd mem., 159 F.3d 1348 (2d Cir. 1998). What is needed is only "some 'act or words' that manifest an intent to assign." Prop. Asset Mgmt., 173 F.3d at 87 (quoting Miller, 540 F.2d at 557).

It is thus necessary to determine whether "some 'act or words'" have manifested the parties' intent to assign. Wells Fargo has pointed to such "words" of intent: each of the Warehouse Funding Reports were sent to Wells Fargo along with a cover letter from Terminal Finance referencing that they were being sent "[p]ursuant to Section 4.05" of the Indenture Agreements. Pan June 2000 Letter at 1; Pan August 2000 Letter at 1. Section 4.05 is the very provision governing assignments. Thus, this case is a far cry from Property Asset Management, cited by RH, see RH Mem. I at 18, in which the court refused to conclude that an assignment had occurred since the only evidence of an assignment consisted of "unmemorialized intentions" and "uncommunicated subjective understandings." 173 F.3d at 87. Here, by contrast, the parties' intentions were set forth unambiguously in the words used by the parties in the documents transmitted between them.

While this evidence in and of itself might be sufficient to demonstrate an assignment, Wells Fargo has submitted additional evidence making the issue clear-cut.

c. Additional Evidence that the Warehouse Funding Reports Were Intended to Effect Assignments Under Both the Lease Acquisition and Indenture Agreements. Wells Fargo has shown that the Warehouse Funding Reports were used to encompass in one document both the transfer of Terminal Marketing's interest in Lease Nos. 3855 and 3989 to Terminal Finance and Terminal Finance's assignment of those lease interests to Wells Fargo. Eileen O'Connor, the Wells Fargo account manager assigned to the Terminal Finance lease portfolio and the individual who signed the Indenture Agreements on behalf of Wells Fargo, testified that Terminal Marketing regularly requested warehouse funding reports and chose which leases would be included in those reports. See O'Connor Dep. at 9-10, 14-17, 29-33, 51-53. She states that warehouse funding reports were prepared by Wells Fargo based upon data from Terminal Marketing and that such reports — and not the forms included as exhibits to the Lease Acquisition and Indenture Agreements — were used by the Terminal entities and Wells Fargo since the inception of Terminal Finance in 1995, for the "life of the deal." Id. at 29-31, 51-57, 69; accord Mowbray Decl. I ¶ 7. She also indicates that standard warehouse funding reports are used for each lease and that "Exhibit B" — the standard form attached to the Indenture Agreements — was never utilized by the parties to assign any lease. O'Connor Dep. at 14-17, 28-33, 51-53, 57; accord Mowbray Decl. I ¶ 7.

RH of course insists that the precise terms of the agreements with respect to the form of assignment had to be followed and that the parties' conduct in actually performing the agreements is of no relevance to the resolution of this dispute. See RH Mem. I at 14-15, 21-22; RH Reply Mem. at 4-5. But, under New York law, "it is well established that a written contract may be modified by the parties' post-agreement 'course of performance.'" Gen. Elec. Capital Commercial Auto. Fin., Inc. v. Spartan Motors. Ltd., 246 A.D.2d 41, 52 (2d Dep't 1998) (citations omitted): accord Recon Car Corp. of N.Y. v. Chrysler Corp., 130 A.D.2d 725, 729 (2d Dep't 1987) ("Modifications of written contracts maybe proved circumstantially by the conduct of the parties." (citing cases)); see CT Chems. (U.S.A.) Inc. v. Vinmar Impex, Inc., 81 N.Y.2d 174, 179-80 (1993) (considering the parties' course of performance in determining what method and time of payment was required under the contract, as modified); see also Restatement (Second) of Contracts § 202 cmt. g, at 90 (1979) (indicating that "the conduct of the parties may be evidence of an agreed modification"). In Spartan Motors, for example, an automobile financier and automobile dealership executed a written contract whereby the financier agreed to pay the dealer's suppliers in advance of any purchase. 246 A.D.2d at 51. However, in practice, "it was not at all unusual" for the dealer to pay its suppliers directly and for the financier to then reimburse the dealer. Id. The court held that there was "no merit" to the argument that, "because [the dealer] and [the financier] had diverged in practice from the literal language of their contract," the dealer was not bound to its obligations under the modified contract. Id. at 52; see also Recon Car Corp., 130 A.D.2d at 726, 729 (although written service contract stated that it applied only to recreational vehicles, the parties' conduct — such as in submitting repair claims for nonrecreational vehicles using the same work order forms as used for recreational vehicles — "manifested an intent to modify the . . . written agreement so as to expand its scope to cover all vehicles, recreational or nonrecreational").

Here, all evidence regarding the parties' conduct in performing the agreements points to the conclusion that the original agreements were constructively modified to permit assignments by means of the Warehouse Funding Reports. The parties executed regular bi-monthly warehouse funding reports (accompanied by lease schedules). See O'Connor Dep. at 14-16, 29-33; O'Connor Dep. in Nassau Broadcasting Partners at 21. The original leases were delivered to Wells Fargo (along with delivery certificates signed by RH), followed by the retention of those leases by Wells Fargo and payment by the noteholders to Terminal Marketing (through Terminal Finance). Mowbray Decl. I ¶¶ 4, 6-7; Weidner Decl. ¶¶ 8-9, 11; O'Connor Dep. at 14-17, 28-34, 51-53; see also Lease No. 3855 Delivery Certificate; Lease No. 3989 Delivery Certificate. Wells Fargo has submitted copies of no less than 15 warehouse funding reports — dated from March 1999 to May 2000 — that were sent to it by Terminal Finance prior to the Warehouse Funding Reports at issue here. See Warehouse Funding Reports, various dates (reproduced as Ex. 10 to Mowbray Decl. I). The parties' consistent use of warehouse funding reports as vehicles for assignments shows that they intended to effect assignments through the Warehouse Funding Reports at issue here.

In addition, as to Lease No. 3855, Wells Fargo has submitted copies of Terminal Finance's bank records showing that Terminal Finance received payments from the noteholders totaling $10,432,622.13 and that Terminal Finance then immediately transferred those monies to Terminal Marketing.See Statement of Transactions, June 1, 2000 through June 30, 2000 (reproduced as Ex. 11 to Mowbray Decl. I). Of that $10,432,622.13, $1,270,111.10 was attributable to Lease No. 3855. See Mowbray Decl. I ¶ 8; O'Connor Dep. at 62-67. As to Lease No. 3989, Terminal Finance's bank records indicate that Terminal Finance received from the noteholders — and then transferred to Terminal Marketing — payments of $9,585,357.87. See Transactions from 08/01/00 to 08/31/00 (reproduced as Ex. 12 to Mowbray Decl. I); see also Letter from Ravee Shrinivas, Chief Operating Officer, Terminal Marketing, to Lawrence Rossiter, Norwest, dated July 25, 2000 (attached to Declaration of Robert A. Jaffe, filed September 3, 2002 (Docket #50)), at 1 (requesting payment for the leases being transferred pursuant to the August 2000 Warehouse Funding Report). Of that amount, $599,717.91 was attributable to Lease No. 3989. See Mowbray Decl. I ¶ 9; O'Connor Dep. at 62-67. Thus, Terminal Marketing's "act" of accepting payment from the noteholders on these leases (after delivering the original leases to Wells Fargo) demonstrates that it intended to and did in fact assign the leases to Wells Fargo through the Warehouse Funding Reports. See Prop. Asset Mgmt., 173 F.3d at 87 (only "some 'act or words' that manifest an intent to assign" is required to effect an assignment (quoting Miller, 540 F.2d at 557)). In addition, at least as to Lease No. 3989, RH has made all required monthly rental payments, even those payments due after Wells Fargo intervened in this litigation. See Declaration of Aaron Mowbray, filed November 18, 2003 (Docket #66), ¶ 3; see also Pravin Banker Assocs., 109 F.3d at 856 n. 2 (noting that, even if the assignment in that case was contractually invalid under New York law, the fact that interest payments were made to the assignee demonstrated that the parties intended an assignment).

RH argues that the Warehouse Funding Reports "do not reflect anyintent by Terminal Marketing to sell or assign the Agreements to either Terminal Finance or Wells Fargo because they were prepared for and signed on behalf of Terminal Finance." RH Mem. I at 2 (second emphasis added); accord id. at 17 ("Legally, a single signature under the auspices of one entity does not bind both in this situation where Terminal Finance was specifically set up to shield Terminal Marketing's assets from creditors." (emphasis in original)). In support, RH notes, see id. at 19, that the Lease Acquisition Agreements — but not the Indenture Agreements — state that any amendment could not be made "orally but only by an instrument in writing signed by the party against which enforcement is sought," First Lease Acquisition Agreement § 7.01 (emphasis added); Second Lease Acquisition Agreement § 7.01 (emphasis added). Thus, RH argues, because the Warehouse Funding Reports were signed on behalf of Terminal Finance, there was no "intention by Terminal Marketing to assign the Agreements at issue in this case." RH Mem. I at 18 (some emphasis omitted).

Once again, however, RH's distinction is one of form and not substance. That the individual who signed the Warehouse Funding Reports may have done so on behalf of Terminal Finance — as opposed to Terminal Marketing — is of no moment as the entities were closely related: not only was Terminal Finance a subsidiary of Terminal Marketing but the same representatives regularly signed documents for both companies. See O'Connor Dep. at 53-55, 58-59; Battiloro Decl. ¶ 3; see also First Lease Acquisition Agreement at 30 (signed by Schneiderman on behalf of both entities); Second Lease Acquisition Agreement at 28 (same); Second Indenture Agreement at 87 (same); Third Indenture Agreement at 87 (same). The particular Warehouse Funding Reports at issue here were signed by Ravee Shrinivas, an officer of both Terminal Marketing and Terminal Finance, and Kevin Redmond, the Chief Financial Officer of Terminal Marketing. See O'Connor Dep. at 14, 55. Moreover, the Warehouse Funding Reports were sent to Wells Fargo "from Terminal Marketing," according to the facsimile line on the top of each page, even though Terminal Finance letterhead was used. See June 2000 Warehouse Funding Report; August 2000 Warehouse Funding Report. This evidence is sufficient to demonstrate that the Warehouse Funding Reports were signed "by the party against which enforcement is sought." In any event, the parties' course of performance made clear that Terminal Marketing acquiesced in using the Warehouse Funding Reports to effect the assignments.

A case highly similar to the instant matter, and involving some of the same contractual provisions and parties, is Nassau Broadcasting Partners. In that case, Wells Fargo claimed that a warehouse funding report comparable to those in this case effected the dual assignment of an equipment lease from Terminal Marketing to Terminal Finance and from Terminal Finance to Wells Fargo. See 2003 WL 22339299, at *5. The first transfer was governed by a lease acquisition agreement whose relevant language was identical to that in this case. See id. ("The Acquisition Agreement provides that conveyances by [Terminal Marketing] to [Terminal Finance] must be accompanied by an 'Amendment to Lease Acquisition Agreement for New Contracts substantially in the form of Exhibit A.'"). As for the second assignment — from Terminal Finance to Wells Fargo — the indenture agreement provided that "conveyances by [Terminal Finance] to Wells Fargo must be accompanied by 'an Amendment to Indenture for New Contracts, substantially in the form attached to the Indenture [Agreement] as Exhibit B.'" Id. A warehouse funding report similar to those in this case, with a lease schedule reflecting the particular leases sold and assigned, was sent by Terminal Finance to Wells Fargo.Id.; see Warehouse Funding Report, dated December 11, 2000 (reproduced in Ex. 1 to Bass Decl. I) (warehouse funding report at issue in Nassau Broadcasting Partners).

In its decision following a bench trial, the court first indicated that "[a]lthough the agreements between [Terminal Marketing], [Terminal Finance] and Wells Fargo may have initially required the parties to draft assignment documents in 'substantially' the form that was attached to each agreement, nothing . . . prohibited the parties from mutually agreeing to a bilateral executory contract that waives such requirement, and substituting in its place a new agreement as to how the assignment of the lease may take place." 2003 WL 22339299, at *5 (citing Bandman v. Finn, 185 N.Y. 508 (1906); Wasserstrom v. Interstate Litho Corp., 114 A.D.2d 952 (2d Dep't 1985)). The court — relying in part on the testimony of O'Connor — held that the two-step assignment to Wells Fargo was made by means of the warehouse funding report:

Here, Terminal [Marketing] transferred over 1500 leases from 1995 through 2001 following the same steps as it regularly did on a twice-monthly basis, in which funds were transferred from the lender to Terminal [Marketing] via an account held by the trustee, Wells Fargo, and in return, Terminal [Marketing] transferred the physical leases to the trustee to hold as collateral for the loan. Wells Fargo prepared a warehouse funding report, such as the one dated December 11, 2000, which lists the [lease at issue], and confirmed a few days before the warehouse funding was prepared that Terminal [Marketing] transferred to it, for safe-keeping, a properly executed contract file, original lease document, delivery and acceptance certificate, UCC filing, and guarantees by the lessor. The long-standing performance of the parties in accordance with this practice suffices to demonstrate that the relevant parties agreed to this alternative assignment procedure. See [O'Connor Dep. in Nassau Broadcasting Partners] at 102 (reporting that no one, as far as O'Connor knew, had ever raised an objection to the assignment of a particular lease pursuant to the alternative assignment procedure). In regard to the [lease at issue], it is undisputed that Terminal [Marketing] delivered the originals of the executed . . . lease papers to Wells Fargo through the specified two-step assignment process and that Wells Fargo's noteholders transferred to Terminal [Marketing] around half a million dollars as consideration for rights to payment from the lease. Accordingly, I concur with [Wells Fargo's] view that sufficient evidence has been presented to show that the [lease at issue] was in fact assigned to Wells Fargo as collateral for the loan provided by the noteholders.

These principles are entirely applicable in this case to Lease Nos. 3855 and 3989. The only difference is that the indenture agreement inNassau Broadcasting Partners provided for amendments through documents "substantially in the form" of the attached exhibit whereas the Indenture Agreements in this case have no such language. Nonetheless, Nassau Broadcasting Partners' underlying rationale did not hinge on this language. Indeed, the court premised its discussion by noting that "nothing . . . prohibited the parties from mutually agreeing to a bilateral executory contract that waives such requirement, and substituting in its place a new agreement as to how the assignment of the lease may take place." Id. With or without the "substantially in the form" language, the parties' conduct demonstrates that they mutually agreed to substitute the Warehouse Funding Reports in place of the "form attached to the Indenture [Agreements] as Exhibit B."

In its brief, see RH Mem. I at 15, RH relies on Callicutt v. New York State Commissioner of Taxation Finance, 241 A.D.2d 778, 779 (3d Dep't 1997), which upheld a lower court's finding that no assignment had been effected by certain documents in part because the unsigned documents did not comply with a requirement in the relevant agreement that an assigning document be signed by both the assignor and the assignee. InCallicutt however, there was no evidence that there had been any transfer or intent to transfer the interest. In addition, the court indicated that the testimony as to the alleged assignment was vague and not credible and that the parties' conduct in later years was inconsistent with any assignment. See id. Finally, there was no evidence of any delivery of the assigning documents and/or payment for the assignment. See id. Callicutt thus has no bearing on this case. Here, there is evidence of contemporaneous documentation of the assignment, along with actual payment and delivery. See Mowbray Decl. I ¶¶ 4, 6-9; Weidner Decl. ¶¶ 8-9, 11; O'Connor Dep. at 14-17, 28-34, 51-53, 62-67; Lease No. 3855 Delivery Certificate; Lease No. 3989 Delivery Certificate; Pan June 2000 Letter at 1; Pan August 2000 Letter at 1. Indeed, the conduct of the parties is consistent only with an assignment.

In sum, no material issue of fact exists as to Wells Fargo's assignment of the right to receive payments under Lease Nos. 3855 and 3989. Wells Fargo's motion for partial summary judgment with respect to the validity of the lease assignments should therefore be granted. In addition, RH's cross-motion for summary judgment with respect to this same issue should be denied.

B. The Validity of the Waiver-of-Defenses Clause

With respect to the validity of the waiver-of-defenses clause in Lease No. 3989, the court previously denied summary judgment to Wells Fargo with leave to renew "because of RH's allegation, supported by circumstantial evidence, that Terminal [Marketing] defrauded RH by falsely representing to RH that it was in sound financial condition when in fact it was suffering from severe financial difficulties." Rhythm Hues, 2002 WL 1343759, at *6. The court stated that if RH could prove that "some or all of the Terminal [Marketing]-[Terminal Finance]-Wells Fargo transaction was intended to defraud RH, the suppliers and [Terminal Marketing's] other creditors in violation of the law," then "Lease No. 3989's waiver of defenses may be unenforceable."Id. at *7; see Lease No. 3989 ¶ 14 ("The assignee's rights or the rights of the holder of a security interest in this lease shall be free from all defenses, setoffs or counterclaims which [RH] may be entitled to assert."); see also Lease No. 3855 ¶ 14 (same). The court thus denied summary judgment with leave to renew "in order to give RH the opportunity to investigate the complex assignment in this case" and "whether the assignment was fraudulent." Rhythm Hues, 2002 WL 1343759, at *7.

Wells Fargo has now moved once again for summary judgment with respect to the issue of the enforceability of the waiver-of-defenses clause, this time with respect to both Lease No. 3855 and Lease No. 3989. Wells Fargo contends that there is no genuine issue of material fact that the waiver-of-defenses provision in the leases is enforceable because there is no evidence that it acted in bad faith or had knowledge of any fraud in the Terminal Marketing-Terminal Finance-Wells Fargo transaction. See Wells Fargo Mem. II at 8-11; accord Wells Fargo Reply Mem. at 7-10. In support, Wells Fargo has submitted affidavits and deposition testimony indicating that the relevant individuals at Wells Fargo learned only on January 4, 2001 that Terminal Marketing needed additional capital to pay the equipment vendors and that they had no knowledge that Terminal Marketing had not paid, or did not intend to pay, the vendors in June and August 2000, when Wells Fargo was assigned the leases. See, e.g., Weidner Decl. ¶ 12; Deposition of John Weidner, November 5, 2003 (reproduced in part as Ex. 5 to Bass Decl. I and in part as Ex. Y to Beall Decl.), at 47-48; O'Connor Dep. at 44-45, 59-62. For example, O'Connor testified that, in 2000, her information on Terminal Marketing's finances was "very" positive — based in part on its low delinquency and default rates, its net worth being "well above [the] number that was listed as the trigger," and her knowledge that two banks were interested in doing additional business with it. O'Connor Dep. at 60-62. She stated that she learned only on January 4, 2001 — to her "shock" — that Terminal Marketing needed approximately $35 million to stay afloat for another four or five months. Id. at 44-45, 60-61. Even on this late date, however, the source for this information was "hopeful that [Terminal Marketing] would be okay." Id. at 45.

RH has produced no evidence contradicting these assertions or demonstrating that Wells Fargo had knowledge of any financial difficulties at Terminal Marketing or of any wrongdoing committed by Terminal Marketing at the time Wells Fargo took assignment of the two leases in June and August 2000. Nothing has been submitted to support RH's contention that "Wells Fargo did not act in good faith during the securitization process with Terminal Finance," RH Mem. I at 20. All of RH's evidence on this issue concerns the fact that Wells Fargo "never reviewed," "never checked" or "cross-checked," or "never asked" for certain documents. RH 56.1 II ¶¶ 37-43; accord RH Mem. I at 23-25; RH Reply Mem. at 8-9. In effect, RH is arguing that Wells Fargo's practices as trustee were negligent. A claim of negligence, however, obviously does not equal a claim of bad faith (the only means by which RH can avoid the waiver-of-defenses clause under the standard urged by RH, see RH Mem. I at 22) let alone fraud (the standard reflected in the decision denying Wells Fargo's prior motion for summary judgment, see Rhythm Hues, 2002 WL 1343759, at *7). In any event, RH has not even demonstrated that, as indenture trustee, Wells Fargo was under an obligation to conduct any such "review," "check," or "cross-check," or to "ask" for any of these documents.

An identical argument was raised and rejected in Nassau Broadcasting Partners:

As the indenture trustee, Wells Fargo's duties were largely administrative, such as to handle the money on behalf of the parties involved in the assignment transaction and to hold the documents for the leases in trust in its vault. . . . The Indenture Agreement does not obligate Wells Fargo to examine whether each lease is valid or to look beyond Terminal [Marketing's] representations and warranties, and verify whether and when Terminal [Marketing] actually paid the equipment vendors. Indeed, given Terminal [Marketing's] good financial history and continued interest by lenders to provide Terminal [Marketing] financing, Wells Fargo had little reason to believe that it needed to look beyond Terminal [Marketing's] representations and warranties to verify that Terminal [Marketing] had paid or would pay for the equipment underlying any particular lease. In sum, under the Indenture Agreement, Wells Fargo does not warrant nor may it be held obligated to warrant that each lease sold to [Terminal Finance] and subsequently assigned to Wells Fargo is eligible for transfer.

. . . .

. . . Wells Fargo's role in the disputed sale and leaseback transaction appears to have been largely administrative. I find little evidence that Wells Fargo knew in fact that the lease [at issue], at the time of the assignment on December 11, 2000 was ineligible for assignment. . . . Wells Fargo's role, as specified in the Indenture Agreement, was limited, and did not include going beyond the representations and warranties supplied by Terminal [Marketing], which suggested that Terminal [Marketing] complied with its obligations.

The court in Nassau Broadcasting Partners thus concluded that, "[g]iven Terminal [Marketing's] positive past financial performance," Wells Fargo "acted in a commercially reasonable manner, when it relied on the warranty and representation supplied to confirm that the [lease at issue] may be assigned." 2003 WL 22339299, at *9 (citing the testimony of O'Connor and the delivery certificate signed by the lessee stating that Terminal Marketing had "satisfactorily performed all of its covenants and conditions required under the lease"); see also Delivery and Acceptance Certificate and Lessee's Acknowledgment and Consent, dated November 30, 2000 (reproduced in Ex. 3 to Bass Decl. I) (delivery certificate inNassau Broadcasting Partners). RH does not dispute — nor could it — that the delivery certificates in this case, which accompanied the transmission to Wells Fargo of Lease Nos. 3855 and 3989, match the delivery certificate relied upon by the court in Nassau Broadcasting Partners. In addition, it is notable that the lease at issue in Nassau Broadcasting Partners was assigned on December 11, 2000, see 2003 WL 22339299, at *9, later than the assignment of either of the two leases at issue in this case and closer to Terminal Marketing's eventual termination as servicer in February 2001, when its deteriorating financial condition would have been, if anything, more apparent to Wells Fargo.

Accordingly, Wells Fargo's motion for partial summary judgment with respect to the enforceability of the waiver-of-defenses clause should be granted.

C. RH's Obligation to Make Payments Under Lease No. 3855

RH has moved for summary judgment with respect to the first and third counterclaims asserted by Wells Fargo (for breach of contract and guaranty as to Lease No. 3855) and for partial summary judgment with respect to Wells Fargo's fifth counterclaim (for declaratory relief that Lease No. 3855 is enforceable). The entire basis for RH's motion with respect to these counterclaims is its contention that it has no obligation to make any payments under Lease No. 3855. See Memorandum of Law in Support of Rhythm Hues' Motion for Summary Judgment, filed December 18, 2003 (Docket #67) ("RH Mem. II"), at 12-24. RH claims that the purpose of Lease No. 3855 was to secure its first take-down on the Line of Credit Agreement and that the lease was not effective until it actually made a take-down. See, e.g., RH 56.1 I ¶¶ 6, 15-17. RH further claims that it never took any take-down or leased any equipment through Terminal Marketing that would have activated its obligations under Lease No. 3855. See, e.g., id. ¶¶ 24-25.

The court already denied a motion for summary judgment as to Lease No. 3855 — that time, filed by Wells Fargo — on the ground that the lease was ambiguous. See Rhythm Hues, 2002 WL 1343759, at *5-*6. The court held that, although the lease stated that RH's obligation to pay rent was "absolute and unconditional," documents contemporaneously executed with Lease No. 3855 indicated that the lease was intended merely to provide security for the Line of Credit Agreement. See id.

For purposes of RH's motion, it is sufficient to point to two documents demonstrating that there is at least a genuine issue of material fact as to RH's obligation to make payments under Lease No. 3855. First, as the court recognized, the lease document itself — signed by RH's President — states that it is a "lease of equipment" that is "non-cancelable" for 30 months and that RH's obligation to pay rent is "absolute and unconditional," not subject to any defenses. Lease No. 3855 at 1 ¶¶ 1, 5. Second, the delivery certificate accompanying transmission of Lease No. 3855 states that RH had no defenses against Terminal Marketing, that Terminal Marketing had "fully and satisfactorily performed all covenants and conditions," that RH had received delivery of the equipment, and that RH consented to "assignment of the Lease to a third-party assignee . . . in reliance hereon and [RH] agrees . . . that [RH's] obligation to pay rent to Assignee under the Lease shall be absolute and unconditional and shall be payable whether or not the Lease is terminated by operation of law or otherwise and notwithstanding any defense . . . whatsoever." Lease No. 3855 Delivery Certificate at 1. These provisions alone demonstrate that RH is not entitled to summary judgment. They are simply inconsistent with RH's contention that it has no obligation to make payments under the lease.

RH makes much of the fact that Lease No. 3855 has no commencement date. See, e.g., RH 56.1 I ¶ 16; RH Mem. II at 15-16; Rhythm Hues' Reply in Support of its Motion for Summary Judgment on the First and Third Causes of Action and Partial Summary Judgment on the Fifth Cause of Action in Wells Fargo's Counterclaim, filed February 5, 2004 (Docket #77), at 6-7. However, in Nassau Broadcasting Partners the court rejected the lessee's contention that the lease had not commenced because it lacked any commencement date based upon evidence that Terminal Marketing and its lessees routinely left the space for a commencement date blank. See 2003 WL 22339299, at *7; see also Lease No. 4428, dated November 30, 2000 (reproduced as Ex. 3 to Declaration of Ellen Bass, filed January 13, 2004 (Docket #72)) (lease at issue in Nassau Broadcasting Partners, which does not contain a commencement date). Likewise here, Wells Fargo has submitted evidence that the same type of form lease was used by RH and Terminal Marketing — and by Wells Fargo as indenture trustee after assignment — on at least six prior occasions, that none of these leases had any commencement date, and that RH has not challenged any of them.See Declaration of Aaron Mowbray, filed January 13, 2004 (Docket #75) ("Mowbray Decl. II"), ¶ 4 ("[RH] had at least six Terminal-originated leases prior to Lease [No.] 3855 that are in exactly the same format as Lease [No.] 3855, and they have no commencement dates written in. . . . They all appear to be signed by John Hughes, president of [RH]. [RH] made rental payments on these leases and never claimed that they were invalid or had not commenced."); see also Leases Between RH and Terminal Marketing, various dates (reproduced as Ex. 2 to Mowbray Decl. II) (no commencement dates listed). Indeed, Lease No. 3989 also does not have a commencement date yet RH makes no argument that its obligations under that lease have not yet commenced.

Accordingly, material issues of fact remain as to whether RH's payment obligations under Lease No. 3855 have already commenced. Thus, RH is not entitled to summary judgment with respect to Wells Fargo's first, third, and fifth counterclaims.

Conclusion

For the foregoing reasons, RH's motions for summary judgment (Docket ##78-79) should be denied and Wells Fargo's motion for summary judgment (Docket #62) should be granted.

PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION