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Winthrop Resources Corp. v. Apollo Education Group, Inc.

United States District Court, D. Minnesota

August 16, 2017

Winthrop Resources Corporation, Plaintiff,
v.
Apollo Education Group, Inc., Defendant.

          Shawn M. Raiter, Esq., Larson King, LLP, counsel for Plaintiff.

          Aron J. Frakes, Esq., Fredrikson & Byron, PA; and Douglas E. Whitney, Esq., Douglas Whitney Law Offices LLC, counsel for Defendant.

          MEMORANDUM OPINION AND ORDER

          DONOVAN W. FRANK UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         The defendant-lessee in this case sought to terminate its leaseback agreement with the plaintiff-lessor for certain equipment. In the process of returning the equipment, the defendant discovered that some equipment had been lost. The defendant wrote to the plaintiff explaining the situation, including identifying which equipment was lost. The defendant also sent a check for the fair market value of the equipment as measured by an independent third party. The plaintiff refused to discuss how the defendant's performance was deficient. Instead, the plaintiff contended that the defendant had renewed the entire lease (including for the returned equipment) pursuant to a renewal provision that provided that the lease would be renewed if the equipment was not returned.

         When the defendant refused to make payments under the renewed lease, the plaintiff filed suit. The case is before the Court on the plaintiff's motion to dismiss the defendant's counterclaims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment. (Doc. No. 9.) The plaintiff also has moved to strike certain allegations about prior cases accusing the plaintiff of bad faith and deceptive practices. For the reasons discussed below, the Court grants the plaintiff's motion to dismiss the unjust-enrichment claim but denies the remainder of the plaintiff's motion.

         BACKGROUND

         In late 2010, Plaintiff Winthrop Resources Corporation (“Winthrop”) contracted with Defendant Apollo Education Group, Inc. (“Apollo”). As part of the contract, Winthrop bought over 1, 000 servers selected by Apollo and then leased the equipment back to Apollo. As relevant here, the lease agreement was in place for an initial term of 60 months and then would continue indefinitely for four-month terms until terminated. (See Doc. No. 8, Ex. H (“Lease Agreement”) ¶ 1.)

         Apollo elected not to renew the lease and undertook the proper notice procedures to end the lease. Pursuant to the lease, Apollo had to return the equipment to Park City, Illinois. Under the lease agreement, the notice of termination would be voided if Apollo did not return the equipment and the lease would be automatically renewed. (Id. ¶ 7.) When, however, equipment is lost, Apollo must provide Winthrop with written notice and pay for the lost equipment. (See Id. ¶ 12.) The amount that Apollo had to pay would depend on a formula based on the original costs of the lost equipment, the amount of time left on the lease, and the amount still owed under the lease.[1]

         In the process of returning the equipment, Apollo discovered that some of the equipment had been lost-roughly 3%. Apollo returned the rest of the equipment and wrote to Winthrop explaining that some equipment was lost. The letter identified the equipment and included a check for $58, 000, which was the fair market value as calculated by an independent third party. To put the $58, 000 in context, Apollo had paid more than $180, 000 per month to lease the equipment. Winthrop refused the check, refused to negotiate further, and contended that the entire lease agreement had been renewed (including for the returned equipment) because the lost equipment was not returned.

         When Apollo failed to make payments under the renewed lease, Winthrop filed suit. Winthrop brought a single claim for breach of contract, alleging that Apollo failed to make lease payments on the renewed lease, failed to return all equipment, and failed to obtain maintenance agreements on the equipment. Apollo has counterclaimed: (1) seeking a declaration that the lease has been terminated; (2) for breach of contract; (3) breach of the implied covenant of good faith and fair dealing; and (4) unjust enrichment. Winthrop has moved to dismiss Apollo's claims for implied covenant of good faith and fair dealing and for unjust enrichment. Winthrop also moved to strike certain allegations regarding old cases about its sales practices (including allegations made by Winthrop's current counsel in other cases).[2]

         DISCUSSION

         I. Motion to Dismiss

         A. ...


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