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Citibank N.A. v. City of Burlington

United States District Court, Second Circuit

October 22, 2013

Citibank N.A., Plaintiff,
City of Burlington and McNeil, Leddy & Sheahan, P.C., Defendants.

Opinion and Order


This action arises out of a Master State and Municipal Lease/Purchase Agreement ("Master Lease Agreement" or "MLA") between the City of Burlington ("Burlington" or "the City") and Citibank as the purported assignee of CitiCapital Municipal Finance ("CitiCapital"). The MLA is a lease-purchase agreement regarding telecommunications equipment ("the Equipment") used to develop Burlington's city-wide fiber optic network. Citibank's primary security interest under the agreement is title to and possession of the Equipment, both of which immediately revert to Citibank in the event of termination of the Lease Agreement. In June 2010, Burlington declined to appropriate funds to pay its obligations under the MLA. After Burlington failed to return the Equipment to Citibank pursuant to the terms of the MLA, Citibank filed a fifteen-count Complaint, ECF No. 1, against Burlington and the law firm of McNeil, Leddy & Sheahan. Counts I and II seek equitable relief mandating that Burlington deinstall and return the Equipment to Citibank under the terms of the MLA. Id. at 17-20. Burlington now moves for summary judgment on multiple grounds. First, the City seeks summary judgment dismissing the entire complaint based on Citibank's lack of standing to bring the action. Second, it seeks summary judgment dismissing Citibank's requests for equitable relief under Counts I and II. Third, it argues that the Court should invoke the primary jurisdiction doctrine and refer Counts I and II to the Vermont Public Service Board ("PSB"). For the reasons stated below, the Court DENIES Burlington's Motion for Summary Judgment, ECF No. 116, in its entirety.


I. Master Lease Agreement

In 1997, Burlington voters approved the construction of a city-wide telecommunications network, which eventually became known as Burlington Telecom ("BT"). BT's construction was planned to occur in three phases. Phase I would establish a non-commercial network to provide telecommunications services to municipal offices and schools. Phase II would extend BT services to private customers already within the reach of the Phase I network. Phase III would build out the commercial network to every residence and business in the City. BT was initially funded through two lease agreements with Koch Financial, which provided approximately $22.6 million for the project.

In 2007, Burlington sought funds to continue Phase III of the build-out plan. A Vermont organization, Municipal Leasing Consultants ("MLC") won the bid but assigned its rights and obligations under the future agreement to CitiCapital Municipal Finance ("CitiCapital") to actually provide the funds. On August 9, 2007, Burlington and MLC executed the Master Lease Agreement. The Master Lease Agreement provided approximately $11.5 million for the purchase of new equipment as part of BT's Phase III build-out as well as an additional $22 million that Burlington used to buy out Koch Financial and re-lease the existing equipment. The total financing commitment under the MLA was $33.5 million.

The MLA is subject to annual appropriation by Burlington's City Council. Hence, Paragraph 7 of the Master Lease Agreement provides:

NONAPPROPRIATION. Lessee[1] is obligated only to pay such Rental Payments under this Master Lease as may lawfully be made from funds budgeted and appropriated for that purpose during Lessee's then current fiscal year. Lessor cannot compel Lessee to levy ad valorem taxes to make Rental Payments. Should Lessee fail to budget, appropriate or otherwise make available funds to pay Rental Payments under a Lease following the then current Initial Term or Renewal Term, that Lease shall be deemed terminated at the end of the then current Initial Term or Renewal Term. Lessee agrees to deliver notice to Lessor of such termination at least 90 days prior to the end of the then current Initial Term or Renewal Term, but failure to give such notice shall not extend the term beyond such Initial Term or Renewal Term. If a Lease is terminated in accordance with this Section, Lessee agrees, at Lessee's cost and expense, to peaceably deliver the Equipment then subject to that Lease to Lessor at the location or locations to be specified by Lessor.

MLA, Compl. Ex. C, ¶ 7, ECF No. 1-3. In addition, Paragraph 11 directs that title to the Equipment will vest with the Lessee upon acceptance provided that the Lessee immediately surrenders possession of the Equipment to the Lessor in the event that the lease terminates. Id. ¶ 11. Termination may occur for either of two reasons: (1) the expiration of the lease term (initial or renewal) and the nonrenewal of the lease due to the City's nonappropriation; or (2) the occurrence of an event of default, including, among other things, the failure of the Lessee to make a rental payment with respect to the Lease Agreement. See id. ¶¶ 4, 11, 20. In the event of default, the MLA gives the Lessor the right to retake or demand return of the equipment from the Lessee five days after delivering written notice to the Lessee. Id. ¶ 21.

II. Assignment to Citibank

The Master Lease Agreement also allows the Lessor to assign its rights under the Lease without consent of the Lessee, effective "upon receipt by the Lessee of a duplicate original of the counterpart document by which the assignment or reassignment is made, disclosing the name and address of each such assignee and, where applicable, to whom further payments hereunder should be made." Id. ¶ 23.

On or about August 15, 2007, MLC assigned its rights under the MLA to CitiCapital. MLC sent Burlington a notice of assignment and a duplicate original of the assignment, as required by the MLA. Both parties agree that this effected a proper assignment to CitiCapital, and that CitiCapital duly succeeded MLC as the Lessor under the MLA. See Burlington's Statement of Undisputed Facts in Support of Mot. Summ. J. ("Burlington's Facts") ¶ 6-7, ECF 116-2. The chain of assignments then becomes rather complicated. According to Burlington's Facts, the MLA has been assigned as follows:

a) Between August 15, 2007 and June 22, 2009, [CitiCapital] assigned its rights to CitiMortgage, Inc.
b) On or about June 22, 2009, CitiMortgage, Inc. assigned the Master Lease Agreement to Citibank, N.A.
c) On or about September 30, 2009, [CitiCapital] assigned the Master Lease Agreement "by and through its trustee Citibank, N.A." to Citibank, N.A.

Id. ¶ 16. Burlington alleges that it was not properly notified with respect to any of these assignments, and therefore maintains that Citibank cannot be a proper party to this action.

Citibank disputes the City's version of the events. In response to Burlington's Facts, Citibank states that CitiCapital was a grantor trust[2] with CitiMortgage, Inc. as Initial Depositor and Citibank as Trustee. In an assignment dated June 22, 2009, CitiMortgage, Inc. made Citibank (in its corporate capacity and not as a Trustee) the sole Unitholder in the trust. Pl.'s Statement of Disputed Material Facts in Support of Pl.'s Obj. to Def.'s Mot. Summ. J. ("Citibank's Facts") ¶ 15, ECF 145-2. On September 23, 2009, Citibank in its corporate capacity gave notice to Citibank as Trustee that it wished to terminate the Trust Agreement and dissolve the grantor trust. After Citibank gave notice that it wished to terminate and dissolve the grantor trust, CitiCapital ceased to exist, and all of its property and rights were sold or assigned. On September 30, 2009, CitiCapital (by and through its Trustee, Citibank) assigned all of its right, title, and interest in the MLA to Citibank in its corporate capacity. Id.

On September 30, 2009, Citibank sent a "Notice of Assignment and Acknowledgement of Assignment" ("Notice") to Burlington that read:

CITICAPITAL MUNICIPAL FINANCE by and through its trustee Citibank NA has Assigned all of its right, title and interest in the above-referenced Security Agreement (and the Equipment covered thereby and all other rights relating thereto) to CITIBANK NA.

Burlington's Facts ¶ 17. Burlington states in its Facts that no one from Citibank at the Preliminary Injunction hearings could testify that a copy of the Notice was sent to the City. Id. ¶ 18. Burlington also asserts that the City never received the Notice or copies of the assigning document regarding the assignment to Citibank. Id. ¶ 22-23. However, Citibank counters that Burlington's receipt and acknowledgment of the Notice is evidenced by the fact that Burlington sent its November 17, 2009 rental payment directly to Citibank. Citibank's Facts ¶ 15.

After the hearings, Citibank's counsel forwarded an "Assignment.pdf, " dated June 22, 2009, to Burlington that read:

For good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, CITIMORTGAGE, INC. hereby sells, transfers, delivers and assigns to CITIBANK, N.A., without recourse, all of its right, title and interest in, to and under the Citicapital ...

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