In re O.P.M. Leasing Services

21 B.R. 993 (1982)

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In re O.P.M. Leasing Services

United States Bankruptcy Court for the Southern District of New York
21 B.R. 993 (1982)

Facts

The State of West Virginia, Department of Finance and Administration (West Virginia) entered into several finance leases (the Equipment Schedules) with O.P.M. Leasing Services, Inc. (OPM) under which OPM agreed to lease computer equipment to West Virginia in exchange for rent payments. OPM subsequently, and with West Virginia’s express consent, assigned the Equipment Schedules to LaSalle National Bank (LaSalle). A Master Lease governed all the relevant documents and indicated that the documents were to be construed according to New York law. The Master Lease provided that no assignee was obligated to perform OPM’s lease obligations, subject to an inapplicable exception. Moreover, the Master Lease contained a hell-or-high-water clause under which West Virginia unconditionally promised to pay to an assignee all amounts due to the lessor under the Equipment Schedules, as well as an acceleration clause. Further, the Master Lease obligated OPM to pay directly, or reimburse West Virginia for, the monthly-maintenance charges for the equipment. OPM stopped paying directly or reimbursing West Virginia for the monthly-maintenance charges for the equipment. Accordingly, West Virginia stopped paying all the rent payments to LaSalle. OPM subsequently filed for bankruptcy. West Virginia initiated an adversary proceeding against the bankruptcy trustee, OPM, LaSalle, and the maintenance providers. LaSalle (plaintiff) counterclaimed against West Virginia (defendant) regarding the unpaid rent payments, which LaSalle sought to accelerate. LaSalle moved for summary judgment as to West Virginia’s liability for the rent payments, and West Virginia moved to dismiss LaSalle’s counterclaim. In response, West Virginia argued, among other things, that OPM’s breach of the Equipment Schedules excused West Virginia’s failure to make the rent payments to LaSalle. West Virginia further argued that LaSalle took the assignment in bad faith because LaSalle knew or should have known that OPM had not performed OPM’s lease obligations when LaSalle took the assignment.

Rule of Law

Issue

Holding and Reasoning (Lifland, J.)

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