           Case: 19-11685   Date Filed: 04/03/2020   Page: 1 of 9



                                                        [DO NOT PUBLISH]



            IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                      ________________________

                            No. 19-11685
                        Non-Argument Calendar
                      ________________________

                  D.C. Docket No. 0:14-cv-62469-MGC



VITAL PHARMACEUTICALS, INC.
d.b.a VPX Sports,
JOHN OWOC,

                                   Plaintiffs–Counter Defendants–Appellants,


                                versus

BALBOA CAPITAL CORPORATION,

                                      Defendant–Counter Claimant–Appellee.

                      ________________________

               Appeal from the United States District Court
                   for the Southern District of Florida
                     ________________________

                             (April 3, 2020)

Before JORDAN, LAGOA, and ANDERSON, Circuit Judges.

PER CURIAM:
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         Vital Pharmaceuticals, Inc., which does business as VPX Sports (“VPX”),

appeals from the district court’s grant of summary judgment to the Balboa Capital

Corporation. VPX argues that the Master Lease agreement between it and Balboa,

which provided for the lease of several pieces of manufacturing equipment, was

ambiguous, and that VPX was entitled to exercise a purchase agreement at the end

of the lease period. For the reasons that follow, we disagree and affirm the district

court’s order.

                                  I. BACKGROUND

         Because we write only for the benefit of the parties, we provide an

abbreviated version of the facts. VPX entered into a Master Lease with Balboa in

2009 to lease several pieces of commercial equipment from Balboa to manufacture

its nutritional supplements under four equipment schedules incorporated into the

lease.

         The Master Lease, in relevant part, provided in Paragraph 4 that it was a

“Finance Lease as defined by” Section 10103(a)(7) of the California Uniform

Commercial Code and stipulated the basic elements of a “Finance Lease” in

subparagraphs (a) through (e), but then in subparagraph (f) expressly disclaimed

giving Lessee any “other rights with respect to the purchase of the Equipment.”

Paragraph 4 provides in full:

         4. FINANCE LEASE STATUS. “The parties agree that this Lease is a
         Finance Lease as defined by Section 10103(a)(7) of the California
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      Uniform Commercial Code (“UCC”). Lessee acknowledges the
      following: (a) Lessor has not selected, manufactured, or supplied the
      Equipment; (b) Lessor acquired the Equipment or the right to
      possession and use of the Equipment in connection with the Lease; (c)
      Lessee has received, reviewed and approved all written Supply
      Contracts (as defined by UCC Section 10103(a)(25)) covering the
      Equipment purchased from the Supplier (as defined by UCC Section
      10103(a)(24)) thereof for lease to Lessee on or before signing this
      Lease Contract (as defined by UCC Section 10103(a)(12)); (d) Lessor
      has informed Lessee in writing of the identity of the Supplier; (e)
      Lessor has informed Lessee that Lessor may have rights under the
      Supply Contract and that Lessee is to contact the Supplier for a
      description of any such rights, and (f) Lessor provides no warranties
      or other rights with respect to the purchase of the Equipment and any
      and all rights Lessee has with respect to the purchase of the
      Equipment are solely against supplier, and Lessee may communicate
      at any time with the supplier prior to executing this Lease.

      With regard to ownership, the Master Lease provided in Paragraph 9 that the

leased equipment “is, and shall at all times be and remain, the sole exclusive

property of [Balboa], and [VPX] shall have no right, title or interest therein or

thereto except as expressly set forth in this Lease.” Under Paragraph 18 titled

“Return of Equipment,” the Master Lease required VPX to “deliver the Equipment

. . . to [Balboa’s] premises” unless it “shall have duly exercised any purchase

options with respect to such Lease.”

      After one of the equipment schedules incorporated into the Master Lease

expired, VPX expressed an interest in exercising a purchase option. Balboa replied

that all of the leases were “true leases with Fair Market buyouts.” In other words,

Balboa informed VPX that, by its interpretation of the contract, the Master Lease


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had no purchase option and that if VPX wanted to purchase any of the equipment,

it would have to pay fair market value.

       Acting pursuant to the Master Lease’s provision that “each Lease shall

automatically be extended for six months following the end of the initial base

term” unless it was terminated by VPX, Balboa renewed the lease and began

charging VPX. However, Balboa began overcharging VPX on the lease. Once the

parties realized the mistake, they agreed that the overcharges would be credited as

down payments for the purchase of the piece of equipment rented under that

schedule. VPX similarly failed to terminate the other lease schedules. It again

reached out to Balboa to discuss exercising a purchase option, and Balboa again

replied that the Master Lease did not allow for such a purchase option.

       VPX filed the instant suit against Balboa, alleging breach of contract,

Florida’s Deceptive and Unfair Trade Practices Act, fraud, fraudulent concealment,

declaratory judgment, breach of the implied covenant of good faith and fair

dealing, and reformation against Balboa. Only the breach of contract claim is

before us on appeal. 1 VPX argued that the Master Lease was ambiguous and

allowed for VPX to exercise a purchase option, and introduced an expert report to

that effect. Balboa asserted several counterclaims against VPX for breach of


1
        The district court also rejected VPX’s other claims and VPX has not challenged those
rulings on appeal.


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contract. The district court granted Balboa summary judgment on VPX’s claims

and Balboa’s counterclaims. Applying California law,2 it concluded that the

Master Lease was unambiguous and contained no purchase option. Regarding

VPX’s expert report, the district court applied California’s two-step test for

receiving extrinsic evidence, and determined that the expert report did not alter the

plain meaning of the contract. It ultimately awarded Balboa around $650,000 in

damages. VPX timely appealed to us.

                                         II. ANALYSIS

       As a threshold matter, we note that “[w]e review de novo a grant of

summary judgment.” Doe v. Valencia Coll., 903 F.3d 1220, 1229 (11th Cir. 2018).

In so doing, we apply the same legal standards that controlled the district court.

Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1310 (11th Cir. 2013). Whether a

contract is ambiguous and questions of contract interpretation “are pure questions

of law, also reviewed de novo.” Tims v. LGE Cmty. Credit Union, 935 F.3d 1228,

1237 (11th Cir. 2019). A party is entitled to summary judgment when “the movant

shows that there is no genuine dispute as to any material fact and the movant is

entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).




2
        The district court correctly noted that the parties stipulated that California law applied to
the interpretation of the contract, and that Florida law applied to the tort claims. The parties do
not contest this on appeal.


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       VPX raises two arguments on appeal: (1) that the Master Lease was

ambiguous, and contained a purchase option; and (2) that the district court violated

California law in its treatment of VPX’s proffered expert report. We address each

in turn.

       First, with regard to the question of contract interpretation, VPX argues that

the Master Lease was a “finance lease,” not a “true lease,” and that by identifying

the lease as such, it was effectively a disguised secured transaction and necessarily

included a purchase option. It is not in dispute that, by the Master Lease’s own

terms, it did refer to itself as a “finance lease.” In relevant part, the Master Lease

stated: “The parties agree that this Lease is a Finance Lease as defined by Section

10103(a)(7) of the California Uniform Commercial Code (‘UCC’).”

       The difficulty for VPX, however, comes from the fact that neither the

Master Lease nor section 10103(a)(7) states that a finance lease either functions as

a disguised security agreement or contains a purchase option. Instead, we read

section 10103(a)(7)’s commentary as explicitly foreclosing VPX’s argument. The

relevant commentary begins by explaining what a finance lease is:

       A finance lease is the product of a three party transaction. The supplier
       manufactures or supplies the goods pursuant to the lessee’s
       specification, perhaps even pursuant to a purchase order, sales
       agreement or lease agreement between the supplier and the lessee. After
       the prospective finance lease is negotiated, a purchase order, sales
       agreement, or lease agreement is entered into by the lessor (as buyer or
       prime lessee) or an existing order, agreement or lease is assigned by the
       lessee to the lessor, and the lessor and the lessee then enter into a lease
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      or sublease of the goods.

Cal. U. Com. Code § 10103 cmt. (g). It then explains that, “to avoid confusion, it

is important to note that in other contexts, e.g., tax and accounting, the term

finance lease has been used to connote different types of lease transactions,

including leases that are disguised secured transactions.” Id. (emphasis added).

      The district court’s order conducted an objective evaluation of the

economics of the transaction, and we agree with its analysis. It correctly noted that

the Master Lease, by its own terms, did not offer a purchase option. Instead, it

states that the Lessor provides no rights with respect to the purchase of the

equipment. A plain-text reading of the contract language makes clear that any

purchase option must be incorporated through another agreement and that the

leased equipment “is, and shall at all times be and remain, the sole and exclusive

property of” Balboa (emphasis added).

      We cannot embrace VPX’s argument that the singular reference to the

Master Lease as a “Finance Lease” creates ambiguity. While it is true that a

“finance lease,” in some contexts, refers to a disguised security transaction, see

Cal. U. Com. Code § 10103 cmt. (g), the California UCC is clear that in a context

like this one, that is not the case. Adopting VPX’s argument would override plain

contractual language—and to no clear end. We affirm the district court’s order in

this regard.


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      Second, VPX argues that the district court erred by not following California

contract law regarding extrinsic evidence. We begin by noting that California

applies a much more inclusive view of extrinsic evidence than most other states.

Under California’s two-step test, the court first “provisionally receives (without

actually admitting) all credible evidence concerning the parties’ intention to

determine ‘ambiguity.’” F.B.T. Prods., LLC v. Aftermath Records, 621 F.3d 958,

963 (9th Cir. 2010) (quoting Winet v. Price, 4 Cal. App. 4th 1159 (Ct. App. 1992)).

It only reaches the second step—interpretation of the contract—if the court

concludes that “the language is ‘reasonably susceptible’ to the interpretation

urged.” Id.

      Accordingly, in this case, the district court was required under California

law to provisionally consider VPX’s proffered expert report. VPX argues that the

district court did not do so. We disagree. While the district court certainly could

have considered the expert report at greater length, we read its opinion as

conducting Pacific Gas’s two-step process and ultimately concluding at step one

that, even “provisionally accept[ing] Plaintiffs’ proffered evidence, the language of

Paragraph 18 of the Master Lease is not ‘reasonably susceptible’ to the

interpretation urged by Plaintiffs.” Dist. Ct. Op. at 10. In light of our foregoing

analysis, which concludes that there is no ambiguity in the contract, we cannot

conclude that the district court erred in this regard. We affirm the district court’s


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order.

                                   III. CONCLUSION

         For the foregoing reasons, the district court’s order is

         AFFIRMED.




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