Farnam Street Financial, Inc. v. ElektraFi Inc.

Background

Farnam Street Financial, Inc. is in the equipment-leasing business. It entered into Lease Agreement Number EL091321 with ElektraFi Inc., which the court describes as specializing in providing complex internet service provider equipment to remote communities where traditional cable-based internet is inaccessible. The agreement eventually incorporated Lease Schedule 005, under which Farnam Street agreed to lease equipment to ElektraFi for a thirty-month term beginning August 1, 2024. Monthly payments were $5,000 for months one through five, rising to $47,119.03 per month from month six onward.

ElektraFi stopped making payments after January 2025. During December 2024 through February 2025, the parties negotiated a potential buyout under which ElektraFi would purchase the equipment and terminate the lease. Those negotiations broke down in February 2025. Farnam Street filed this lawsuit invoking the court's diversity jurisdiction (federal jurisdiction based on the parties being citizens of different states and the amount in dispute exceeding the statutory threshold).

Farnam Street asserts a single claim for breach of contract. It sought summary judgment — a ruling in its favor without a full trial, available when there is no genuine factual dispute and the law clearly favors the moving party — on both liability and remedies, requesting $1,915,056.33 plus an order requiring ElektraFi to return the leased equipment. The requested damages included $746,042.94 in past-due monthly lease charges, $98,954.71 in late charges, and $1,070,058.68 representing the equipment's "Casualty Loss Value" as defined in the contract.

The Lease Agreement included a Minnesota choice-of-law clause. Under Minnesota law, a breach-of-contract claim requires (1) a valid contract, (2) the plaintiff's performance of any conditions precedent, (3) a material breach by the defendant, and (4) damages.

ElektraFi's Defenses — Rulings in Farnam Street's Favor

Waiver

ElektraFi argued that Farnam Street waived (intentionally gave up) its right to enforce the contract's payment terms by engaging in buyout negotiations during late 2024 and early 2025. The court rejected this argument as a matter of law. Under Minnesota law, waiver is the intentional relinquishment of a known right, and courts will not find it absent a clear intention to do so or facts from which it is necessarily implied. The record showed the opposite: Farnam Street repeatedly and explicitly demanded payment of the January and February 2025 monthly lease charges even while buyout negotiations were ongoing. The court found that no reasonable fact-finder could conclude Farnam Street waived ElektraFi's payment obligations.

'Continuing' Default

The Lease Agreement's remedies provision was triggered only if a default was "continuing." ElektraFi argued this meant the default had to be "material," and that materiality was a disputed factual question. The court disagreed. Interpreting an unambiguous contract is a legal question for the court, not a jury question. The word "continuing" is not defined in the contract, but its plain and ordinary meaning is "persisting, enduring, or lasting." ElektraFi's failure to pay from January 2025 onward unambiguously qualified as a continuing default under that meaning. The court held as a matter of law that the remedies provision was triggered.

Disguised Security Interest

ElektraFi argued that the Lease Agreement was actually a disguised security interest (a financing arrangement giving the lender a claim on the equipment as collateral) rather than a true lease, which would subject it to Minnesota's Uniform Commercial Code provisions and potentially limit the available remedies. Under Minnesota law, a transaction in the form of a lease creates a security interest only if, among other conditions, the lessee cannot terminate the lease. Here, the Lease Agreement expressly gave either party the right to terminate at the end of the initial term or any year thereafter upon 120 days' written notice. Citing a persuasive prior decision by Judge Susan Richard Nelson analyzing nearly identical language (Prospect ECHN, Inc. v. Winthrop Res. Corp.), the court held the transaction was a true lease, not a security interest. Summary judgment was granted in Farnam Street's favor on this issue.

Mitigation of Damages

ElektraFi argued Farnam Street failed to take reasonable steps to reduce its damages — for example, by re-leasing or selling the equipment. The court found this argument insufficiently supported. The court noted that Minnesota law places the burden on the breaching party to show damages could have been mitigated. ElektraFi's argument relied in part on statutes governing security interests, which the court found inapplicable. On the common-law duty to mitigate, ElektraFi argued only that Farnam Street could have disposed of the equipment commercially, but the record was sparse about the equipment's nature, how it was installed, and whether it could practically be repossessed or re-used. The court held that ElektraFi had not shown a triable issue on mitigation.

Issues Requiring Trial — Rulings in ElektraFi's Favor

Prior Breach

ElektraFi argued that Farnam Street itself first breached the contract before ElektraFi stopped paying, primarily by allegedly overbilling — charging $51,006.26 per month when the schedule specified $47,119.03. Under Minnesota's prior breach doctrine, a party who first materially breaches a contract is generally precluded from recovering for the other party's subsequent breach. Whether a breach is material is ordinarily a fact question for a jury.

The court acknowledged skepticism about the argument — noting the Lease Agreement required ElektraFi to reimburse Farnam Street for various fees, assessments, and taxes that might explain the billing difference, and that comparably small overcharges rarely qualify as material prior breaches — but found the record insufficient to resolve the issue as a matter of law. The critical problem was procedural: Farnam Street submitted the evidence needed to address this argument for the first time with its reply brief rather than its opening brief. Courts in the District of Minnesota generally do not consider evidence filed for the first time in a reply unless it was necessary to address arguments that could not reasonably have been anticipated. ElektraFi's prior-breach argument challenged fundamental aspects of Farnam Street's damages calculations and should have been anticipated. The court declined to consider the late-filed evidence, leaving a factual gap that makes summary judgment impossible on this issue.

Remedies — Potential Double Recovery and Lack of Foundation

The court found that genuine disputes remain over whether Farnam Street's cumulative remedies request is permissible under Minnesota law and whether it is adequately supported by evidence.

On the legal question, Farnam Street seeks simultaneously (a) past-due monthly lease charges, (b) Casualty Loss Value (a contractual liquidated-damages figure, meaning a pre-set damages amount), and (c) return of the equipment. The court noted that the Eighth Circuit case Farnam Street relied upon (Eaton Hydraulics) actually undermined its position: in that case, the plaintiff sought only the greater of two remedies, not both, and the district court there specifically limited recovery and imposed a duty to mitigate. The court found a trier of fact could reasonably conclude Farnam Street's cumulative request substantially exceeds its actual damages, and that Farnam Street had not demonstrated the combination of remedies is permissible under Minnesota law.

On the evidentiary question, the declaration Farnam Street submitted with its opening brief identified the remedies sought but provided no explanation of how the figures were calculated, rendering it insufficient to carry Farnam Street's summary-judgment burden and potentially inadmissible at trial for lack of foundation. Farnam Street submitted additional explanatory information with its reply brief, but under the district's local rules, that evidence could not be considered.

Disposition

The court granted in part and denied in part Farnam Street's Motion for Summary Judgment. Summary judgment was granted in Farnam Street's favor on ElektraFi's waiver defense, the 'continuing' default issue, the disguised-security-interest argument, and ElektraFi's mitigation argument. Summary judgment was denied on the prior breach issue and on the remedies questions, which require trial.