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General Electric Capital Corporation v. Oncology Associates of Ocean County LLC

2011 WL 6179255 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

REPLEVIN; PERSONAL PROPERTY — Replevin only applies to personal property and a court may use the trade fixture analysis under the Uniform Commercial Code to distinguish between what constitutes a trade fixture and what constitutes a real property fixture.

A medical group leased expensive equipment pursuant to a Master Lease Agreement (MLA). “Under the terms of the MLA, in the event of a default, [the lessor] could, among other things, (1) declare the aggregate rents payable under any and all schedules to the MLA immediately due and payable, (2) take possession of leased equipment, and/or (3) remove such equipment from its present location.”

The medical group missed several monthly payments and the lessor sued the group and the lease’s guarantors for breach of contract. It also filed a motion for replevin to take possession of the leased equipment. When settlement negotiations broke down, it pursued its request for an order of replevin and a hearing was held. A Magistrate issued a report recommending that the motion for replevin be granted. The medical group filed objections. The Court rejected its reply brief. It also denied the medical group’s motion for a new hearing and for a stay for the replevin.

One objection raised by the medical group was that the equipment was to be treated as real property and not personal property. This would be critical because replevin is an action that can only be taken against personal property. According to the Court, the Magistrate “correctly determined that the medical devices at issue were not, and were never intended to be, fixtures to real property.” It recited that “[o]ver the years, New Jersey has had a number of number of varying tests to determine whether a good constitutes a fixture.” Here, the lower court “relied upon the ‘material injury test’ articulated in City of Bayonne v. Port Jersey Corp., 79 N.J. 367, 399 A.2d 649 (1979). Under the ‘material injury test,’ a chattel is deemed a fixture if the removal of such chattel would cause ‘irreparable or serious physical harm to the freehold.’” The medical group argued that this was the wrong test and that the Court should have used the statutory test for fixtures under New Jersey’s property tax laws.

In this case, the Court rejected both approaches and accepted the lessor’s argument that “the medical devices should be considered under the trade fixtures analysis provided under the Uniform Commercial Code. ‘Generally, what constitutes a trade fixture depends upon the facts of a particular case, but an article may generally be regarded as a trade fixture if it is annexed for the purpose of aiding in the conduct by the tenant of a calling exercised on the leased premises for the purpose of pecuniary profit.’” According to the Court, there could be “no dispute that the medical devises were leased by [the lessor to the medical group] for the purpose of aiding [the medical group’s] business. New Jersey law recognizes that, as a general rule, unless a contrary intent is clear, items of commercial equipment, even if firmly attached to realty, may be removed by the owner at the expiration of a lease of the property, where removal may be accomplished without material injury to the freehold.” According to that test, the Court held that the devices were to remain the lessor’s personal property and that once the lower court found that the items could be removed without material injury, replevin was an available remedy.

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