Opinion ID: 783128
Heading Depth: 3
Heading Rank: 2

Heading: The Set-Off Provision

Text: 44 The Set-Off provision of the Amended Lease Agreement provides: 45 (a) Termination of Lease. If this Lease is terminated prior to the expiration of its term, You grant Success the right to require any carrier that You are leased with, and You shall so authorize that carrier, to off set against any amounts due You by the carrier an amount sufficient to cure any deficiencies in Lease charges, Tire Replacement Reserve, Excess Mileage Charges, or any other amounts due Success, by virtue of advances made on Your behalf for items referred to in paragraph 22, and to pay those amounts directly to Success. 46 (b) Completion of Lease. At the time You complete the full term of this Lease, You grant to Success the right to set off against any amounts due You from the Tire Replacement Reserve and any incentives earned by you for completion of this Lease, any amounts due Success by virtue of advances made on Your behalf for items referred to in paragraph 22 under the terms of this Lease. Also, in the event the Tire Replacement Reserve has a negative balance, Success may set off from any incentives earned by You for completion of this Lease amounts sufficient to zero balance the Tire Replacement Reserve. You further authorize Success to offset against any amounts due You under the terms of this Lease, any amounts due the carrier to whom You are leased, and to remit such amounts to that carrier upon request. 47 Am. Lease Agreement, Appellants' App. at 417-18. 48 The Amended Lease Agreement explains that the Owner-Operator is responsible for certain financial obligations, described in detail, and that if Success advances funds to meet these obligations, then they may offset the amount owed the Owner-Operator upon termination or completion of the lease, as described above. The financial obligations are specified as: a Qualcomm unit, maintenance and repairs to the tractor unit, licenses, permits, taxes, non-trucking use auto liability insurance, loss or damage to the tractor, equipment missing or damaged upon return of the tractor unit, and costs associated with Prime's or Success's securing possession of the tractor unit, in the event the Owner-Operator does not voluntarily return the unit. OOIDA argues that offsets against the Tire Replacement Reserve and the Excess Mileage Charge are violations of the Truth-in-Leasing regulations because these accounts are actually escrow funds, and the Set-Off provision, as it relates to these accounts, fails to comply with the regulations governing escrow funds. 49
The Tire Replacement Reserve provides: 50 During the term of this Lease, You agree to place in a Tire Replacement Reserve an amount equal to 1.5 cents per mile that the Tractor travels. You shall authorize the Tire Replacement Reserve amount to be deducted from Your weekly Settlement by any carrier You lease the Tractor to and remitted to Success, and You and Success will require that carrier to provide You with an accounting of the deductions or Success will do so as it receives the payments. You may demand an accounting of the amounts paid by You to the Tire Replacement Reserve at any time. 51 The Tire Replacement Reserve shall be used to purchase tires for the Tractor while the Lease is in effect. During that time, Success shall pay to You interest equal to the average yield on Ninety-One-Day Thirteen Week Treasury Bills as established in the weekly auction by the Department of Treasury. Interest shall be paid to You quarterly. Upon termination of this Lease, Success shall retain out of the Tire Replacement Reserve an amount equal to the cost attributable to the amount of wear on the tires which occurred during the time this Lease was in effect. The calculation of such costs shall be based on the wear of each tire measured in one thirty-seconds of an inch of useable tire remaining at the time of termination. Because the types of tires and their costs vary the resulting calculations may also vary and it is not possible to include an exact calculation of cost in this Lease. However, Success will make available to You upon request, all information necessary to calculate the cost to You attributable to wear on your tires at any given time. The balance of the Tire Replacement Reserve, less amounts set off as provided in paragraph 21, shall be paid to You. In the event You exercise Your option to purchase, all amounts accumulated in the Tire Replacement Reserve, less amounts set off as provided in paragraph 21, shall be paid to You. All amounts to be returned to You from the Tire Replacement Reserve, after authorized deductions, shall be returned within forty-five (45) days following termination of this Lease Agreement. 52 Am. Lease Agreement, Appellants' App. at 413-14. 53 OOIDA argues that the Tire Replacement Reserve is an escrow account subject to the Set-Off provision, and that allowing the offset of certain expenses against those escrow funds before they are returned violates § 376.12(k)(2) and (6) because it turns that escrow into an all-purpose general fund. We agree that the Tire Replacement Reserve is an escrow fund; however, we disagree that the Set-Off provision turns the escrow into an all-purpose general fund or in any way violates the Truth-in-Leasing regulations. 54 Section 376.12(k)(2) requires that a lease agreement specify the items to which the escrow fund can be applied. § 376.12(k)(2). The Amended Lease Agreement provides that these funds will be applied to tire expenses during the life of the lease. In addition, the Amended Lease Agreement expressly identifies those debts that an Owner-Operator may incur during the lease period that may offset items owed to the Owner-Operator at the termination of the lease. These debts include advances for the following items: the Qualcomm unit, maintenance and repairs, licenses, permits, taxes, insurance, loss or damage to the tractor, missing or damaged equipment, and costs associated with securing possession of the tractor unit. 55 We also find that the Set-Off provision does not violate § 376.12(k)(6), which requires the return of remaining escrow funds within forty-five days. The Tire Replacement Reserve funds are required, under the provisions of the Amended Lease Agreement, to be returned to the Owner-Operator within forty-five days. The fact that certain specifically enumerated items may offset the funds returned in no way violates this provision. For these reasons, we agree with the district court that the Tire Replacement Reserve in the Amended Lease Agreement does not violate the Truth-in-Leasing regulations. 56
The Excess Mileage Charge provides: 57 The Excess Mileage Charge is based on the accumulated average weekly miles the Tractor travels in excess of the mileage shown in Schedule A. The Excess Mileage Charge shall be adjusted and paid by You weekly based upon the average miles the Tractor travels. If You exercise Your option to purchase, Success shall pay to You an amount equal to the entire Excess Mileage Charge paid by You. 58 Am. Lease Agreement, Appellants' App. at 413. 59 We agree with the district court that the Excess Mileage Charge does not meet the definition of an escrow fund. Specifically, this charge does not create an account into which money is deposited for any of the purposes provided at 49 C.F.R. § 376.2( l ). Instead, the purpose of these funds is to cover any decrease in value of the tractor unit based on excess mileage driven; it is not money deposited with the Lessor to which the Lessee has a valid claim. Therefore, the Excess Mileage Charge is not subject to the dictates of § 376.12(k).