REPRESENTING SUBSCRIBER AGAINST AFA / RIGHT TO REMOVE COMPANY OWNED EQUIPMENT
I get asked a couple of times a month to represent a subscriber [or the interests of a alarm co asking that I help a sub out of a contract] and I routinely decline, offering the explanation that we represent the alarm industry and won't take a position adverse to alarm law that we routinely rely upon when representing our alarm company clients. Occasionally we will accept a case against an alarm company when its one alarm company against another, or when the facts are so unusable that the alarm company is acting egregiously in a way we think detrimental to the reputation of the alarm industry in general and representing the subscriber won't adversely affect alarm laws that are so important to the industry. We recently accepted a defense case where the owner of a commercial park [buildings size of a city block] was being sued by the alarm company for return of its leased fire alarm equipment, though all that was sought was the wiring. We lost that case and my buddy at AFA challenged me to discuss the case in this forum. We took that case because my office litigation department accepted it before I knew about it, but I thought that a few issues were interesting, and would not affect the alarm industry, just AFA in this particular case. Additionally, we did not challenge the legal efficacy of the liquidated damage provision, only that AFA was in breach and could not recover under that provision.
AFA Protective is one of the top SDM companies and specializes in commercial fire alarms. It's been around a long time, pretty much from the beginning of the alarm industry, so many of its installations have been in place for 60 or more years. Because it's business model is leasing [still very much in vogue in Manhattan] ownership of its equipment never passes to subscribers; AFA always owns the equipment and the wiring. This of course helps AFA control and maintain the subscriber, and its an effective strategy. In fact, the Standard Form Agreements include a Commercial Fire All in One Lease [and yes it's better than AFA's form].
So this property owner contacts my litigation department [referred from another alarm company] and before I know about it, my office takes on its defense. The facts relayed to us by the subscriber were that the fire alarm system, including wiring, had been installed in the 1980s, the system was in constant need of service and AFA was not as responsive as the subscriber thought appropriate, the system was so antiquated it was not functioning, could not be restored or renovated and an entirely new system was required to meet AHJ requirements. AFA wanted $50,000 for a new system and wanted to continue charging $1,000 a month to monitor, service and inspect the system. AFA's contract was in renewal and all that was left on the current term was about 6 months, about $6,000.
Competitive bids for a new fire alarm system were approximately $15,000 and $75 a month for monitoring, service and inspection services. AFA held fast, believing it's wires were the key to any new system and that a new installation by another alarm company who had to install new wiring in this large hotel would be prohibitive. [we thought that too, but as it turned out the AHJ approved a wireless system] AFA sued for the balance of the contract [$6,000], value of its equipment [estimated by AFA to be $94,000], return of its equipment through removal or cutting the wires and legal fees.
Legal issues: I didn't think that AFA could seek the return of the equipment and the value of the equipment, and having done so, had elected to get the value rather than removal. The reason, I concluded, was because removal of the equipment was an action in "equity" and the demand for money is an action "at law". An action in equity can only be maintained if there is no adequate remedy at law, which means payment of money. Since AFA quantified its damages I believed it could not succeed on its demand to remove or cut the wire. I also believed that if AFA was only entitled to money damages for the subscriber converting the AFA owned wiring [that's all the equipment left at the premises] then the value was the actual cost of the wiring and not the cost the subscriber would face if it had to install the wiring. [unlike our Standard Form Lease for commercial fire alarms, AFA's contract did not have an option to sell the equipment for an agreed value].
Robert Kleinman, AFA Chairman and General Counsel, thought otherwise and I confess the judge agreed with him, finding that AFA had the right to remove the wiring. I still think the judge was wrong, but the client - subscriber didn't want to pursue an appeal since it wasn't cost effective. So we ending up settling for $5,400 on the arrears [which AFA thought was the full amount left on the contract], no counsel fees and allowing AFA to remove the wiring. AFA had several employees pulling or cutting wire. A new wireless system was installed for $15,000 and a RMR of far less than $600, AFA was getting [under $100] to cover inspection, service and monitoring.
The only decision in the case important to the alarm industry is the right to remove the wiring, even though the wiring was 30 years old and useless to the alarm company. In some situations that will certainly deter a subscriber switching its alarm company. Those using the Standard Fire All in One Lease will almost always elect to sell the equipment when the lease is terminated. That agreement also makes it clear that all programming is the Intellectual Property of the alarm company, so you don't have to share it [except in those jurisdictions where the law requires release of codes].
I told Robert Kleinman I'd let him tell his side of the story, so it's below.
First of all, I want to thank Ken for actually making this case public and giving me the opportunity to respond. While much of his account of the underlying case is accurate, he did omit or misstate a few very important points.
In his first paragraph he makes it seem like the case was strictly for the return of, or to recover the value of, AFA’s alarm system installed in the Subscriber’s premises. While that was a major issue, the case was also to recover the balance of contract pursuant to the liquidated damages clause in the contract for the final six months thereof. While Ken did allude to the collection element later in his account, this element alone was reason enough I think his firm should not have taken the case. Defense counsel’s attack on the viability of the liquidated damages clause while knowing it is routinely upheld was in effect a direct shot at our industry not to mention a disservice to its client.
As to the facts recounted in his second paragraph, suffice it to say that all the allegations made about inferior service, antiquated systems and not meeting code were never raised or an issue at all until after litigation was commenced. What do I think really happened? Either the customer shopped or was solicited by a competitor and got a better price. Of course they did…THEY WERE USING OUR SYSTEM and not just the wiring! (and we believe the $75/month referred to by Ken was for monitoring only, with the rest being done on a T&M basis)
I spoke with Ken, who I do understand was not involved in this litigation initially, to try and resolve the entire matter and also extricate his firm from its precarious position since Ken and his staff are leading industry attorneys that were actually taking an interest, in my opinion, adverse to the alarm industry. We disagreed about the merits of AFA’s right to remove its property from the building. I not only reminded him of the articles he had written about it previously (including one I wrote which he did circulate on this forum) but I also supplied him with a 20 year old Appellate Court decision from the exact same jurisdiction as this litigation was in, which decision was directly on point and specifically ordered that AFA be allowed to remove its property from another subscriber’s location. Ken informed me he was not persuaded as the case was too old. Good precedent is good precedent and as for its age, suffice it to say the industry as a whole and Ken in particular routinely relies on cases just as old and older in his defense/prosecution on behalf of alarm companies. Not persuaded, Ken suggested that AFA should just walk away from it or sell the wiring for the cost of the wiring, something nominal. I always find it interesting when a defendant in these actions argues the system is worthless, yet refuses to let us remove it. That really says it all, doesn’t it?
In the end, the court ruled in AFA’s favor and AFA was finally allowed to remove its property and collected $5,400 representing the full amount remaining on the contract. Removal of the system tok two days. As I have stated many times before, and in my article written for Ken, our position of removing systems when customers cancel has been an integral part of AFA's long history of maintaining one of the lowest attrition rates in the industry, year after year. Many of Ken’s readers already knew our position and how it works for us and others in the industry. Now you all do.
Robert Kleinman, Esq.,Chief Executive Officer / General Counsel
AFA Protective Systems, Inc.