HSBC Realty Credit Corp. v. O'Neill

• Decision Date: 07 February 2014
• Docket Number: No. 13–1214.,13–1214.
• Citation: 745 F.3d 564
• Parties: HSBC REALTY CREDIT CORPORATION (USA), Plaintiff, Appellee, v. J. Brian O'NEILL, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

745 F.3d 564

HSBC REALTY CREDIT CORPORATION (USA), Plaintiff, Appellee,

v.J. Brian O'NEILL, Defendant, Appellant.

No. 13–1214.

United States Court of Appeals,First Circuit.

Feb. 7, 2014.

John J. Jacko III, with whom Alan S. Fellheimer and Fellheimer & Eichen LLP were on brief, for appellant.

David J. McNamara, with whom Peter C. Obersheimer and Phillips Lytle LLP were on brief, for appellee.

Before TORRUELLA, RIPPLE,^* and THOMPSON, Circuit Judges.

THOMPSON, Circuit Judge.

OVERVIEW

Today's case—a diversity suit governed, the parties agree, by Massachusetts substantive law—arises from the efforts of plaintiff HSBC Realty Credit Corporation (USA) to recover $8.1 million from defendant J. Brian O'Neill under a guaranty. A district judge struck O'Neill's defenses, dismissed his counterclaims, denied him leave to replead, and granted HSBC judgment on the pleadings. O'Neill appeals. But after saying what needs to be said, we affirm.

HOW THE CASE GOT HERE

Given the litigation's present posture, we describe the facts alleged in the pleadings—discussing too the documents fairly incorporated within them—in the light most agreeable to O'Neill, drawing every reasonable inference in his favor. See, e.g., Grajales v. P.R. Ports Auth., 682 F.3d 40, 44 (1st Cir.2012).

The Players and the Project

HSBC is a Delaware corporation with its principal place of business in New York. O'Neill is a Pennsylvania resident who is a principal of a company called Brandywine Partners, LLC.¹ Back in the mid–2000s, Brandywine wanted to buy a particular piece of industrial property in Delaware and redevelop it for residential use. Because of some fairly serious environmental problems with the Delaware site, Brandywine concluded—after an extensive investigation—that the best course of action was to raze the existing buildings and start from scratch. Eventually Brandywine turned to HSBC for a loan. And HSBC agreed to dole out $15.9 million pursuant to a project-loan agreement between them.

The Project–Loan Agreement

Among other things, the project-loan agreement requires Brandywine to pay for an appraisal of the property. And the agreement says that this appraisal has to yield a loan-to-value ratio of no more than 60%. That condition, the document continues, is for HSBC's “sole benefit,” meaning “no other person” has “the right to rely on” its “satisfaction.” ² Using that ratio, the property's appraised value had to be at least $26.5 million to support the $15.9 million loan—or so O'Neill alleges.³ Also relevant, Brandywine expressly “acknowledges” in the project-loan agreement that HSBC was “rel[ying] on the experience of [Brandywine] and its general partners, members, [and] principals ... in owning and operating” properties like this and that HSBC “ha [s] a valid interest in maintaining” the property's “value ... to ensure that, should [Brandywine] default in the repayment and performance of the obligations under the project loan documents, [HSBC] can recover the obligations” by selling the property.⁴ Of note too, Brandywine signed a promissory note and gave HSBC a mortgage on the Delaware property (among other things).

The Guaranty

Because, as he acknowledged, HSBC would not lend Brandywine a cent unless he “unconditionally” guaranteed the loan's repayment, O'Neill signed an “absolut [e]” personal guaranty for the loan, agreeing that he had a “direct or indirect interest” in Brandywine (and so would “directly benefit” from the loan) and that he occupied the status of “primary obligor” of the “guaranteed obligations” (defined as the “prompt and unconditional payment by [Brandywine] of the loan and interest thereon”).⁵ The guaranty's limitations-on-guaranteed-obligations clause caps O'Neill's liability at $8.1 million, however.⁶

Pertinently too, the guaranty lists a bunch of representations and warranties that O'Neill made to HSBC. For example, he affirmed both that he was “familiar with, and ha[d] independently reviewed books and records regarding,” Brandywine's “financial condition” and also that he was “familiar with the value” of the property offered as collateral. He confirmed that neither Brandywine's condition nor the pledge of collateral induced him to sign the guaranty. And he declared that HSBC said nothing to induce him to execute that document, either.⁷

The guaranty also has a “no duty to pursue others” clause, which stresses that HSBC need not enforce its rights or exhaust its remedies against Brandywine or the property and that O'Neill gives up whatever rights he “may have” to force HSBC to do either of these things.⁸ But there is more. O'Neill's guaranty declares that he “waives any common law, equitable, statutory or other rights” that he may have because of “[a]ny action ... taken” regarding the loan or the collateral that “increases the likelihood that [he] will be required to pay the guaranteed obligations.” ⁹ Topping things off, the guarantyhas an integration clause saying that this document is the “final and complete” expression of its terms, that there are “no oral agreements” between the parties, and that no one can use extrinsic evidence of any kind to “contradict” or “modify” any term.¹⁰

The Default and the Lawsuit

Brandywine defaulted on its repayment obligations, so HSBC demanded that O'Neill make good on his $8.1 million guaranty. But he turned a deaf ear, causing HSBC to file suit on the guaranty agreement. O'Neill returned fire with 18 defenses and 8 counterclaims. Some of his defenses defy simple labels. Others do not, like his defenses of mitigation, promissory estoppel, breach of fiduciary duty, breach of an implied covenant of good-faith dealing, fraudulent inducement, duress and undue influence, unconscionable contract of adhesion, no meeting of the minds, and failure to state a claim for which relief may be granted. As for his counterclaims, they were for fraudulent inducement, promissory estoppel, negligent misrepresentation, unfair and deceptive business practices under Mass. Gen. Laws Ch. 93A, breach of an implied covenant of good-faith dealing, breach of duty to mitigate damages, declaratory and injunctive relief, and breach of contract.

Convinced that there were no material facts in dispute and that judgment should enter enforcing the guaranty's express terms, HSBC moved the judge to strike O'Neill's defenses and to grant it judgment on the pleadings under Fed.R.Civ.P. 12(c). O'Neill resisted by saying that his defenses and counterclaims barred the guaranty's enforcement.¹¹ In the alternative, he asked the judge for leave to replead his defenses and counterclaims under Fed.R.Civ.P. 15(a).¹²

Taking up HSBC's motion, the judge said that a common theme pervaded O'Neill's defenses and counterclaims: “that HSBC must seek to recover any amount owed by Brandywine by proceeding against the [Delaware] property before turning to O'Neill's personal [g]uaranty,” since “HSBC allegedly represented to him that it would in the first instance seek recourse against the collateral property in the event of a default.” And when all was said and done, the judge concluded that the guaranty's unambiguous language wiped out that theory. So the judge rejected O'Neill's defenses and counterclaims and granted HSBC judgment on the pleadings too. Concluding that any attempt to amend would be an exercise in futility, the judge also denied O'Neill's plea to replead.

Which gets us to the here and now.

OUR VIEW OF THE MATTER

O'Neill hurls a barrage of arguments our way, challenging the grant of judgment on the pleadings and the denial of his request to replead. We review a Rule 12(c) dismissal like we would a Rule 12(b)(6) dismissal: de novo, taking as true the losing party's well-pleaded facts and seeing if they add up to a plausible claim for relief. See, e.g., Grajales, 682 F.3d at 44. And as a general rule, we review a decision regarding amendments of pleadings for abuse of discretion, though when—as is the case here—futility is the linchpin for the judge's ruling and the leave-to-replead request came before the closing of discovery and the filing of any summary-judgment motion, the correctness of the “futility” tag is tested under the Rule 12(b)(6) standard. See, e.g., Hatch v. Dep't for Children, Youth & Their Families, 274 F.3d 12, 19 (1st Cir.2001). Ultimately, however, none of O'Neill's arguments persuades.

Judgment on the Pleadings

(a)Fraudulent Inducement

O'Neill loudly protests that his fraudulent-inducement claim should have been enough to defeat HSBC's dismissal efforts. His theory rises or falls on his belief that two provisions in the project-loan agreement constitute false statements of material fact made to induce him to sign the guaranty and that he reasonably relied on those false statements to his detriment. See, e.g., Hogan v. Riemer, 35 Mass.App.Ct. 360, 619 N.E.2d 984, 988 (1993) (laying out the elements of a fraudulent-inducement claim). His theory falls, as we now explain.

The first provision he points to involves the 60% loan-to-value ratio, which he alleges put the collateral property's value at $26.5 million and is an HSBC representation that the chance of its having to call the $8.1 million guaranty was basically zero. HSBC made that representation, he adds, even though HSBC—and not he—knew that this was not the property's real value. He does not say what the property's actual value was, but he intimates that it had to have been less when he signed the guaranty and that HSBC had to have known it was less. This theory, however, flies in the face of the guaranty—the very document where (the reader will recall) he expressly confirmed that he was familiar with the property's value, that he was not relying on the property as an inducement to sign the guaranty, and that HSBC made no representations to induce him to execute that document.

The second project-loan-agreement provision he harps on provides (emphasis ours) that if Brandywine defaults, HSBC “ can recover the obligations” by selling the...