Capitalsource Finance, LLC v. Delco Oil, Inc., Civil Action No. DKC 2006-2706.

• Decision Date: 26 March 2009
• Docket Number: Civil Action No. DKC 2006-2706.
• Citation: 608 F.Supp.2d 655
• Parties: CAPITALSOURCE FINANCE, LLC v. DELCO OIL, INC., et al.
• Court: U.S. District Court — District of Maryland

608 F.Supp.2d 655

CAPITALSOURCE FINANCE, LLC v. DELCO OIL, INC., et al.

Civil Action No. DKC 2006-2706.

United States District Court, D. Maryland.

March 26, 2009.

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David Jay Gonen, Justin Leonard Krieger, Katten Muchin Rosenman LLP, Washington, DC, Kenneth Joseph Ottaviano,

William J. Dorsey Katten Muchin Rosenman LLP, Chicago, IL, for Plaintiff.

Brent W. Procida, Gregory A. Cross, Venable LLP, Baltimore, MD, Eric Matthew Rigatuso, Thomas Jay Althauser, Eccleston and Wolf PC, Hanover, MD, for Defendants.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for resolution in this breach of contract action is the motion for partial summary judgment filed by Plaintiff CapitalSource Finance LLC. (Paper 92). The issues have been fully briefed and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the motion will be granted in part and denied in part.

I. Background

Defendant Delco Oil, Inc. ("Delco"), a distributor of petroleum products, entered into a financing arrangement with Plaintiff pursuant to a lengthy written agreement (the "Credit Agreement") that was ultimately executed by Delco's president and sole shareholder, Stephen DeLuca, on April 26, 2006. Also on April 26, 2006, Stephen DeLuca executed a personal guarantee (the "Guaranty Agreement") of Delco's obligation to repay the revolving line of credit balance. Under the Credit Agreement, Plaintiff provided Delco with a revolving line of credit, and Delco pledged all of its current and after-acquired personal property as security for the line of credit. In particular, Delco pledged its accounts receivable and inventory. Payments made on Delco's accounts receivable are referred to under the Credit Agreement as Plaintiff's "Cash Collateral," and Plaintiff acquired a first priority lien over these payments. Delco was required, under the Credit Agreement, to deposit these collections immediately into an account, referred to as the "Blocked Account," from which only Plaintiff could make withdrawals. These payments would be credited against Delco's outstanding balance under the line of credit, thus allowing Delco to make further withdrawals to continue operating its business. The Credit Agreement also provided that the revolving line of credit extended to Delco would be capped at the lower of $18 million, or the result of a formula based on the value of certain of Delco's accounts receivable and a portion of its inventory. Before making withdrawals from the revolving line of credit, Mr. DeLuca was required to submit and personally certify the accuracy of periodic statements of Delco's accounts receivable and inventory, referred to in the Credit Agreement as "Borrowing Base Certificates." Based on the initial documentation submitted by Delco, its line of credit was capped at $14,322,760.89 as of the date the Credit Agreement and Guaranty Agreement were executed, and Delco began withdrawing funds from the line of credit.

In September of 2006, Plaintiff discovered that Delco was in default under the Credit Agreement. Plaintiff sent Delco a written notice of default on September 26, 2006, indicating that Delco had defaulted on the Credit Agreement by failing to deposit its cash collections into the Blocked Account, failing to deliver required Borrowing Base Certificates and other required certifications, and failing to notify Plaintiff of the other defaults pursuant to the terms of the Credit Agreement. On approximately October 5, 2006, Delco requested a post-default advance from Plaintiff, in the amount of $633,213.65. Plaintiff granted the advance, after requiring Delco, through DeLuca, to acknowledge the occurrence of the default events noted in the September 26, 2006 notice, requiring the provision of additional collateral, and requiring Delco to sign a waiver for any defenses, causes of action, or other claims against Plaintiff. Plaintiff funded a second post-default advance on October 6, 2006.

Plaintiff filed the present action, along with a motion for Temporary Restraining Order ("TRO") on October 13, 2006. Plaintiffs initial complaint alleged two counts of breach of contract against Delco for breach of the Loan Agreement and against Mr. DeLuca for breach of the Guaranty Agreement. The court granted Plaintiffs TRO motion and entered a TRO on October 16, 2006. Delco filed a bankruptcy petition in the United States Bankruptcy Court for the Middle District of Florida the next day, October 17, 2006.¹ On January 19, 2007, Plaintiff filed a motion for leave to amend the complaint, which was granted on January 22, 2007. The amended complaint adds seven additional defendants and twelve additional counts to the initial complaint. (See Paper 44). On September 17, 2007, this court ruled on motions to dismiss filed by Defendants Stephen DeLuca, All-Star Sports Camp, DeLuca Properties, Inc., Gas Properties, Inc., Richard Thames, Stutsman Thames & Markey, P.A., Denise DeLuca, and Steven Markus. As a result, counts VI, VII, VIII, IX, X, XII, and XIII of the complaint were dismissed. Count V was dismissed in part. Denise DeLuca and Steven Markus were terminated as Defendants on September 18, 2007. Defendants All Star Sports Camp, Gas Properties, Inc., DeLuca Properties, and Stephen DeLuca filed answers to the amended complaint on November 19, 2007. (Papers 82, 83, 84, 85). Plaintiff moved for partial summary judgment against Delco and Deluca on the breach of contract claims (counts I and II) and on the fraud claims (counts III and IV) on June 16, 2008. (Paper 92). Delco has neither filed an answer nor responded to Plaintiff's motion for summary judgment.

II. Motion for Partial Summary Judgment

A. Standard of Review

It is well established that a motion for summary judgment will be granted only if there exists no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp., v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir.2008). In other words, if there clearly exist factual issues "that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party," then summary judgment is inappropriate. Anderson, 477 U.S. at 250, 106 S.Ct. 2505; JKC Holding Co. LLC v. Washington Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir.2001). The moving party bears the burden of showing that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Catawba Indian Tribe of S.C. v. South Carolina, 978 F.2d 1334, 1339 (4th Cir.1992), cert. denied, 507 U.S. 972, 113 S.Ct. 1415, 122 L.Ed.2d 785 (1993).

When ruling on a motion for summary judgment, the court must construe the facts alleged in the light most favorable to the party opposing the motion. United States v. Diebold, 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962); Gill v. Rollins Protective Servs. Co., 773 F.2d 592, 595 (4th Cir.1985). A party who bears the burden of proof on a particular claim must factually support each element of his or her claim. "[A] complete failure of proof concerning an essential element ... necessarily renders all other facts immaterial." Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548. Thus, on those issues on which the nonmoving party will have the burden of proof, it is his or her responsibility to confront the motion for summary judgment with an affidavit or other similar evidence in order to show the existence of a genuine issue for trial. See Anderson, 477 U.S. at 256, 106 S.Ct. 2505; Celotex Corp., 477 U.S. at 324, 106 S.Ct. 2548. However, "[a] mere scintilla of evidence in support of the nonmovant's position will not defeat a motion for summary judgment." Detrick v. Panalpina, Inc., 108 F.3d 529, 536 (4th Cir.1997), cert. denied, 522 U.S. 810, 118 S.Ct. 52, 139 L.Ed.2d 17 (1997). There must be "sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (citations omitted).

B. Analysis

Plaintiff moves for summary judgment on the breach of contract claims in counts I and II, arguing that Delco and Mr. De-Luca do not dispute that the Credit Agreement and Guaranty Agreement are valid contracts which Delco and Mr. DeLuca breached. (Paper 92, at 15). Plaintiff also moves for summary judgment on counts III and IV, fraud and fraudulent inducement claims against Mr. DeLuca, arguing that there are no genuine issues of material fact related to Mr. DeLuca's alleged fraudulent activity related to the Credit Agreement. Finally, Plaintiff requests that the judgment in its favor be certified pursuant to Fed.R.Civ.P. 54.

1. Count I—Breach of Credit Agreement (Delco)

Plaintiff alleges that Delco has breached and repudiated the Credit Agreement by failing and refusing to pay the principal amount, $19,538,914.89, to which Plaintiff is entitled pursuant to the terms of the Credit Agreement. (Paper 41, ¶ 122). As noted above, Delco neither filed an answer nor responded to Plaintiff's motion for summary judgment.

Here, it is undisputed that Plaintiff and Delco entered into a Credit Agreement and that the Credit Agreement was a valid contract. Additionally, it is undisputed that Delco is in default of the Credit Agreement. Specifically, Plaintiff provides undisputed evidence that Delco defaulted on the Credit Agreement by: (i) failing to send certain cash receipts and collections of accounts to the blocked account; (ii) failing to execute and deliver sufficient support for the borrowing base certificates; (iii) failing to...