D'Angelo v. Blue Chip Fed. Credit Union (In re D'Angelo)

• Decision Date: 07 February 2014
• Docket Number: Bankruptcy No. 1:11–bk–07248–RNO.,Adversary No. 1:12–ap–00144–RNO.
• Parties: In re Timothy Frank D'ANGELO, and Ronda Suzanne D'Angelo, Debtors. Timothy Frank D'Angelo, and Ronda Suzanne D'Angelo, Plaintiff v. Blue Chip Federal Credit Union, Metro Bank, and Small Business Association, Defendants.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Middle District of Pennsylvania

505 B.R. 181

In re Timothy Frank D'ANGELO, and Ronda Suzanne D'Angelo, Debtors.Timothy Frank D'Angelo, and Ronda Suzanne D'Angelo, Plaintiff

v.Blue Chip Federal Credit Union, Metro Bank, and Small Business Association, Defendants.

Bankruptcy No. 1:11–bk–07248–RNO.

Adversary No. 1:12–ap–00144–RNO.

United States Bankruptcy Court, M.D. Pennsylvania.

Feb. 7, 2014.

Gary J. Imblum, Imblum Law Offices, P.C., Harrisburg, PA, for Plaintiffs.

Anthony Todd McBeth, Harrisburg, PA, Peter E. Meltzer, Weber Gallagher Simpson Stapleton Fires, Philadelphia, PA, for Defendants.

SBA, pro se.

OPINION¹

ROBERT N. OPEL, II, Bankruptcy Judge.

Presently pending are two motions for summary judgment. The first is Defendant, Metro Bank's (“Metro”), Motion for Summary Judgment which was filed on October 1, 2013 (“Metro Motion”). The second is Defendant, Blue Chip Federal Credit Union's (“Blue Chip”), Cross Motion for Summary Judgment filed on December 6, 2013 (“Blue Chip Motion”). For the reasons stated below, both Motions are denied.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K).

II. Facts and Procedural History

The issues raised in the Motions originate when Ronda and Timothy D'Angelo (“Debtors”) were business owners and before they filed their bankruptcy petition. Our discussion starts there.

The Debtors were owners of two businesses, Tangelo, LLC, and Tangelo Enterprises, Inc., both formed in 2008. Mot. for Summ. J. Ex. E 7:24–25 [ hereinafter Dep. Tr.]. Ronda is the majority owner of both. Dep. Tr. 7:14–19; 10:6–15. Tangelo Enterprises, Inc. was a Pennsylvania corporation formed to run a tanning salon business. Dep. Tr. 15:19–22. Tangelo LLC was a Pennsylvania limited liability company formed to own the properties on which the tanning salons operated. Dep. Tr. 15:8–18. Their principal residence during this time and throughout their bankruptcy is 4611 Tarryton Road, Harrisburg, Pennsylvania 17109.²

On July 25, 2008, the Debtors signed a series of loan documents with Commerce Bank with legal advice being provided by their attorney at that time, Anthony Nestico (“Nestico”). Dep. Tr. 20:1–25; 21:1–9. The loans provided by Commerce Bank supplied the financing for the Debtors to start their business venture. Dep. Tr. 27:11–25. (It should be noted that Commerce Bank became Metro Bank sometime after the loan documents were signed. Dep. Tr. 36:20–22.) The loan documents, and their relevance to the instant matter, include:

1. Note and mortgage in the face amount of $118,000. The Note is guaranteed by the Small Business Association (“SBA”). The mortgage was later recorded on August 1, 2008, and it allegedly holds first priority based on a Subordination Agreement recorded on February 4, 2009. The Debtors signed the note in their individual capacities and it secures their principal residence directly. ³ Metro's Proof of Claim 9–1 was filed on behalf of this debt.

2. Note and mortgage in the face amount of $42,000 guaranteed by the SBA. This was recorded on July 25, 2008, but was allegedly subordinated by agreement on February 4, 2009. The note is signed by the Debtors in their individual capacities and secures the Tarryton Property.⁴ There exists a duplicative mortgage for an identical principal amount securing the Debtors' business property, but it does not secure any additional sum for Metro in terms of the Tarryton Property. Metro's Proof of Claim 10–1 was filed on behalf of this debt.

3. Note and mortgage in the face amount of $256,800. The borrower here is Tangelo, LLC, and the mortgage was secured by the business properties owned by the LLC. Both Ronda and Timothy D'Angelo signed the documents as members of the LLC. This note is also guaranteed by the SBA and was recorded on July 25, 2008. Both sides agree that this lien does not appear on a title search for the Tarryton Property.⁵ Metro's Proof of Claim 11–1 was filed on behalf of this debt.

4. Two U.S. Small Business Association Unconditional Guarantees associated with Metro Mortgage 3 (“Unconditional Guarantees”). Ronda D'Angelo signed one in her individual capacity, and Timothy D'Angelo signed another in his individual capacity. See Metro Mot. for Summ. J. Ex. C, D.

5. A document titled Cross Default and Cross Collateralization Agreement between Tangelo, LLC, Tangelo Enterprises, Inc., the Debtors, and Commerce Bank (“C.C. Agreement”).

Particularly important to this matter is language contained in Metro Mortgage 2. Printed on the bottom of page 1 of the mortgage is the following clause:

CROSS–COLLATERALIZATION. In addition to the Note, this Mortgage secures all obligations, debts and liabilities, plus interest thereon, of either Grantor or Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower and Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note....

Metro Mot. for Summ. J. Ex. A. After that clause, in bold print and capitalized, is the following language:

This Mortgage ... is given to secure (a) payment of the indebtedness and (b) performance of any and all obligations under the Note in the original principal amount of $42,000.00, the related documents, and this Mortgage.

Id. Finally, the following definition is provided on page 10:

Indebtedness. The word “Indebtedness” means all principal, interest, and other amounts, costs and expenses payable under the Note or Related Documents.... Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross–Collateralization provision of this Mortgage.

Id.

As stated above, Nestico was the Debtors' attorney throughout the process of forming their businesses and borrowing funds from Commerce Bank. Dep. Tr. 20:1–25; 21:1–9. Metro has provided a signed affidavit by Nestico accounting his recollection of the facts of July 25, 2008, in which he states:

I have a well-established pattern, practice, and habit of reviewing each and every document a borrower is expected to sign at closing prior to closing, and reviewing each document with and explaining each document to the borrower prior to asking the borrower to execute any document....

[D]uring the ... closing, I believe and therefore state that I would have explained each document ... to [the Debtors] prior to asking them to execute those documents. If they had any questions about the documents, I would have answered them.

Metro Mot. for Summ. J. Ex. G. ¶ 8–9 [hereinafter “Nestico Aff.”].

Sometime in 2010, Timothy D'Angelo took out a home equity loan with Blue Chip on the Tarryton Property. Dep. Tr. 51:12–15. The mortgage and accompanying note were for the value of $52,500 (“Blue Chip Mortgage”). The Blue Chip Mortgage was recorded on March 18, 2010. Dep. Tr. 52:19–25.

For reasons not relevant here, the Debtors' businesses failed and the offices closed on October 25, 2011. Dep. Tr. 57:1–7. That same day, the Debtors filed their voluntary petition for Chapter 13 relief. On May 24, 2012, this adversary proceeding commenced by way of the Debtors' Complaint to Determine Extent of Secured Status (“Complaint”) pursuant to 11 U.S.C. § 506(a). ⁶ The Complaint contains two counts. Count I prays this Court to find Blue Chip's mortgage on the Tarryton Property to be fully avoidable, whereas Count II seeks a judgment that Metro is fully secured as to the value listed in Debtors' Schedule A, namely $190,000.00. Compl. ¶¶ 6–10.

The majority of the material facts of this case were stated in my Opinion disposing of Blue Chip's first motion for summary judgment. D'Angelo v. Blue Chip Fed. Cred. Union (In re D'Angelo), 494 B.R. 639 (Bankr.M.D.Pa.2013) [hereinafter D'Angelo 1 ]. To avoid repetition, I will not reiterate the procedural history that preceded that opinion. Please refer to D'Angelo 1 for all facts related to this adversary proceeding until May 13, 2013.

In D'Angelo 1, I found that there remained genuine disputes over a number of material facts and thus summary judgment could not be granted. Specifically, there were factual issues in three main areas: (1) the authentication of the C.C. Agreement signed on July 28, 2008; (2) the value of the Tarryton Property; and, (3) the intent of the Debtors when signing the numerous documents on July 28, 2008, including Metro Mortgage 2.

After the opinion was issued, the parties began taking discovery. As part of this process, Ronda and Timothy D'Angelo were deposed on August 21, 2013. Dep. Tr. 1.

Throughout her deposition, Ronda D'Angelo provided inconsistent statements regarding her knowledge and understanding of the pertinent documents. For instance, when asked about the purpose behind Metro Mortgage 2, Mrs. D'Angelo stated: “The $42,000 is what Metro Bank said they had to add to it, because the SBA—they needed the SBA involved to secure the loan with them, and they added it to our total. So we had a separate loan to pay, the SBA.” Dep. Tr. 18:1–5. Beyond this information, according to Mrs. D'Angelo, “[w]e knew nothing about what this was.” Dep. Tr. 17:2. However, when asked directly by her attorney about this mortgage,Mrs. D'Angelo had a different recollection:

Mr. Imblum: Do you understand that you pledged your house—

Mrs. D'Angelo: Yes.

Mr. Imblum: —as collateral for some of the loans you received from Commerce Bank?

Mrs. D'Angelo: Yes, I do understand that.

Mr. Imblum: Is [Metro Mortgage 2] a mortgage secured by your house for one of the loans you obtained from Commerce Bank?

Mrs. D'Angelo: Yes, yes. Now I understand.

Dep. Tr. 24:5–14. Similarly, when counsel for Metro questioned Mrs. D'Angelo's knowledge of the significance of all the loans signed on July 25, 2008, this response followed:

Mr. Meltzer: And was it your understanding that if one of the loans—that one of the loans that you made on that day went into default, that the [Tarryton Property] would be collateral...