First Commonwealth Bank v. Fresh Harvest River, LLC
| Decision Date | 03 March 2014 |
| Docket Number | CIVIL ACTION NO. 3:10-232 |
| Court | U.S. District Court — Western District of Pennsylvania |
| Parties | FIRST COMMONWEALTH BANK, Plaintiff, v. FRESH HARVEST RIVER, LLC, Defendant. |
MEMORANDUM AND ORDER
Pending before the Court are two nearly identical petitions to open or strike confessions of judgment ("Petitions") in two related cases.1 The Court of Common Pleas of Clearfield County, Pennsylvania, entered two separate judgments by confession in favor of Plaintiff First Commonwealth Bank ("the Bank") and against Defendant Fresh Harvest River, LLC ("FHR") on August 10, 2010, in connection with two credit line loan agreements. (ECF No. 32-1 at 20). FHR now asks this Court to open or strike those judgments, claiming that "it was [un]lawful for First Commonwealth Bank to confess judgment against Fresh Harvest." (ECF No. 1 ¶ 8). The parties have fully briefed the Court, and this matter is now ripe for adjudication. For the reasons explained below, the Court will DENY FHR's Petitions.2
The Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. Venue is proper under 28 U.S.C. §§ 1332 and 1441(a).
This matter—which is one of several cases resulting from the underlying dispute3—arises from a series of negotiations and agreements between the Bank and FHR related to a food manufacturing plant in Dubois, Pennsylvania. Specifically, the instant dispute involves FHR's default on two credit lines: (1) a revolving line of credit, and (2) a non-revolving line of credit. After FHR defaulted on these two loans, the Bank obtained a confession of judgment in the state court against FHR on each line of credit. The crux of this dispute is whether it was lawful for the Bank to confess judgment against FHR in light of FHR's asserted defenses.
The parties have extensively recited the facts of this case in their various briefs, exhibits, and other relevant filings. Below is a brief summary of the most salient facts contained in the record before the Court.4
In March 2009, the Bank acquired ownership of a food manufacturing plant in Dubois, Pennsylvania (the "Plant"), through a mortgage foreclosure. (ECF No. 42 ¶ 6).The Plant included both (1) the land and the buildings (the "real estate") and (2) the food manufacturing equipment (the "equipment"). (Id. ¶¶ 4, 5). After repossessing the Plant, the Bank began to search for a buyer.
The Bank contacted Jack Gray to solicit his help in finding a buyer. (ECF No. 44-1, ¶ 3). Gray became interested in purchasing the Plant and approached his business partners, Paul Grillo and Edmund Abramson, to pursue this business venture. (Id. ¶ 7). Together, they formed FHR to acquire the Plant. (Id. ¶ 8). Subsequently, the Bank and FHR entered negotiations for the sale of the Plant's real estate and equipment. During the negotiations, FHR operated the Plant under a real estate lease and an equipment lease, as described below. (ECF No. 42, ¶ 7).
In a lease agreement dated April 1, 2009, the Bank agreed to lease the Plant real estate to FHR. (ECF No. 42, ¶ 8). This real estate lease was extended several times in the following months, during which the Bank and FHR attempted to negotiate the sale of the Plant real estate. (Id. ¶¶ 9-10). On August 1, 2009, the parties executed a first amendment to the lease, and on August 31, 2009, the parties executed a second amendment to the lease, establishing a lease expiration date of October 30, 2009. (Id. ¶¶ 11-12).
In a separate lease agreement between the Bank and FHR dated June 23, 2009, the Bank agreed to lease the Plant equipment to FHR. (ECF No. 42 ¶ 13). The equipment lease required FHR to pay the Bank $80,000 per month beginning on January 1, 2010, and extending through June 1, 2012. (Id. ¶ 14). The equipment lease included an option for FHR to purchase the equipment for $16,000,000 during the term of the lease. (Id. ¶ 15).
On June 23, 2009, FHR obtained two loans (the "credit lines") from the Bank to provide operating capital for the Plant: (1) a revolving line of credit with a maximum principal amount of $3,000,000, and (2) a non-revolving line of credit with a maximum principal amount of $3,000,000. . Each loan was evidenced by a separate promissory note (the "Notes"). . Each Note contained a warrant of attorney clause, authorizing the Bank to confess judgment against FHR in the event of default. (Id. at 11).
Additionally, FHR entered into a separate credit line security agreement with the Bank for each line of credit, in which FHR assigned and pledged to the Bank first lien position security interests in FHR's business assets including all present and future accounts and inventory. (ECF No. 42 ¶ 20; ECF No. 40-12).
Also, FHR signed a disclosure for confession of judgment for each line of credit. (ECF No. 32-1 at 14, Ex. B). In the disclosures, FHR acknowledged that the Notes contained a confession of judgment provision that would permit the Bank to enter judgment against FHR upon a default on the Note without affording FHR an opportunity to defend against the entry of judgment. (Id.). In the disclosures, FHR acknowledged that FHR was represented by its own independent legal counsel. (Id.).
On August 31, 2009, the Bank and FHR entered into a sales agreement ("Sales Agreement"), in which FHR agreed to purchase the Plant real estate for $10,000,000. (ECF No. 40-10). The Sales Agreement specifically excluded the Plant equipment. (Id. at 6). Among other things, the Sales Agreement required FHR to tender a $2,500,000 cashpayment on the purchase price at the time of closing. (Id. at 9). The Sales Agreement set a closing date of October 30, 2009. (Id. at 10).
The closing on the sale of the Plant did not occur by October 30, 2009, as required in the Sales Agreement, and the sale was never consummated. (ECF No. 42 ¶¶ 27-28). On May 6, 2010, the Bank sent a letter notifying FHR that the Bank was terminating the Sales Agreement. (ECF No. 31 ¶ 44). The termination letter stated that, because the "closing did not occur on October 30th due to the inability of FHR to pay the cash portion of the purchase price as required" by the Sales Agreement, the Bank was exercising its rights under the Sales Agreement by declaring FHR to be in default and electing to terminate the Sales Agreement. (ECF 40-16 at 2-3).
Despite FHR's inability to furnish the $2,500,000 required to close the Sales Agreement, FHR continued to borrow on the credit lines. (ECF No. 31 ¶¶ 20, 29). By January 2010, FHR had borrowed the full $3,000,000 available under the non-revolving line of credit and the maximum amount available under the revolving line of credit.5 (ECF No. 31 ¶ 30; ECF No. 42 ¶ 32). Thereafter, FHR failed to make certain required payments on the credit lines. (ECF No. 42 ¶¶ 21-24). On May 6, 2010, the Bank sent a notice of default to FHR for each line of credit, advising FHR that it was in default on the loans. (ECF No. 32-1 at 15-16, Ex. C). The Bank advised FHR that, if FHR did not cure the defaults by 5:00 p.m. on May 17, 2010, then the Bank would exercise its remedies under the loan agreements, the Notes, and other related documents. (Id.). After FHR failed tocure the default, the Bank sent FHR a notice of acceleration on each credit line on May 18, 2010. (ECF No. 31 ¶ 45). Thereafter, as explained below, the Bank obtained a confession of judgment on each credit line.
On August 10, 2010, the Bank filed a separate complaint in confession of judgment on each line of credit in the Court of Common Pleas of Clearfield County, Pennsylvania. The complaint on the revolving line of credit was docketed at case number 2010-1409-CD, and the complaint on the non-revolving line of credit was docketed at case number 2010-1410-CD. . That same day, the state court Prothonotary entered judgment in favor of the Bank against FHR in the amount of $95,567.78 on the revolving line of credit and $3,082,146.24 on the non-revolving line of credit. (See ECF No. 32-1 at 20). On September 10, 2010, FHR filed a Petition to open or strike the confession of judgment in each case and removed both cases to this Court (ECF No. 1).
On February 4, 2013, the Bank filed a brief in opposition (ECF No. 20) to each Petition along with a number of exhibits (see ECF No. 20-1); and on March 11, 2013, FHR filed a brief in support (ECF No. 28) of each Petition. After denying Bank's motion for remand (see ECF No. 12), the Court permitted a limited discovery period—restricted to discovering information relevant to whether FHR's Petitions should be granted (see ECF No. 30)—and requested that the parties more fully brief the Court (see ECF No. 37).
The Court also directed the parties to review and clarify the record in each case by filing amended documents due to certain discrepancies in the parties' filings. (See ECF No. 30). Pursuant to the Court's order, FHR refiled both Petitions on April 24, 2013, (ECF No. 31), and an amended notice of removal in each case (ECF No. 32).
On October 1, 2013, the Bank filed a reply brief in opposition (ECF No. 38) to each Petition, along with a concise statement of material facts (ECF No. 39) and an appendix of exhibits (ECF No. 40). On November 5, 2013, FHR filed a brief in support (ECF No. 41) of each Petition, along with a concise statement of material facts (ECF No. 43) and an appendix of exhibits (ECF No. 44). FHR also filed a response (ECF No. 42) to Bank's concise statement of material facts. Thereafter, with leave from the Court (see ECF No. 47), the Bank filed a reply brief (ECF No. 48) in response to FHR's brief in support. This Court held oral argument on January 15, 2014. (See ECF No. 53).
FHR has moved to open or...
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