Freedlander, Inc. v. NCNB NAT. BANK OF NC

• Decision Date: 10 August 1988
• Docket Number: Civ. A. No. 88-0052-R.
• Parties: FREEDLANDER, INC. THE MORTGAGE PEOPLE, et al., Plaintiffs, v. NCNB NATIONAL BANK OF NORTH CAROLINA, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

706 F. Supp. 1211

FREEDLANDER, INC. THE MORTGAGE PEOPLE, et al., Plaintiffs, v. NCNB NATIONAL BANK OF NORTH CAROLINA, Defendant.

Civ. A. No. 88-0052-R.

United States District Court, E.D. Virginia, Richmond Division.

August 10, 1988.

Joseph W. Kaestner, Bell & Kaestner, Richmond, Va., for Eve and Ruben Freedlander.

Eric M. Freedlander, Doswell, Va., pro se.

David H. Adams, Virginia Beach, Va., for trustee in bankruptcy.

Robert H. Patterson, Jr., Robert E. Payne, E. Duncan Getchell, Jr., H. Slayton Dabney, Jr., Catherine N. Currin, Thomas Spahn, McGuire, Woods, Battle & Boothe, Richmond, Va., for defendant.

MEMORANDUM OPINION

RICHARD L. WILLIAMS, District Judge.

This matter is before the Court on the defendant's motions for summary judgment, pursuant to Fed.R.Civ.P. 56(b), and, alternatively, for dismissal, pursuant to Fed.R.Civ.P. 12(b)(6). NCNB North Carolina National Bank ("NCNB") asserts that the General Release executed as part of a Settlement Agreement dated October 2, 1987 ("the Agreement") bars the plaintiffs' actions described in Counts 1-14 and 17 of their complaint. NCNB moves for summary judgment on the remaining counts, 15 and 16, on the grounds that NCNB did not breach the Agreement as alleged and that Freedlander is estopped from claiming a breach. The plaintiffs argue that the Agreement is invalid because it was procured by economic duress, and NCNB has materially breached the terms of the Settlement Agreement, thereby voiding the release.

The law of Virginia governs the validity of the release and the defense of economic duress since the release stipulates that Virginia law will apply, Gordonville Industries, Inc. v. American Artos Corp. 549 F.Supp. 200 (W.D.Va.1982), and the release was signed in Richmond, Virginia. Witter v. Torbett, 604 F.Supp. 298 (W.D.Va.1984). Economic duress is "not readily accepted as an excuse" to bar the enforcement of a contract under Virginia law. Seward v. American Hardware, 161 Va. 610, 171 S.E. 650, 662 (1933). The defense fails in this instance as a matter of law given the length of time between the alleged wrongful acts and the signing of the Settlement Agreement. The plaintiffs' second challenge also fails since NCNB did not materially breach the terms of the Agreement so as to void the release. Consequently, the release is valid and NCNB is entitled to summary judgment as a matter of law. Because the summary judgment motion is dispositive, the Court does not address NCNB's motion to dismiss the Amended Complaint under Fed.R.Civ.P. 12(b)(6).

As an initial matter the plaintiffs challenge the appropriateness of summary judgment. They assert that their claim of duress in response to the defendant's affirmative defense of release turns upon Eric, Eve, and Ruben Freedlander's states of mind when they entered into the Settlement Agreement. They note that "summary judgment is seldom appropriate in cases wherein particular states of mind are decisive as elements of a claim or defense," Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir.1979), because "resolution of the issue of state of mind depends so much on the credibility of the witnesses, which can best be determined by the trier of facts after observation of the witnesses during direct and cross examination." Morrison v. Nissan Co., Ltd., 601 F.2d 139, 141 (4th Cir.1979). The mere assertion that one's free will was subverted, however, cannot bolster a claim that is unsupported by the facts and that would otherwise not withstand a motion for summary judgment. "Unsupported allegations as to state of mind do not confer talismanic immunity from Rule 56." Ross v. Communications Satellite Corp., 759 F.2d 355, 365 (4th Cir.1985). The Supreme Court noted that even where state of mind is an issue, the normal rules governing summary judgment apply: "The movant has the burden of showing that there is no genuine issue of fact, but the plaintiff is not thereby relieved of his own burden of producing in turn evidence that would support a jury verdict." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202, 217 (1986). In addition to their own statements, the plaintiffs must produce objective evidence of their duress. The defense of economic duress does not turn only upon the subjective state of mind of the plaintiffs, but it must be reasonable in light of the objective facts presented. Ford v. Engleman, 118 Va. 89, 96, 86 S.E. 852, 855 (1915).

Secondly, the plaintiffs argue that summary judgment is inappropriate because they have not had the opportunity to take any discovery. They rely on the Supreme Court's decision in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), which states that a court should decline entry of summary judgment where the "non-moving party has not had the opportunity to discover information that is essential to his opposition." 477 U.S. at 250, n. 5, 106 S.Ct. at 2511, n. 5. Where a party believes that it has been denied an adequate opportunity to develop facts bearing on a summary judgment motion, it can follow the procedures set forth in Fed.R.Civ.P. 56(f) and state by affidavit "that it cannot for reasons stated present by affidavit facts essential to justify its opposition." 477 U.S. at 326, 106 S.Ct. at 2554. The plaintiffs have chosen not to file such an affidavit, and for the purposes of this motion it does not appear necessary.

Here, discovery would not aid in the resolution of this matter. The Freedlanders' version all that is disputed is accepted; all internal conflicts in it resolved in their favor; the most favorable of all possible inferences from it drawn in their behalf; and they are given the benefit of all favorable legal theories invoked by the evidence so considered. Charbonnages, 597 F.2d at 414. In this respect the cautionary warnings of Charbonnages and Anderson regarding the plaintiffs' state of mind are followed. Other cases relied on by the plaintiffs, such as Citibank, N.A. v. Real Coffee Trading Co., 566 F.Supp. 1158 (S.D. N.Y.1983), are inapplicable. In Citibank, a party also asserted economic duress as a defense to a release. Unlike the instant case, however, the validity of the release depended upon resolution of genuine issues of material fact. Here, the Court adopts the plaintiffs' versions of the facts without challenge.

In considering the defendant's motion, the Court must also give full force and effect to Rule 56:

Summary Judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of an action.' Fed Rule Civ Proc 1 ... Rule 56 must be construed with due regard not only for the rights of the person asserting claims and defenses that are adequately based in facts to have those claims and defenses tried to a jury, but also for the rights of persons opposing such claims and defenses to demonstrate in the manner provided by the Rule, prior to trial, that the claims and defenses have no factual basis.

Celotex Corp v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986).

The issue before the Court is simply can the plaintiffs assert a defense of economic duress on the facts alleged. As a matter of law, they cannot.

Freedlander, Inc., The Mortgage People ("Freedlander") was a Virginia, family-owned corporation whose principle business was the making of fixed-rate consumer loans secured by a mortgage on residential real estate.¹ A number of Freedlander subsidiaries², Freedlander Incorporated, a real estate management firm, and Freedlander's owners are also plaintiffs in this action. Eric Freedlander, President of Freedlander, and his parents, Eve and Ruben Freedlander, collectively own 97% of the company's stock. Freedlander's business was dependent on its ability to obtain financing with which to make consumer loans, and its ability to resell these loans to financial institutions in the secondary market. Once the loans were sold, Freedlander collected a fee for servicing the loans—collecting payments, maintaining records, and other administrative tasks.

Initially one source of financing for Freedlander's consumer loans, NCNB became Freedlander's principle source of credit in February 1984 when the parties entered into a Warehousing Agreement. Under the Warehousing Agreement, NCNB created a line of credit for Freedlander's use in the financing of consumer loans. The line of credit was to be paid down with funds from the subsequent sales of the loans in the secondary market. (Eric Freedlander, Aff. ¶¶ 7-9)

As the business grew, Freedlander needed a larger line of credit to generate more consumer loans. Eric Freedlander considered approaching other banks, but NCNB demanded that Freedlander rely exclusively on NCNB. (Eric Freedlander, Aff. ¶ 11). NCNB also demanded that Freedlander allow NCNB's investment banking group to market the loans in the secondary market, and in return NCNB would extend additional credit. NCNB was only successful in marketing the loans to the Federal Home Loan Mortgage Corporation ("FHLMC"). Upon further investigation, FHLMC discovered that only a portion of Freedlander's loans met its requirements. Instead of allowing FHLMC to buy only the least risky loans, Freedlander demanded return of the entire loan portfolio. (Eric Freedlander, Aff. ¶¶ 12-17)

As a consequence of NCNB's unsuccessful attempt to market Freedlander's loans, Freedlander did not pay down its line of credit with NCNB. By June 1986, Freedlander's outstanding borrowings from the bank approached $200 million, an amount NCNB claimed was in excess of its legal lending limit. (Eric Freedlander, Aff. ¶¶ 18-19). Purportedly in violation of its duty of good faith and fair dealing, NCNB threatened to deny Freedlander additional credit unless it agreed to sell NCNB $180 million of its consumer loans. Although the sale...