GE Capital Mortg. Serv. v. Pinnacle Mortg. Inv.

• Decision Date: 13 July 1995
• Docket Number: Civ. A. No. 94-7031.
• Citation: 897 F. Supp. 854
• Parties: GE CAPITAL MORTGAGE SERVICES, INC. v. PINNACLE MORTGAGE INVESTMENT CORP., Sandra Stevens-Miller, and Albert A. Miller, III.
• Court: U.S. District Court — Eastern District of Pennsylvania

897 F. Supp. 854

GE CAPITAL MORTGAGE SERVICES, INC. v. PINNACLE MORTGAGE INVESTMENT CORP., Sandra Stevens-Miller, and Albert A. Miller, III.

Civ. A. No. 94-7031.

United States District Court, Eastern District of Pennsylvania.

July 13, 1995.

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Norman E. Greenspan, Blank, Rome, Comisky and McCauley, Philadelphia, PA, for plaintiff.

Dante Mattioni, Mattioni, Mattioni & Mattioni, Ltd., Philadelphia, PA, for Pinnacle Mortgage Investment Corp.

Dante Mattioni, John Mattioni, Stephen M. Martin, Mattioni, Mattioni & Mattioni, Ltd., Philadelphia, PA, for Sandra Stevens Miller and Albert A. Miller.

MEMORANDUM

CAHN, Chief Judge.

Plaintiff GE Capital Mortgage Services, Inc. ("GE Capital") brought this action against the Pinnacle Mortgage Investment Corporation ("Pinnacle"), Sandra Stevens-Miller, and Albert A. Miller, III (collectively, the "defendants"). This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Currently before the court are GE Capital's motions to reconsider this court's May 9, 1995 ruling and to dismiss the defendants' counterclaims.

I. Background

The facts of this case were set forth fully in this court's May 9, 1995 Memorandum (the "Memorandum"). GE Capital Mortgage Services, Inc. v. Pinnacle Mortgage Investment Corporation, No. CIV.A. 94-7031, 1995 WL 290443 (E.D.Pa. May 9, 1995). In order to properly address the current motions, however, the court will briefly summarize the relevant facts.

Prior to its bankruptcy, Pinnacle was a mortgage broker with offices in Pennsylvania and New Jersey. Sandra Stevens-Miller and Albert A. Miller, III (the "Miller Defendants") are Pinnacle's only shareholders.

On July 14, 1993, Pinnacle, Cooper River Funding Inc., and GE Capital executed a loan (the "Credit Agreement") whereby a secured Line of Credit for $10 million was extended to Pinnacle. This Line of Credit was increased subsequently to $15 million. The Credit Agreement was secured by Pinnacle's mortgage loans, and by the Miller Defendants' personal guaranties (the "Guaranties").

GE Capital contends that Pinnacle failed to make payments as required by the Credit Agreement, and misled GE Capital with regard to the amount of collateral securing the Credit Agreement. GE Capital further claims that the Guaranties obligate the Miller Defendants to answer for Pinnacle's default under the Credit Agreement.

On November 23, 1994, GE Capital filed a five count complaint against the defendants. Because an involuntary bankruptcy petition has been filed against Pinnacle, however, only GE Capital's claims against the Miller Defendants are before the court. On May 9, 1995, this court denied GE Capital's motion for summary judgment on its breach of guaranty claim (the "Guaranty claim") against the Miller Defendants. Id.

The defendants, however, claim that the parties reached a new oral contract (the "Oral Agreement") which canceled Pinnacle's default under the Credit Agreement, and that GE Capital has failed to abide by the terms of this new Oral Agreement. Defendants also allege that personnel employed within GE Capital's public relations department contacted the Intelligencer Journal, a Lancaster, Pennsylvania newspaper, and falsely reported that the Miller Defendants had misappropriated funds owed to GE Capital. In addition, defendants contend that GE Capital intentionally failed to sign the documents which allegedly contain all terms of the Oral Agreement (the "Restructuring Agreement" and the "Stock Purchase Agreement") in order to cause Pinnacle to default on loans that Provident Savings Bank ("Provident") extended to Pinnacle. Finally, defendants claim that, during GE Capital's investigation of Pinnacle, GE Capital became privy to defendants' trade secrets and converted them to its own use.

Based on the foregoing, defendants filed counterclaims against GE Capital for: (1) breach of the Oral Agreement; (2) defamation; (3) tortious interference with contractual relations; and (4) misappropriation of trade secrets.

Two motions are currently before the court. First, GE Capital has moved this court to reconsider its denial of summary judgment on the Guaranty claim. The purpose of a motion for reconsideration is to "correct manifest errors of law or fact or to present newly-discovered evidence." Harsco Corporation v. Zlotnicki, 779 F.2d 906, 909 (3d Cir.1985); Cohen v. Austin, 869 F.Supp. 320, 321 (E.D.Pa.1994). Because federal courts have a strong interest in the finality of judgments, motions for reconsideration should be granted sparingly. Continental Casualty Company v. Diversified Industries, Inc., 884 F.Supp. 937, 943 (E.D.Pa.1995).

Second, GE Capital has moved to dismiss each count of the defendants' Counterclaim. In ruling on GE Capital's motion to dismiss, the court will accept as true all facts alleged in defendants' counterclaim and all reasonable inferences that can be drawn from them. Malia v. General Electric Company, 23 F.3d 828, 830 (3d Cir.1994); Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir.1994).

II. The Oral Agreement

On May 9, 1995, this court denied GE Capital's motion for summary judgment against the Miller Defendants. The basis of the court's ruling was the Miller Defendants' contention that the Oral Agreement validly superseded the Credit Agreement, and that therefore, under New York law, the Miller Defendants are not liable for Pinnacle's default under the Credit Agreement.¹See Pro-Specialties, Inc. v. Thomas Funding Corporation, 812 F.2d 797, 799 (2d Cir.1987) ("the general rule is that the guarantor is not liable unless the principal is bound"); Midwest Corporation v. Global Cable, Inc., 688 F.Supp. 872, 875 (S.D.N.Y.1988) ("the guarantor cannot be liable for an amount greater than that for which the principal is liable"); Canterbury Realty & Equipment Corporation v. Poughkeepsie Savings Bank, 135 A.D.2d 102, 524 N.Y.S.2d 531, 533 (1988) (absolute guarantor's liability "intertwined" with principal's liability).

GE Capital has moved the court to reconsider this ruling, and to dismiss defendants' counterclaim for breach of the Oral Agreement.² GE Capital contends that even if the parties agreed to the terms of the Oral Agreement, GE Capital nevertheless had the power to withdraw from the Oral Agreement without jeopardizing its rights under the Credit Agreement. In addition, GE Capital claims that the Oral Agreement did not discharge the defendants' obligations under the Credit Agreement. Because both of GE Capital's motions turn upon the interpretation of the Oral Agreement, the court will consider them simultaneously.

A. Withdrawal Rights

Defendants contend that the Oral Agreement constitutes a new contract which validly superseded the Credit Agreement. Because the Stock Purchase Agreement expressly provides GE Capital with the right to withdraw from the documents which constitute the Oral Agreement, however, the Credit Agreement has not validly been canceled.

Section 21 of the Stock Purchase Agreement, entitled "Purchaser's Right to Withdraw," (the "Withdrawal Provision") provides in pertinent part:

GE Capital may elect within two business days after the date of its execution of this agreement, to withdraw from this agreement and receive a full refund of all monies paid. GE Capital's withdrawal hereunder will be without further liability to any person. For GE Capital to accomplish this withdrawal, GE Capital need only send a letter or telegram to Pinnacle indicating its intention to withdraw....

Defendants' Answer and Counterclaim to Plaintiff's Amended Complaint, Exhibit 2 (the "Stock Purchase Agreement"), Section 21(a), p. 65.

Under Pennsylvania law, GE Capital's right to withdraw from the Oral Agreement is clear. In Temp-Way Corporation v. Continental Bank, 139 B.R. 299 (E.D.Pa.), aff'd, 981 F.2d 1248 (3d Cir.1992), for instance, Judge Bechtle noted that:

While Pennsylvania recognizes an implied contractual duty of good faith in limited situations, it has refused to do so in the lender/borrower relationship. Pennsylvania courts have also refused to impose a duty of good faith upon creditors which would modify or defeat their legal rights.... As stated by the Superior Court of Pennsylvania: "The duty of good faith imposed upon contracting parties does not compel a lender to surrender rights which it has been given by ... the terms of its contract. Similarly, it cannot be said that a lender has violated a duty of good faith merely because it has negotiated terms of a loan which are favorable to itself...." It is also well settled in Pennsylvania that no obligation of "good faith" applies to decisions either to terminate or not renew an agreement when the agreement reserves to a party the express right to make that decision.

Id. at 319-320 (citations omitted) (emphasis added). See also Chrysler Credit Corporation v. B.J.M., Jr., Inc., 834 F.Supp. 813, 842 (E.D.Pa.1993); Bohm v. Commerce Union Bank, 794 F.Supp. 158, 163 (W.D.Pa.1992); Creeger Brick and Building Supply, Inc. v. Mid-State Bank and Trust Company, 385 Pa.Super. 30, 560 A.2d 151, 154 (1989).

The Miller Defendants contend that, because only the Stock Purchase Agreement contains the Withdrawal Provision, GE Capital may not withdraw from the Restructuring Agreement.³ In making this argument, the Miller Defendants rely upon USX Corporation v. Prime Leasing, Inc., 988 F.2d 433 (3d Cir.1993) where the Court of Appeals held that a nonrecourse provision contained within one financing agreement did not apply to another, related financing agreement. See id. at 437-438 ("regardless of the various interrelationships of the agreements, it is clear as a matter of contract law that the applicability of certain provisions may be limited to the documents in which they actually appear").

Unlike the nonrecourse provision in USX, however, the Withdrawal Provision refers to the...