GE CAPITAL MORTG. SERVICES v. PINNACLE MORTG. INV.
| Decision Date | 09 May 1995 |
| Docket Number | Civ. A. No. 94-7031. |
| Citation | 897 F. Supp. 842 |
| 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 |
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Norman E. Greenspan, Blank, Rome, Comisky & McCauley, Philadelphia, PA, for plaintiff GE Capital Mortgage Services, Inc.
Dante Mattioni, Mattioni, Mattioni & Mattioni, Ltd., Philadelphia, PA, for defendant Pinnacle Mortgage Investment Corporation.
Dante Mattioni, John Mattioni, Stephen M. Martin, Mattioni, Mattioni & Mattioni, Ltd., Philadelphia, PA, for defendants Sandra Stevens-Miller, Albert A. Miller.
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"). GE Capital claims that the defendants have failed to make payments as required by the parties' loan agreement. This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Currently before the court is GE Capital's motion for summary judgment on its breach of guaranty claim.
Pinnacle was a licensed mortgage broker with offices in Pennsylvania and New Jersey. Sandra Stevens-Miller and Albert A. Miller, III (the "Miller Defendants" or "Guarantors") are Pinnacle's only shareholders.
As a mortgage broker, Pinnacle loaned money to home buyers. Pinnacle obtained the money which it lent to these home buyers by borrowing from certain creditors known as "warehouse lenders." These warehouse loans were secured by the mortgage notes and mortgages which Pinnacle received from its customers.
On July 14, 1993, Pinnacle, as borrower, Cooper River Funding Inc. ("Cooper"), as lender, and GE Capital, as agent, executed a Warehouse Credit Agreement ("Credit Agreement"), and Pinnacle and GE Capital executed a Warehouse Security Agreement (the "Security Agreement") (collectively, the "Credit Documents"). Pursuant to the Credit Documents, Cooper extended a secured Line of Credit for $10 million to Pinnacle. This Line of Credit was subsequently increased to $15 million.
To secure the advances made on the Line of Credit, Pinnacle granted GE Capital a continuing security interest of first priority in all of the collateral as defined in the Security Agreement, including the mortgage loans and proceeds. Moreover, Pinnacle agreed to accept its customers' mortgage payments as GE Capital's agent, and to immediately transfer these funds to GE Capital. At all times, the outstanding balance of the Line of Credit was to be secured by eligible mortgage loans.
In addition to being secured by Pinnacle's mortgages, Pinnacle's obligations were secured by the Miller Defendants' personal guaranties (the "Guaranties"). The Guaranties provide in pertinent part:
(See Affidavit of James C. Zollo, Exhibit 5 and 6, ¶¶ 1, 4, and 5).
Cooper assigned all of its right, title and interest in the Line of Credit under the Credit Documents to GE Capital on September 13, 1994.
GE Capital contends that, as early as May 2, 1994, Pinnacle misrepresented the number of eligible mortgage loans securing the Line of Credit, and that only $2 million of the $10.6 million loaned to Pinnacle was secured by eligible mortgage loans. Furthermore, GE Capital alleges that many of the mortgage loans held by Pinnacle were sold, and that the proceeds of such sales were not forwarded to GE Capital as required by the Credit Documents. GE Capital claims, therefore, that Pinnacle breached the terms of the Credit Agreement, entitling GE Capital to immediate payment of all outstanding funds under the Credit Agreement, plus interest.
Defendants, however, contend that GE Capital was never deceived with regard to the status of its loan, and that, by the end of September 1994, GE Capital had full knowledge of Pinnacle's financial affairs. In support of this contention, defendants allege that, in September of 1994, Sandra Stevens-Miller informed Jack Welch, CEO of GE Capital, that Pinnacle was in financial trouble and would be unable to satisfy its obligations under the Credit Agreement. According to defendants, GE Capital expressed a willingness to restructure the debt, and began negotiations with the defendants. As part of these negotiations, GE Capital demanded, and received, the right to conduct a thorough due diligence of the defendants.
More importantly, defendants contend that the parties orally agreed to a new contract (the "Oral Agreement") which superseded the Credit Agreement. Defendants have submitted two documents, entitled the Restated Credit and Security Agreement (the "Restructuring Agreement") and Preferred Stock Purchase Agreement (the "Stock Purchase Agreement"), to support their contention. Defendants claim that these unsigned documents were drafted by counsel for GE Capital, and contain all terms upon which the parties orally agreed.
GE Capital has filed a five count complaint against the defendants. Because an involuntary bankruptcy petition has been filed against Pinnacle, the case against Pinnacle automatically has been stayed. See 11 U.S.C. § 362. Currently before the court is GE Capital's motion for summary judgment and immediate entry of final judgment with regard to Count Two of its Complaint, a breach of Guaranty claim against the Miller Defendants (the "Guaranty Claim"). In ruling on this motion for summary judgment, the court will apply the now-familiar summary judgment standard. See Petrucelli v. Bohringer & Ratzinger, 46 F.3d 1298, 1308 (3d Cir.1995).
The Guaranties executed by the Miller Defendants provide that they are to be governed by New York law, without regard to traditional choice of law principles. Such contractual choice of law provisions are generally enforceable. Kruzits v. Okuma Machine Tool, 40 F.3d 52, 55 (3d Cir.1994); Cottman Transmission Systems v. Melody, 869 F.Supp. 1180, 1184 (E.D.Pa.1994); Smith v. Commonwealth National Bank, 384 Pa.Super. 65, 557 A.2d 775, 777 (1989), appeal denied, 524 Pa. 610, 569 A.2d 1369 (1990). Accordingly, the court will look to the law of New York in determining the Miller Defendants' obligations under the Guaranties.
In the Guaranties, the Miller Defendants "absolutely and unconditionally" guaranteed to Cooper, and Cooper's assignee GE Capital, the "prompt and unconditional payment" of all monies due under the Credit Agreement. The Guaranties specifically provide for the payment of all principal, "interest, costs, charges, expenses and reasonable attorney's fees."
In addition, the Miller Defendants have waived "(i) all defenses to, and all setoffs, counterclaims and claims on recoupment against, the Obligations that may at any time be available to Pinnacle and (ii) all other defenses under any applicable law that would, but for this clause (ii), be available to the Guarantor as a defense or a reduction or limitation of its liabilities and obligations hereunder."
Under New York law, GE Capital's right to enforce the Guaranties is clear. For instance, in First New York Bank for Business v. DeMarco, 130 B.R. 650 (S.D.N.Y.1991) the court was confronted with a guaranty which provided:
The Guarantors irrevocably, absolutely and unconditionally guarantee to the Bank payment when due, whether by acceleration or otherwise, of any and all liabilities of the Borrower to the Bank, together with all interest thereon and all attorney's fees, costs and expenses of collection incurred by the Bank in enforcing any of such liabilities.
Id. at 653. In addition, the guaranty provided that no defense available to the guarantors would "affect, impair or be a defense to the guaranty," and that the "guaranty is an absolute and unconditional primary obligation of the guarantors." Id.
After rejecting the guarantor's claim that the guaranty was unconscionable, the...
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