Lippincott v. PNC Bank, N.A.

• Decision Date: 22 May 2012
• Docket Number: Civil Action No. ELH-12-463
• Parties: PAUL T. LIPPINCOTT, et al., Plaintiffs, v. PNC BANK, N.A., Defendant.
• Court: U.S. District Court — District of Maryland

PAUL T. LIPPINCOTT, et al., Plaintiffs,

v.PNC BANK, N.A., Defendant.

Civil Action No. ELH-12-463

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Date: May 22, 2012

MEMORANDUM OPINION

Paul T. Lippincott, Amy S. Lippincott, and the Yacht Group, Inc., plaintiffs, seek a declaratory judgment against PNC Bank, N.A. ("PNC"), regarding the enforceability of a personal guaranty (the "Guaranty") and an indemnity deed of trust (the "IDOT") to which the Lippincotts are signatories. See Complaint (ECF 2). The Lippincotts issued the Guaranty and the IDOT to PNC's predecessor in interest, Mercantile-Safe Deposit & Trust Company ("Mercantile"),¹ in order to secure the Yacht Group's obligations under a promissory note (the "Note") given by the Yacht Group to Mercantile. Id. PNC acquired Mercantile in 2007. Id. ¶ 28. It declared the Yacht Group in default under the Note in 2011, see id. ¶ 29, and subsequently filed suit against the Yacht Group and the Lippincotts in the Circuit Court for Baltimore County, Maryland, seeking money judgments on the Note and the Guaranty. See PNC Bank, N.A. v. Yacht Group, Inc., et al., Case No. 03-C-11-002169 (Md. Cir. Ct. Balt. Cnty.) (the "Money Judgment Case"); Complaint ¶ 14.²

Shortly thereafter, plaintiffs initiated a two-count declaratory action in the Circuit Court for Queen Anne's County, Maryland, under Case No. 17-C-12-016831. PNC timely removed the declaratory action to federal court, pursuant to 28 U.S.C. § 1441, on the basis of federal question jurisdiction and diversity jurisdiction. See Notice of Removal ¶ 13 (ECF 1).³

Now pending in the declaratory action are a Motion to Remand or for Abstention ("Motion to Remand") (ECF 15) filed by plaintiffs, as well as two motions filed by PNC: a Motion to Strike Jury Trial Demand (ECF 11); and a Motion to Dismiss, pursuant to Fed. R. Civ. P. 12(b)(6), for failure to state a claim upon which relief can be granted (ECF 12). The parties have briefed the motions,⁴ and no hearing is necessary. See Local Rule 105.6. For the reasons that follow, I will grant the Motion to Remand. Accordingly, I will not rule on PNC's motions; they may be addressed by the state court on remand.

Background

The Yacht Group is a "boat broker." Complaint ¶ 21. Mr. Lippincott is the sole stockholder, sole director, and president of the Yacht Group. Id. ¶ 24. Ms. Lippincott is Mr. Lippincott's wife, and is "not involved in any way in the business of Yacht Group." Id. ¶ 25.

The Yacht Group executed the Note in connection with a "floor plan financing agreement" with Mercantile, which provided loan funding to the Yacht Group for the purchase of several "luxury yachts" for resale. Id. ¶ 22, 34; see also id. ¶¶ 23, 33.⁵ The yachts were collateral for the loan obligation. See id. ¶¶ 31-32. In addition, Mercantile required the Lippincotts to execute the Guaranty for the Yacht Group's obligations, id. ¶¶ 23, 26, as well as the IDOT, which established a secured lien on the Lippincotts' family home in Chester, Queen Anne's County, Maryland. Id. ¶ 27.

As noted, PNC acquired Mercantile in 2007 and, in 2011, PNC declared the Yacht Group in default under the floor plan financing agreement. PNC then repossessed the yachts and sold them at auction. See id. ¶¶ 28-38. In addition, PNC initiated the Money Judgment Case in state court.

In Count One of the Complaint in the case sub judice, plaintiffs seek a declaration that PNC's sale of the yachts was not "commercially reasonable" within the meaning of Md. Code (2002 Repl. Vol., 2011 Supp.), § 9-610 of the Commercial Law Article ("C.L."), which is Maryland's codification of the Uniform Commercial Code provision governing disposition of collateral after default. Complaint ¶ 40. Further, they seek a declaration that, as a result of the alleged commercially unreasonable sale, PNC must satisfy itself with the proceeds from theauction, and is not entitled to a deficiency judgment against the Yacht Group or to enforce the Guaranty or the IDOT against the Lippincotts. Complaint ¶¶ 41-43. In Count Two, plaintiffs seek a declaration that Mercantile violated the federal Equal Credit Act, 15 U.S.C. §§ 1691 et seq., and its implementing regulation, 12 C.F.R. § 202.7, by requiring Ms. Lippincott to execute the Guaranty and IDOT, and therefore the Guaranty and IDOT are "null and void." Complaint ¶¶ 45-48. They also seek an award of attorneys' fees pursuant to the Equal Credit Act's fee-shifting provision, 15 U.S.C. § 1691e(d), Complaint ¶ 49, and they demand a jury trial. Id. at 10.

As indicated, plaintiffs filed the underlying suit in the Circuit Court for Queen Anne's County, and it was removed by defendant to federal court. Contemporaneously, plaintiffs filed a motion in the Money Judgment Case, the suit initiated by defendants in the Circuit Court for Baltimore County, requesting a transfer of venue to Queen Anne's County. Id. ¶ 14. They advised both state circuit courts that, if the motion to transfer venue were granted, they intended to seek consolidation of what were then the two state cases. Id. ¶ 19.

After this case was removed, the Circuit Court for Baltimore County granted the motion to transfer venue of the Money Judgment Case. See Ex.1 to Motion (ECF 16-1). It was docketed in the Circuit Court for Queen Anne's County as Case No. 17-C-12-016952.

Discussion

Federal courts are courts of limited jurisdiction and "may not exercise jurisdiction absent a statutory basis." Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). Nevertheless, when, as here, jurisdiction is established, federal courts have a "virtually unflagging obligation . . . to exercise the jurisdiction given them." Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976); accord Great Am. Ins. Co. v.Gross, 468 F.3d 199, 206 (4th Cir. 2000). Although the Supreme Court has identified some situations in which, for reasons of comity, federalism, or other prudential concerns, federal courts may abstain from exercising jurisdiction, "[a]bstention from the exercise of federal jurisdiction is the exception, not the rule." Colorado River, 424 U.S. at 813. In Colorado River, the Supreme Court held that, when there are "parallel federal and state suits" but no "traditional grounds for abstention" apply, a stringent "exceptional circumstances" standard ordinarily governs a federal court's decision whether to abstain from exercising jurisdiction. Chase Brexton Heath Servs., Inc. v. Maryland, 411 F.3d 457, 463 (4th Cir. 2005) (analyzing Colorado River). In other words, even where there is parallel state and federal litigation, "'[a]bdication of the obligation to decide cases'" is justified only in "'exceptional circumstances.'" Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 14 (1983) (citations and some internal quotation marks omitted).

However, as the Supreme Court reaffirmed in Wilton v. Seven Falls. Co., 515 U.S. 277, 286 (1995), district courts have "greater discretion" to abstain from exercising jurisdiction "in declaratory judgment actions than that permitted under the ' exceptional circumstances' test of Colorado River and Moses H. Cone." In other words, "[i]n the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their discretion yields to considerations of practicality and wise judicial administration." Id. at 288. This is because the Declaratory Judgment Act, 28 U.S.C. § 2201(a), which is the source of the federal courts' authority to issue declaratory judgments, has been understood, "[s]ince its inception," to "confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton, 515 U.S. at 286 (citing Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942)).

Indeed, the Declaratory Judgment Act contains a "textual commitment to discretion": it provides that a court "' may declare the rights and other legal relations of any interested party seeking such declaration.'" Wilton, 515 U.S. at 286 (quoting 28 U.S.C. § 2201(a)) (emphasis in Wilton); see also United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir. 1998). Thus, of import here, when a federal suit seeks only discretionary declaratory relief, and there is another proceeding regarding the same issues pending in state court, "a district court may either stay the suit in favor of state court action or 'decline to exercise jurisdiction altogether by . . . dismissing the suit or,'" when the case has been removed from a state tribunal, by "'remanding it to state court.'" Myles Lumber Co. v. CNA Fin. Corp., 233 F.3d 821, 823 (4th Cir. 2000) (quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 721 (1996)).

Plaintiffs' Motion to Remand invokes this inherent discretion of a federal court to abstain from entertaining a declaratory action, which is often referred to as Wilton/Brillhart abstention or Wilton abstention. In general, the Fourth Circuit has long maintained that "'a declaratory judgment action is appropriate "when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and . . . when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding."'" Penn-America Ins. Co. v. Coffey, 368 F.3d 409, 412 (4th Cir. 2004) (quoting Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir. 1996), in turn quoting Aetna Cas. & Sur. Co. v. Quarles, 92 F.3d 321, 325 (4th Cir. 1937)) (alteration in Coffey). However, "[w]hen a related state court proceeding is pending," such as the Money Judgment Case, "'considerations of federalism, efficiency, and comity' should inform the district court's decision whether to exercise discretion over a declaratory judgment action." Coffey, 368 F.3d at 412 (citations and some internal quotation marks omitted).

In a number of cases decided in the wake of Wilton, the Fourth Circuit has elucidated and applied several factors to...