Riggs Nat. Bank of Washington, DC v. Linch, Civ. A. No. 92-1363-A

• Decision Date: 03 August 1993
• Docket Number: 92-1418-A.,Civ. A. No. 92-1363-A
• Citation: 829 F. Supp. 163
• Court: U.S. District Court — Eastern District of Virginia
• Parties: The RIGGS NATIONAL BANK OF WASHINGTON, D.C., Plaintiff, v. Samuel A. LINCH and Marcia Penny Linch, Defendants. Samuel A. LINCH, et al., Plaintiffs, v. The RIGGS NATIONAL BANK OF WASHINGTON, D.C., Defendant.

829 F. Supp. 163

The RIGGS NATIONAL BANK OF WASHINGTON, D.C., Plaintiff, v. Samuel A. LINCH and Marcia Penny Linch, Defendants.

Samuel A. LINCH, et al., Plaintiffs, v. The RIGGS NATIONAL BANK OF WASHINGTON, D.C., Defendant.

Civ. A. Nos. 92-1363-A, 92-1418-A.

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

August 3, 1993.

COPYRIGHT MATERIAL OMITTED

David G. Fiske, Shaw, Pittman, Potts & Trowbridge, Washington DC, for Riggs Nat. Bank.

Sharon L. Terry, David & Hagner, P.C., Washington DC, for Linch, et al.

MEMORANDUM OPINION

CACHERIS, Chief Judge.

The Riggs National Bank of Washington, D.C. ("Riggs") filed Civil Action No. 92-1363-A against Samuel A. Linch and Marcia Penny Linch ("Linches") on September 28, 1992, to collect funds on a defaulted promissory note. The Linches personally guaranteed the promissory note, along with Albert C. Randolph ("Randolph"). Riggs seeks to recover the $11,078,942.97 principal plus interest and late charges. On October 30, 1992, the Linches filed a counterclaim alleging that Riggs had violated the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et seq.¹

On October 1, 1992, the Linches, Randolph, McKenney Farm Associates Limited Partnership, Smith Farm Associates Limited Partnership, Shell Farm Associates Limited Partnership, Marsh Farm Associates Limited Partnership, and Linch Group Properties Limited Partnership filed suit against Riggs in the Circuit Court of Prince William County. The state action alleged that Riggs' actions during the loan transaction constituted a breach of good faith and fair dealing, fraud, breach of fiduciary duty, duress and coercion, and a violation of the ECOA. On October 7, 1992, Riggs removed the state action to this Court. The removed case was styled as Civil Action No. 92-1418-A.

For purposes of efficiency in discovery and pre-trial matters, Civil Actions No. 92-1418-A and 92-1363-A were consolidated. On February 26, 1993, this Court dismissed all counts, except the ECOA count, in Civil Action 92-1418-A on summary judgment.² The cases proceeded to trial on the ECOA count in 92-1418-A, and Riggs' suit to collect on the defaulted note in 92-1363-A. The issues now before the Court are whether the ECOA can be asserted as an affirmative cause of action by borrowers to recover damages against a lender, and whether guarantors of a promissory note can raise the ECOA as an affirmative defense in an action to collect on a defaulted note.

This case is one of first impression in this Court. For the reasons set forth below, the Court finds that the parties can assert the ECOA as an affirmative cause of action to recover damages against a lender, but cannot assert the ECOA as an affirmative defense to the underlying debt. The Court also finds that Riggs did not violate the ECOA, and enters judgment in favor of Riggs.

I. Facts

The Court finds the facts as follows: the borrowers in this loan transaction are Samuel A. Linch, Marcia Penny Linch and Albert C. Randolph. Samuel A. Linch is a real estate developer, and is married to Marcia Penny Linch. The Linches are citizens of the Commonwealth of Virginia. Randolph is a citizen of the District of Columbia and real estate investor.

The lender in this transaction is Riggs, a citizen of the District of Columbia and a National Banking Association organized and existing under the laws of the United States of America. Robert E. Pickeral ("Pickeral") was the senior vice-president in charge of Riggs' commercial real estate division at the time of the loan to the Linches. Lisa Yanowitch-Segal ("Yanowitch") was an assistant vice-president at Riggs reporting to Pickeral at the time of the loan.

In early 1986, Samuel Linch spoke with Pickeral about Linch's plan to develop a large tract of property in Gainesville, Virginia (the "Marsh Farm Property"). Pickeral explained to Linch that his individual financial statement would not "do the job" for Riggs and that Linch would "have to bring in a money partner" in order to obtain a loan. (Testimony of Linch; Linch Dep. 45; Pickeral Dep. 44-47.) Consequently, Linch entered into a business relationship with Randolph, with the understanding that Randolph was the "money partner" required by Riggs before making a loan to develop the Marsh Farm Property. (Randolph Dep. 169.)

Around March or April 1986, Linch and Randolph met with Pickeral and Yanowitch to further discuss the possibility of obtaining a loan from Riggs to purchase and develop the Marsh Farm Property. Pickeral expressed Riggs' interest in providing such a loan, discussed Riggs' loan application process, and suggested that Linch and Randolph submit a letter request for the loan. He also indicated to Linch that the chances of obtaining the loan were good because of the feasibility of the proposed project and the fact that Linch had located a "money partner." Neither Mrs. Linch nor Mrs. Randolph were mentioned during the meeting. (Ex. 3, Ans. No. 15; Randolph Dep. 170-71.)

By letter dated August 25, 1986, Linch and Randolph submitted their formal loan request, each enclosing a personal financial statement. (See August 25, 1986 letter from S.A. Linch to Robert C. Pickeral, Ex. 4.) The loan request was not signed by Mrs. Linch or Mrs. Randolph, and their assets were purportedly not described in the loan request. Id. The financial statements attached to the loan request maintain that Linch's net worth was $2,313,200 (Riggs' Ex. 10), and that Randolph's net worth was $14,732,045. (Riggs' Ex. 12.) Samuel Linch's financial statement listed assets that included a two hundred and eleven acre property known as Meadowlin Farm, valued at $1,077,305.00. Linch testified at trial that Meadowlin Farm was "a collectivity for four different interests," which included Meadowlin Development Corporation, property owned by Rabinowitz and Dillon, a sixty (60) acre horse stable, and a ten (10) acre residence. Linch also testified that Meadowlin Stables held one hundred and seventy-three (173) of the total acres, with the remaining thirty-eight acres (38) conveyed in fee simple to Meadowlin Development Corporation and Rabinowitz and Dillon. Of the one hundred and seventy-three acres (173), seventy-one (71) acres were devoted to Linch's stable operation and residence. Of that seventy-one (71) acres, Marcia Penny Linch was a co-owner as a tenant by the entirety of the ten (10) acre portion for their residence, and the remaining sixty-one (61) acres were owned by Meadowlin Stables, Ltd., a Virginia corporation in which Samuel Linch and Marcia Penny Linch each held a fifty percent ownership interest. The remaining one hundred and three acres (103) were held by Meadowlin Stables, Ltd. for Meadowlin Development Corporation. According to Linch's testimony, that one hundred and three-acre portion was conveyed in June 1986 by contract to United Land Corporation. United Land Corporation closed on that property in October 1986 for $780,000 cash. Samuel Linch purportedly received all of the cash from that sale.

In other words, as of the July 31, 1986, financial statement, Samuel Linch did not own Meadowlin Farm. The property was partially owned by his wife, Rabinowitz and Dillon, and Meadowlin Development Corporation, of which Linch was a shareholder. There was no indication whatsoever on Linch's financial statement that Meadowlin Farm was jointly owned or partially owned by third parties. Other assets listed on Linch's financial statement, namely, $59,500 in cash, $80,000 in personal property, and $10,000 in automobiles, were also jointly owned by the Linches.³

According to the official Riggs Loan Committee Minutes, on November 14, 1986, the Riggs' Loan Committee approved the loan to Linch and Randolph, as partners of a "Partnership to be formed," with only Linch and Randolph as guarantors. (See Riggs' November 14, 1986 Loan Committee Minutes and documentation, Ex. 5.) Prior to closing the loan, however, Riggs learned that Linch's significant assets were jointly held. Pickeral testified at trial that from an underwriting perspective, Pickeral viewed Meadowlin Farm as the only significant asset on Linch's financial statement. (See also Pickeral Dep. at 67-68.) In Pickeral's view, Linch's other assets, including partial partnership interests in real estate projects, personal property, cash and accounts receivable, were of minimal value for loan purposes. (Pickeral Dep. at 67-68.) Pickeral testified that he viewed Linch's net worth, without these jointly held assets, to be approximately $400,00 to $500,000. Based on Pickeral's new approximation of Linch's net worth, Linch did not satisfy Riggs' standard for creditworthiness in this transaction. (Testimony of Yanowitch, Pickeral Dep. p. 67-68, 120-21.) Because he did not own the assets he proffered as support for his guarantee, Linch no longer satisfied Riggs' standard for creditworthiness. Riggs then requested execution of a guaranty by both owners of the residence and horse farm.

By contrast, Randolph assured Riggs by letter that he individually owned all assets listed on his financial statement. Riggs did not subsequently request a guaranty from Randolph's wife.⁴

In December 1986, Riggs loaned $3.4 million to Marsh Farm Associated Limited Partnership for the purchase and development of Marsh Farm with the Linches and Randolph as guarantors. Similarly, in April 1987, Riggs loaned $3.4 million to McKenney Farm Associates Limited Partnership, Smith Farm Associates Limited Partnership, and Shell Farm Associates Limited Partnership for the purchase and development of three additional tracts of land in Gainesville, Virginia. The two loans were consolidated in December 1988, the principal amount increased, and the maturity date extended to January 1, 1990. The loan was unpaid on its January 1, 1990, maturity date. Riggs extended the maturity date twice in 1990, and the borrowers defaulted finally on the loan on June 30, 1990. On October 1, 1990, to culminate workout...