Potomac Realty Capital, LLC v. Green
MEMORANDUM OPINION AND ORDER directing as follows: 1) The 27 Motion for Summary Judgment due to be GRANTED in part and DENIED in part. It is GRANTED as to liability and damages on Count One (Breach of Contract - Deficiency), except as to the claim for $511,049.71 for costs and fees which Potomac incurred after the date of the foreclosure to carry on the operations of the residential apartments. As to the claim in Count One for $511,049.71 for costs and fees which Potomac incurred aft er the date of the foreclosure to carry on the operations of the residential apartments, the Motion for Summary Judgment is DENIED. The Motion for Summary Judgment is GRANTED as to liability, but DENIED as to damages on Count Two (Breach of Contract - Waste Rents Due); 2) Potomac's request for entry of final judgment pursuant to FRCP 54(b) is GRANTED. The Court finds that there is no just reason for delaying the entry of a partial final judgment on the portions of Potomac's deficiency claim on which its Motion for Summary Judgment has been granted (most of Count One). Accordingly, a separate final judgment on that Count will be entered; 3) The evidentiary hearing on the remaining portion of Count One and the disputed damages for Count Two will be conducted during the trial setting already in place for this case. Signed by Hon. Chief Judge Mark E. Fuller on 6/2/2009. (Attachments: # 1 Civil Appeals Checklist)(wcl, )
IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION P O T O M A C REALTY CAPITAL, LLC, ) ) P L A IN T IF F , ) ) v. ) C A S E NO. 2:08-cv-204-MEF ) M A R Y GREEN, as Guardian and Personal ) R e p re s e n ta tiv e for STEVEN GREEN, an ) (WO- Do Not Publish) in d iv id u a l, ) ) D EFEN D A N T. ) M E M O R A N D U M OPINION AND ORDER P o to m a c Realty Capital, LLC ("Potomac"), a lender, brings suit against the guardian a n d personal representative of Steven Green ("Guardian") pursuant to a guaranty and in d e m n ity agreement between Potomac and Steven Green ("Green") as part of a loan tra n s a c tio n .1 Potomac alleges that Green is liable for a deficiency on the loan and that Green m u s t indemnify it for waste at subject property. This cause is before the Court on Potomac's M o tio n for Summary Judgment (Doc. # 27). The Court has carefully considered the s u b m iss io n s in support of and in opposition to the motion and finds that it is due to be G R A N T E D in part and DENIED in part. JURISDICTION AND VENUE T h is Court finds that it has subject-matter jurisdiction over this action is proper
Green is the sole member of Gaslight Commons Apartments Co., LLC which b o rro w money from Potomac in early 2006.
pursuant to 28 U.S.C. § 1332.2 The parties do not contest personal jurisdiction or venue, and th e Court finds adequate allegations in support of both personal jurisdiction and venue. S U M M A R Y JUDGMENT STANDARD U n d e r Federal Rule of Civil Procedure 56(c), summary judgment is appropriate "if th e pleadings, depositions, answers to interrogatories, and admissions on file, together with th e affidavits, if any, show that there is no genuine issue as to any material fact and that the m o v in g party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 3 1 7 , 322 (1986). The party asking for summary judgment "always bears the initial
re s p o n s ib ility of informing the district court of the basis for its motion, and identifying those p o rtio n s of `the pleadings, depositions, answers to interrogatories, and admissions on file, to g e th e r with the affidavits, if any,' which it believes demonstrate the absence of a genuine is su e of material fact." Id. at 323. The movant can meet this burden by presenting evidence s h o w in g there is no dispute of material fact, or by showing the non-moving party has failed t o present evidence in support of some element of its case on which it bears the ultimate b u rd e n of proof. Id. at 322-23. O n c e the moving party has met its burden, Rule 56(e) "requires the nonmoving party to go beyond the pleadings and by [his] own affidavits, or by the `depositions, answers to in te rro g a to r i e s , and admissions on file,' designate `specific facts showing that there is a
More than $75,000 is in controversy. Potomac is a corporate citizen of Delaware a n d Massachusetts. Green is a citizen of New York. 2
genuine issue for trial.'" Id. at 324. To avoid summary judgment, the nonmoving party " m u s t do more than simply show that there is some metaphysical doubt as to the material f a c ts ." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). A p la in tif f must present evidence demonstrating that he can establish the basic elements of his c la im . Celotex, 477 U.S. at 322. A court ruling on a motion for summary judgment must b e lie v e the evidence of the non-movant and must draw all justifiable inferences from the e v i d e n c e in the non-moving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 2 5 5 (1986). After the nonmoving party has responded to the motion for summary judgment, th e court must grant summary judgment if there is no genuine issue of material fact and the m o v in g party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). FACTS T h e Court has carefully considered all deposition excerpts and documents submitted in support of and in opposition to the motion for partial summary judgment. The submissions o f the parties, viewed in the light most favorable to the non-moving party, establish the f o llo w in g facts: G re e n is the sole member of Gaslight Commons Apartments Co., LLC ("Gaslight"), a Delaware limited liability company. In 2005, Gaslight acquired the Gaslight Commons, a residential apartment complex in Montgomery, Alabama ("the Commons"). The Commons w a s in very bad condition when Gaslight acquired it. Gaslight hired a construction manager a n d began to renovate and repair the Commons.
Gaslight approached Potomac about a loan in early 2006. Prior to agreeing to the lo a n , Potomac retained Commercial Building Consultants, LLC to provide a property c o n d itio n assessment of the Commons which revealed that the Commons was in need of re p a irs and maintenance as of April 12, 2006. Nevertheless, on April 21, 2006, Gaslight o b t a in e d a loan from Potomac in the amount of $11,000,000. In connection with that tra n s a c tio n , Potomac, Gaslight, and Green negotiated, entered into, executed, and delivered to Potomac written documents and agreements ("the Loan Documents), including a p ro m iss o ry note and a mortgage security agreement. At this same time, Green also executed a n Indemnity and Guaranty Agreement as a condition of Potomac making the loan to G a s lig h t. By the terms of the Indemnity and Guaranty Agreement Green assumed liability f o r, agreed to indemnity Potomac for, and guaranteed payment to Potomac for any "physical w a s te r of the Property." Doc. # 29-4.3 In addition, Green promised to guarantee the p e rf o rm a n c e of Gaslight under the note and mortgage security agreement. The Indemnity
The Indemnity and Guaranty Agreement provides that:
[Green] hereby assumes liability for, hereby guarantees payment to [Potomac] o f , hereby agrees to pay, protect, defend and save [Potomac] harmless from a n d against, and hereby indemnifies [Potomac] from and against any and all lia b ilitie s , obligations, losses, damages, costs and expenses (including without lim ita tio n , demands and judgments of any nature or description whatsoever (c o lle c tiv e ly "Costs") which may at any time be imposed upon, incurred by or a w a rd e d against [Potomac] as a result of: (c ) physical waste of the Property. D o c . # 29-4. 4
and Guaranty Agreement states as follows: T h is is a guaranty of payment and performance and not of collection. The l i a b ility of [Green] under this Agreement shall be absolute, direct and im m e d ia te and not conditional or contingent upon the pursuit of any remedies a g a in s t [Gaslight] or any other person (including, without limitation, other g u a ra n to rs , if any), nor against the collateral for the Loan. [Green] waives any rig h t to require that an action be brought against [Gaslight] or any other person o r to require that resort be had to any collateral for the Loan or to any balance o f any deposit account or credit on the books of Potomac in favor of [Gaslight] o r any other person. In the event, on account of the Bankruptcy Reform Act o f 1978, as amended, or any other debt relief law (whether statutory, common la w , case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, [Gaslight] shall be relieved of o r fail to incur any debt, obligation or liability as provided in the Loan D o c u m e n ts , [Green] shall nevertheless be fully liable therefor. In the event of a default under the Loan Documents which is not cured within any applicable g ra c e or cure period, [Potomac] shall have the right to enforce its rights, power a n d remedies (including without limitation, foreclosure of all or any portion o f the collateral for the Loan) thereunder or hereunder, in any order, and all rig h ts , powers and remedies available to [Potomac] in such event shall be none x c lu s iv e and cumulative of all other rights, powers and remedies provided th e re u n d e r and hereunder or by law or equity. If the indebtedness and o b lig a tio n s guaranteed hereby are partially paid or discharged by reason of the e x e rc is e of any of the remedies available to [Potomac], this Agreement shall n e v e rth e le s s remain in full force and effect, and subject to the terms hereof, [ G re e n ] shall remain liable for all remaining indebtedness and obligations g u a ra n te e d hereby, even though any rights which Green may have against G a s lig h t may be destroyed or diminished by the exercise of any such remedy. Id . In addition, the Indemnity and Guaranty Agreement included a provision addressing a tto rn e ys ' fees: In the event it is necessary for [Potomac] to retain the services of an attorney o r any other consultants in order to enforce this Agreement, or any portion th e re o f , [Green] agrees to pay to [Potomac] any and all costs and expenses, in c lu d in g , without limitations, attorneys' fees (at both the trial and appellate le v e ls ), incurred by [Potomac] as a result thereof and such costs, fees and e x p e n s e s shall be included in Costs [as that term is defined in the section of the 5
document which outlines what Potomac can recover from Green]. Id. Gaslight made numerous payments under the note to Potomac, which Potomac a c c e p te d and applied to the debt owning under the note. Gaslight made these payments while a ls o spending significant sums on renovations and repairs to the Commons. Gaslight faced c o s ts which exceeded expectations and revenues in the form of rent from the property which f a ile d to meet expectations. The loan's original maturity date was May 1, 2007. It is undisputed that Gaslight f a ile d to make all the payments required by the terms of the loan agreement and that it was in default. It is also undisputed that Potomac allowed Gaslight to continue to make efforts to make the Commons viable and extended time for repayment of the loan. On May 9, 2007, Green suffered severe injuries in a traffic accidents.4 A court in New Y o rk appointed Mary Green to be Temporary Guardian of Green in September of 2007. On F e b ru a ry 6, 2008, Green was adjudicated incapacitated by the Supreme Court of the State of N e w York, Westchester County and Mary Green was named his Guardian and Personal R e p re s e n ta tiv e . In December of 2007, Gaslight was still in default on the loan. At that time, Potomac d e c la re d all the indebtedness due and payable and gave notice of foreclosure to Gaslight.
A car hit Green while he was attempting to cross a street in New York. His injuries w e re so serious that he remained in a coma for a month after the accident. 6
Additionally, it gave notice by publication in a newspaper of general circulation published in Montgomery county on three dates in December. On or about January 3, 2008, a f o re c lo s u re sale was held on the steps of the Montgomery County Courthouse. Potomac was th e highest bidder with a bid of $7,735,000.00. Thus, Potomac, lawfully and without o b je c tio n from Gaslight, foreclosed its secured interest in and to the Commons. When P o to m a c foreclosed on the Commons, the value of the property had substantially diminished f ro m the loan amount, resulting in a deficiency balance owed to Potomac. Potomac sought to have Green, and later Guardian, pay this balance under the terms o f the Indemnity and Guaranty Agreement. Guardian disputes that the Indemnity and G u a r a n ty Agreement obligates Green to pay the deficiency balance. Potomac has offered s ig n if ic a n t evidence of failure to maintain the Common property and significant repairs n e e d e d and damage sustained to the property after the date of the loan. Guardian counters b y offering evidence that Green did spend money to repair and improve the property and G u a rd ia n states in a rather conclusory fashion that she disputes that waste has occurred.5 O n March 21, 2008, Potomac brought this action against Green. First, Potomac seeks th e deficiency balance of $3,265,000, accrued and unpaid interest and fees beginning on the
There is no evidence in the record that Guardian has any personal knowledge of the c o n d itio n of the property at any time or that she has ever seen the property. The Court has th e ability to disregard evidence which is facially deficient under Federal Rule of Civil P ro c e d u re 56. Accordingly, the Court does not view Guardian's conclusory assertions, w h ic h fail to establish any personal knowledge of any facts in support of those conclusions, a s creating a genuine issue of material fact. 7
date of the default through the date of the filing of the lawsuit in the sum of $1,143,532.24, a n d future accruals of interest beginning on April 1, 2008 in the amount provided by the loan d o c u m e n ts , plus reasonable attorney's fees in the amount of 15% of the total balance and c o u rt costs. Furthermore, Potomac seeks as damages for the breach of contract claim on the d e f ic ie n c y, its expenses associated with operations of the residential property after the f o re c lo s u re in the amount of $511,049.71. In addition to this first breach of contract claim re la tin g to the deficiency, Potomac also brings a breach of contract claim in which it alleges th a t Green broke his contractual promise to indemnify it after failing to ensure against c o m m i s s io n of physical waste in and to the Commons and by failing to collect and remit re n ts for residential apartment units within the Commons as required by the agreements b e tw e e n the parties. It is undisputed that Gaslight made some repairs and performed some maintenance on th e property after completing the loan with Potomac and before foreclosure. It is also u n d i s p u t e d that Gaslight renovated some of the apartment units. The record also contains u n d is p u te d evidence that the overall condition of the Commons significantly and visibly d e te rio ra te d between March of 2006 and early January of 2008. Some of the units which G a s lig h t had expended resources on renovating nevertheless later sustained significant water d a m a g e either from plumbing leaks or backed up sewers or roof leaks. After some initial difficulties with respect to service of the defendant and after a m e n d in g the complaint to properly bring the suit against Guardian due to Green's having
become incapacitated, Potomac filed the motion for summary judgment now before the C o u rt. By this motion, Potomac seeks judgment as a matter of law on both counts of the c o m p la in t. Guardian opposes the motion on a variety of grounds. D IS C U SS IO N A. A p p lic a b le Law W h e n an action brought is before a federal court pursuant to its subject matter ju ris d ic tio n under 28 U.S.C. § 1332, that court must employ the choice-of-law rules of the ju ris d ic tio n in which it sits in determining the proper law to apply in the case. See, e.g., K la x o n Co. v. Stentor Elec. Co., 313 U.S. 487 (1941); Morris v. SSE, Inc., 912 F.2d 1392, 1 3 9 4 n.1 (11th Cir. 1990); Benchmark Med. Holdings, Inc. v. Rehab Solutions, LLC, 307 F. S u p p . 1249, 1258-59 (M.D. Ala. 2004) ("When a federal court decides a state law claim, w h e th e r acting pursuant to diversity or supplemental jurisdiction, it applies the choice-of-law ru le s of the jurisdiction in which its sits.") Thus, this Court must apply Alabama choice-ofla w rules to the question of which state's law is applicable in this case. "To determine which la w applies in contract disputes, Alabama courts `first look to the contract to determine w h e th e r the parties have specified a particular sovereign's law to govern.'" Clanton v. In te r .N e t Global, L.L.C., 435 F.3d 1319, 1323 (11th Cir. 2006) (citing Stovall v. Universal C o n s t. Co., Inc., 893 So. 2d 1090, 1102 (Ala. 2004) (citation omitted)). In this case, the re le v a n t contractual agreement between the parties indicates that Alabama law is to apply to a n y future dispute between them. Thus, Alabama's choice-of-law rules require this Court
to apply Alabama law to this case.6 B . Breach of Contract 1 . Claim on the Guaranty Provision In order to prevail on a breach of contract claim under Alabama law, the plaintiff must e s ta b lis h : "(1) the existence of a valid contract binding the parties in the action, (2) its own p e rf o rm a n c e under the contract, (3) the defendant's non-performance, and (4) damages." Childersburg Bancorporation, Inc. v. People State Bank of Commerce, 962 So. 2d 248 (Ala. C iv . App. 2006). In this case, it is undisputed that Green executed the Indemnity and G u a ra n ty Agreement at the time that Potomac was entering into the lending agreement with G a s l i g h t. It is also undisputed that Green's agreement to enter into that Indemnity and G u a ra n ty Agreement was a condition to Potomac making the loan to Gaslight. There is no d is p u te as to the validity of the Indemnity and Guaranty Agreement. It is also undisputed that P o to m a c performed under the contract by lending the money to Gaslight. The plain language o f the Indemnity and Guaranty Agreement requires Green to pay any deficiency if Gaslight d e f a u lts on the loan and the foreclosure on the property fails to satisfy the amount owed to P o to m a c . It is undisputed that Gaslight did indeed default on the loan and that there exists a deficiency, which establishes damages. The real question before this Court is a simple interpretation of the language of the
The parties do not appear from their arguments to disagree that Alabama law should p ro v id e the substantive law to govern their dispute. 10
Indemnity and Guaranty Agreement.7 Guardian contends that it is a conditional guaranty and th a t the stated conditions for its applicability have not been met. Specifically, Guardian c o n te n d s that the guaranty portion of the agreement only applies if one of the conditions lis te d in paragraph 1(a)(i) is triggered. Potomac points to different language in the Indemnity a n d Guaranty Agreement and argues that the guaranty agreement is not conditional in the w a y Guardian suggests. This is not a genuine issue of material fact, but rather a legal d e te rm in a tio n to be made by reading the language of the Indemnity and Guaranty Agreement. In the Court's view, Potomac urges the correct result. The language on which G u a rd ia n relies are conditions which define the indemnification obligation and not the g u a ra n ty obligation in the agreement. The language of the Indemnity and Guaranty
A g re e m e n t which provides the guaranty obligation is clearly not conditioned in the way that G u a rd ia n suggests. Indeed, the Indemnity and Guaranty Agreement clearly provides that Green is liable for all remaining indebtedness and obligations guaranteed by the Indemnity a n d Guaranty Agreement. Moreover, the items of damages claimed on the deficiency claim,
Guardian advances three arguments in opposition to Potomac's motion for summary ju d g m e n t on the deficiency claim. Only one of them merits any serious discussion. Guardian's argument regarding the appropriateness of Anna Collins' declaration is wholly w ith o u t merit. This declaration is proper evidence in support of Potomac's motion. Guardian's argument that Green cannot be liable on the Indemnity and Guaranty Agreement b e c a u s e he did not have notice of the foreclosure is also without merit as Potomac provided n o tic e in the legally approved fashion and as nothing in the Indemnity and Guaranty A g re e m e n t requires such notice as a condition precedent to its efficacy. Thus, the Court f o c u s e s its discussion on the main argument on the deficiency claim which is that the g u a ra n ty Green executed has not properly been triggered. 11
including the attorney's fees are appropriately recoverable under the very terms of the In d e m n ity and Guaranty Agreement Green executed. For this reason, the Court finds that t h e r e are no genuine issues as to any material fact and Potomac has shown it is entitled to ju d g m e n t as a matter of law on most of the deficiency claim.8 In the alternative, the Court finds that the record before it establishes that waste has o c c u rre d on the property during the time Green was responsible for the property. Thus, even if Guardian was correct that the Indemnity and Guaranty Agreement makes the guaranty p ro v is io n conditional, that waste satisfies the precondition to the guaranty. For this
a lte rn a tiv e reason, the Court is satisfied that Potomac is entitled to judgment as a matter of la w on the deficiency claim. 2. Claim on the Indemnification for Waste Provision In the second count of the amended complaint, Potomac seeks indemnification for its d a m a g e s caused by physical waste to the Commons property. Guardian contends that there
Although no genuine issue exists as to any material fact, the Court is not satisfied b a s e d on the record and argument before it that Potomac has established that it is entitled to ju d g m e n t as a matter of law on one element of its deficiency claim: namely, the sum claimed f o r costs and fees which Potomac incurred after the date of the foreclosure to carry on the o p e ra tio n s of the residential apartments. It may well be that Potomac is legally entitled to th e sum claimed, either under a specific provision of the contract or under the applicable law, b u t Potomac has not sufficiently established that legal entitlement. Although the defendant h a s not made this contention, the Court may not grant a motion for summary judgment, even if it is not opposed, without ascertaining that the movant is entitled to judgment as a matter o f law. Nothing in this finding precludes Potomac from urging this claim at trial despite the d e n ia l of the Motion for Summary Judgment. The Court suggests, however, if Potomac in te n d s to persist in this claim, that it file a trial brief outlining the basis for the legal e n title m e n t to this sum along with evidence establishing the total amount now claimed. 12
exist genuine issues as to the facts material to this claim. While the Court agrees that g e n u in e issues of material fact exist as to the extent of the damages owed Potomac for p h ys ic a l waste on to the Commons property, the Court finds as a matter of law that the In d e m n ity and Guaranty Agreement unambiguously obligates Green to indemnify Potomac f o r physical waste to the Commons property and that the undisputed facts, even when viewed in the light most favorable to Guardian, establish that physical waste did occur. It is clear th a t despite the fact that Green and Gaslight worked to improve the Commons, the overall c o n d itio n of the Commons worsened between the closing of the underlying loan in March o f 2006 and the time of the foreclosure in January of 2008. The physical changes to the real e s ta te reduced its value. This is especially true because renovated units suffered damage due to leaks, sewer problems, and plumbing problems which rendered them inoperable as rental u n its . Thus, it is clear to the Court that waste did occur and thus Green is liable to indemnify P o to m a c for that waste. That having been said, the Court finds the extent of the waste is not s u b je c t to determination without a trial because there exist genuine issues of material fact as to the extent of the waste. CONCLUSION F o r the foregoing reasons, it is hereby ORDERED as follows: 1. The Motion for Summary Judgment (Doc. # 27) due to be GRANTED in part and D E N IE D in part. It is GRANTED as to liability and damages on Count One (Breach of C o n tra c t - Deficiency), except as to the claim for $511,049.71 for costs and fees which
Potomac incurred after the date of the foreclosure to carry on the operations of the residential a p a rtm e n ts . As to the claim in Count One for $511,049.71 for costs and fees which Potomac in c u rre d after the date of the foreclosure to carry on the operations of the residential a p a rtm e n ts , the Motion for Summary Judgment is DENIED. The Motion for Summary J u d g m e n t is GRANTED as to liability, but DENIED as to damages on Count Two (Breach o f Contract -Waste Rents Due). 2. Potomac's request for entry of final judgment pursuant to Federal Rule of Civil P ro c e d u re 54(b) is GRANTED. The Court finds that there is no just reason for delaying the e n try of a partial final judgment on the portions of Potomac's deficiency claim on which its M o tio n for Summary Judgment has been granted (most of Count One). Accordingly, a s e p a ra te final judgment on that Count will be entered. 3. The evidentiary hearing on the remaining portion of Count One and the disputed d a m a g e s for Count Two will be conducted during the trial setting already in place for this case. DONE this the 2n d day of June, 2009. /s/ Mark E. Fuller CHIEF UNITED STATES DISTRICT JUDGE
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