Wesbster Business Credit Corp v. Bradley Lumber Company et al
MEMORANDUM OPINION AND ORDER adopting in its entirety 233 Report and Recommendations, and granting in part and denying in part 121 Motion for Partial Summary Judgment filed by Webster Business Credit Corp; declining to adopt 234 Report and Recommendations, and granting in part and denying in part 210 Motion to Dismiss (sua sponte converted to Motion for Summary Judgment) filed by Webster Business Credit Corp. Signed by Honorable Robert T. Dawson on November 29, 2011. (cap)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
EL DORADO DIVISION
WEBSTER BUSINESS CREDIT
Case No. 1:08-CV-1083
BRADLEY LUMBER COMPANY, et al.
ARKANSAS DEVELOPMENT FINANCE
WEBSTER BUSINESS CREDIT
CORPORATION, et al.
MEMORANDUM OPINION AND ORDER
Before the Court are two reports and recommendations of the
Honorable Barry A. Bryant, United States Magistrate Judge for the
Western District of Arkansas, filed on June 17, 2011.
(Doc. 233) concerns Plaintiff Webster Business Credit Corporation’s
(“Webster”) Motion for Partial Summary Judgment and Dismissal of
Counterclaim and Defenses (Doc. 121), and the second (Doc. 234)
concerns Plaintiff’s Motion to Dismiss Amended Counterclaims and
Defenses (Doc. 210).
The Court notified the parties in an order of August 22, 2011
(Doc. 243) that it would treat Plaintiff’s Motion to Dismiss (Doc.
210) as a Motion for Summary Judgment pursuant to Rule 56.
parties briefed the issues raised in Plaintiff’s pending Motions
Magistrate on January 31, 2011, submitted written objections to the
Magistrate’s reports and recommendations (Docs. 235, 237, and 240),
and submitted additional evidence outside the pleadings (Docs. 24547 and 251) pursuant to the Court’s request as specified in its
Order of August 22, 2011 (Doc. 243).
The Court has reviewed this case de novo and, being well and
sufficiently advised, finds as follows:
First, the report and recommendation of the Magistrate, filed
June 17, 2011 (Doc. 233), regarding Plaintiff’s Motion for Partial
Summary Judgment and Dismissal of Counterclaim and Defenses (Doc.
121) is proper and should be and hereby is adopted in its entirety.
Accordingly, Plaintiff’s Motion for Summary Judgment and Dismissal
of Counterclaim and Defenses (Doc. 121) is GRANTED IN PART with
regard to summary judgment of Counts I-IV of the Complaint and
DENIED AS MOOT with regard to dismissal of Defendants’ Counterclaim
and Defenses. Counts I-IV of the Complaint are therefore dismissed
$2,888,307.72 from Defendant Bradley Lumber Company (“Bradley”),
said amount being due pursuant to the Webster loan as of September
22, 2008, exclusive of additional interest and fees.
also entitled to recover all costs and expenses of collection,
including its reasonable attorneys’ fees incurred on behalf of
recommendation of the Magistrate filed June 17, 2011 (Doc. 234),
Counterclaims and Defenses (Doc. 210).
After de novo review and
sua sponte conversion of Plaintiff’s Motion to Dismiss (Doc. 210)
Plaintiff’s Motion (Doc. 210) is GRANTED IN PART AND DENIED IN
Webster commenced this action against Bradley and Bradley’s
various affiliates, including Bradley’s owner and president, Dr. F.
David Chambers (“Chambers”), by filing its Complaint on October 17,
2008 (Doc. 1). According to the Complaint, on or about October 30,
2006, Webster, a New York based commercial lender, entered into a
Credit Agreement with Bradley, a hardwood mill based in Warren,
Arkansas, that buys, harvests, and converts oak and pine logs into
various wood products.
Webster agreed to provide Bradley working
capital and additional financing needs on a going-forward and
revolving basis up to six million dollars ($6,000,000).
Bradley delivered to Webster a secured promissory note for the
$6,000,000 loan, and in exchange Bradley granted Webster a security
interest and lien on all of Bradley’s assets, including Bradley’s
On a weekly basis, Bradley was obligated to provide
Webster certificates and reports setting forth the amount and
location of the collateral, including the lumber inventory and
Chambers, the principal of Bradley, also pledged
additional collateral security for the Webster loan by personally
guaranteeing all obligations of Bradley to Webster.
The Court determined, as per the Magistrate’s report and
recommendation (Doc. 233) which was adopted in the instant Order,
that Bradley defaulted under the credit agreement with Webster, and
Webster is entitled to summary judgment on its breach of contract
claims as outlined in the Complaint (Doc. 1) at Counts I-IV.1
Previously, the Court granted Webster a preliminary injunction
transferring, selling, moving, or otherwise interfering with the
collateral as defined in the credit agreement and all the lumber
and assets at any of the Defendants’ facilities.
The Court also
appointed a Special Master to investigate the whereabouts and
disposition of certain missing pine and log inventory and any
alleged fraudulent transfers or conveyances by Bradley to any other
While Bradley and the other Defendants do not contest the
amounts due under the loan agreement, nor that the indebtedness was
counterclaims and defenses against Webster.
The sufficiency of
Counts V-VIII of Webster’s Complaint remain for trial.
Defendants’ counterclaims and defenses are addressed herein using
the summary judgment standard of review.
Standard of Review
In determining whether summary judgment is appropriate, the
moving party bears the burden of establishing both the absence of
a genuine issue of material fact and that it is entitled to
judgment as a matter of law. See Fed. R. Civ. P. 56(c); Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106
S. Ct. 1348, 89 L. Ed. 2d 538 (1986); Nat’l. Bank of Commerce of El
Dorado, Ark. v. Dow Chem. Co., 165 F.3d 602 (8th Cir. 1999).
Court must review the facts in a light most favorable to the party
opposing a motion for summary judgment and give that party the
benefit of any inferences that logically can be drawn from those
Canada v. Union Elec. Co., 135 F.3d 1211,
Cir. 1998) (citing Buller v. Buechler, 706 F.2d 844, 846 (8th Cir.
In order for there to be a genuine issue of material fact,
the non-moving party must produce evidence “such that a reasonable
jury could return a verdict for the nonmoving party.”
Flexway Trucking, Inc., 28 F.3d 64, 66 (8th Cir. 1994) (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
Once the moving party demonstrates that the record does not
disclose a genuine dispute on a material fact, the non-moving party
may not rest upon the mere allegations or denials of his pleadings,
but his response, by affidavits or as otherwise provided in Rule
56, must set forth specific facts showing that there is a genuine
issue for trial. Ghane v. West, 148 F.3d 979, 981 (8th Cir.
1998)(citing Burst v. Adolph Coors Co., 650 F.2d 930, 932 (8th Cir.
Furthermore, “[w]here the unresolved issues are primarily
Aucutt v. Six Flags Over Mid-America, Inc., 85 F.3d
1311, 1315 (8th Cir. 1996)(quoting Crain v. Bd. of Police Comm’rs,
920 F.2d 1402, 1405-06 (8th Cir. 1990)).
III. Discussion of Counterclaims
(hereinafter “Bradley”) plead causes of action based on (1) breach
The Court will address each cause of action in
Breach of Contract
Bradley maintains that it was Webster, rather than Bradley,
that first breached the credit agreement.
Bradley states that it
“fully complied with the terms of the Credit Agreement and the
parties’ course of dealings at all times prior to Webster’s breach
of the agreement, or their performance was excused by Webster’s
Doc. 141, ¶ 28.
Specifically, Bradley alleges that “Webster arbitrarily and
enforcing a provision of the agreement known as the “concentration
See Doc. 1-2, pp. 4-5.
The “concentration cap” provision
agreement for any Bradley accounts that exceeded 10% of Bradley’s
total accounts receivable.
Bradley asserts that from October 30,
2006 through September 30, 2007, Webster “made a knowing and
conscious decision” to waive the 10% concentration cap provision
and fund the top three Bradley account debtors comprising 62.7% of
Bradley’s total accounts receivable. Doc. 141, ¶ 11. According to
unilaterally decided to raise the 10% issue, and refuse funding in
accordance with the parties agreement . . .”
Id. at ¶ 12.
receivables under the line of credit, [Bradley] was unable to
procure the necessary hardwood logs during the end of the 2007
hardwood logging season . . . and [Bradley] had already been
mortally wounded by Webster’s wrongful conduct.”
Id. at ¶ 13.
Bradley contends that Webster knowingly waived a certain
provision of the contract through a course of dealing, and in doing
so caused Bradley to rely on the waiver to Bradley’s detriment.
Bradley ignores that the express language of its credit agreement
with Webster states that any waiver, modification, or amendment of
the agreement cannot be established through a course of conduct and
must be specified in writing signed by an officer of Webster. Doc.
1-2, p. 13.
Section 16.2 of the contract states explicitly:
“Neither this Agreement nor any Other Document nor any portion or
provisions hereof or thereof may be changed, modified, amended,
waived, supplemented, discharged, cancelled or terminated orally or
by any course of dealing, or in any manner other than by an
agreement in writing, signed by the party to be charged.
Borrower acknowledges that it has been advised by counsel in
connection with the execution of this Agreement and Other Documents
inconsistent with the terms and provisions of this Agreement or any
parties, which was unambiguous in its construction and fully
negotiated by counsel on both sides, any allegations by Bradley of
pre-contractual oral agreement, post-contractual oral agreement,
waiver by Webster, or course of dealing by Webster would require a
written modification to the contract, which both parties agree did
routinely upholds provisions such as are present in the contract in
the case at bar.
See, e.g., Friedman v. Ocean Dreams, LLC, 56
A.D.3d 719, 720 (N.Y. App. Div. 2d Dep’t 2008)(affirming trial
court’s dismissal of claims based upon clear and unambiguous
language of the contract, including a “no modification clause”);
Manufacturer’s Hanover Trust v. Trans Nat’l Comm., Inc., 36 A.D. 2d
709, 710 (N.Y. App. Div. 1st Dep’t 1971)(holding that respondents
representation by lender not to enforce the written guarantee
according to its terms).
Moreover, Bradley cannot excuse its lack of compliance with
the terms of the contract by claiming lack of knowledge of the
See Rader v. Mfrs. Cas. Ins. Co., 139 N.Y.S.2d
388, 390 (Sup. Ct. N.Y. Cty. 1955) (“But business could not be
transacted with any feeling of confidence or security at all if
misrepresentation or breach of duty, could be either rescinded or
reformed merely because the party signing did not read the document
before signing it or did not realize the full legal effect of it”).
Various exhibits evidence that Bradley’s attorney reviewed several
versions of the negotiated agreement on behalf of Bradley.
concentration reserve, but Webster refused to do so (Doc. 247, Exh.
4, pp. 239-40).
The only written modification to the credit
agreement, which was executed by the parties in July 2007, made
clear that all other terms of the agreement were ratified, and the
sole provision that was altered was one related to monitoring
Bradley’s cash flow (Doc. 124-18).
Finally, Section 13.2 of the contract states that “[n]o delay
or omission on Lender’s part in exercising any right, remedy or
option shall operate as a waiver of such or any other right, remedy
or option of any default.”
Doc. 1-2, p. 10.
the parties agree that Webster did not strictly begin enforcing the
10% concentration cap until September 2007, once enforcement began,
Bradley began complying with the contract’s reporting requirements
and received in excess of $4.6 million from Webster from October
2007 through April 2008.
See Doc. 124-8, pp. 9-13; cf. Nat’l
Westminster Bank v. Ross, 130 B.R. 656, 675 (S.D.N.Y. 1991)(“It is
well-established that where a party to an agreement has actual
knowledge of another party’s breach and continues to perform under
performance constitutes a waiver of the breach”).
advances by Webster continued until Bradley became admittedly
overadvanced under the borrowing formula and breached the contract
with Webster (Doc. 6, p. 3).2
Clearly, the breach of contract was
caused by Bradley, not Webster, and no genuine issue of material
Bradley became overadvanced on the loan from Webster in
April 2008, when it admitted to overstating the value of its
inventory in the reports it submitted to Webster to support its
advances and outstanding loan balance.
Doc. 247, Exhs. 4, p. 305;
6, pp. 204-05; 8A, p. 174; 63; 82. Bradley’s accountants confirmed
the overstatement, and Bradley had no availability under the credit
agreement until it could generate sales. The evidence shows that
Bradley’s overadvancement and breach of contract in 2008 were not
caused by the concentration cap issue, but by a discrepancy in the
calculation of Bradley’s inventory.
Bradley’s counterclaim based on breach of contract is
dismissed with prejudice.
Arkansas Deceptive Trade Practices Act
Bradley alleges that Webster improperly manipulated the terms
and conditions of the parties’ agreement concerning the so-called
Syringa receivable and jeopardized Bradley’s lending relationship
Bradley maintains that Webster’s acts in relation to the
Syringa receivable and Simmons Bank were unconscionable, false, or
deceptive pursuant to the Arkansas Deceptive Trade Practices Act
Webster agrees that the Syringa receivable was pledged as
collateral for Webster’s loan.
Although Chambers claims that
Webster made an oral promise to pay the Syringa receivable directly
to Simmons Bank rather than apply the payment to the Webster loan,
the deposition testimony of Pat Anderson, the Senior Vice President
at Simmons Bank, confirms that there was no agreement in writing
concerning Syringa and Simmons Bank.
Doc. 247, Exh. 1, pp. 124,
To the extent that Bradley maintains Webster breached the
covenant of good faith and fair dealing when Webster required
Bradley to comply with the credit agreement’s concentration cap,
this argument is without merit.
When an alleged breach of the
covenant of good faith and fair dealing consists of a party merely
exercising its contractual rights, such a claim fails as a matter
of law. Citadel Equity Fund, Ltd. v. Aquila, Inc., 371 F.Supp.2d
510 (S.D.N.Y. 2005) (rejecting breach of duty of good faith claim
when lender acted in accord with the terms of the loan document).
Further, Mr. Anderson testified that if Simmons Bank had a
written agreement with Webster concerning the Syringa receivable,
it would have contacted Webster regarding this.
Id. at p. 167.
Bradley’s financial officer, Cris Krost-Bolin sent e-mails to
Webster asking that Syringa distributions be applied to the Webster
loan, not to Simmons Bank.
Doc. 247, Exhs. 32-34.
Krost-Bolin testified that she had no personal knowledge of any
agreement concerning the Syringa receivable and conceded that she
had never seen any writing outlining such an agreement.
Exh. 2, p. 290.
It is therefore clear to the Court that no genuine
issue of material fact exists regarding Webster’s treatment of the
Syringa receivable as somehow violative of the ADTPA, and this
claim is accordingly dismissed with prejudice.
Fraud in the Inducement
Bradley maintains that Webster induced it to enter into the
credit agreement, knowing that Webster’s conduct would probably
result in damages. According to Bradley, Webster made a variety of
fraudulent oral promises, and had Bradley not relied on those
promises, Bradley would have kept its loan at Simmons Bank and not
transferred its lending relationship to Webster (Doc. 141, ¶¶ 3-4).
Also, Bradley complains that the New York choice-of-law provision
in the credit agreement should be considered “void, in addition to
the Credit Agreement itself” because Webster fraudulently induced
Bradley to enter into an agreement with such a provision. Doc. 141,
Bradley’s claim for fraud in the inducement appears to be that
if Bradley had known Webster would adhere to the written provisions
of the credit agreement, Bradley would never have entered into the
agreement, and thus Bradley would not have defaulted on the loan.
The Court has established that the credit agreement was a valid
contract entered into through the negotiations of attorneys on
behalf of both parties, and the written terms of the agreement were
known to the parties.
No course of dealing or waiver existed to
alter the written terms of the agreement.
There is no evidence
before the Court to show that Bradley entered into the agreement
On the contrary, the evidence reflects that Bradley
considered it to have a positive working relationship with Webster
overextended in the borrowing formula.
Any oral promises alleged
Moreover, as discussed above, Webster advanced Bradley more
than $4.6 million after enforcing the 10% concentration cap on
receivables that Bradley found so objectionable.
A claim for
fraudulent inducement under New York law requires that there be a
misrepresentation of material fact which the lender knew to be
false and upon which the lender intended the borrower to rely.
Further, there must be evidence that the borrower relied on the
misrepresentation and suffered injury because of this reliance.
Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir. 2001).
fraudulent inducement argument is undercut by the fact that Bradley
continued to collect millions of dollars from Webster in advances
under the loan agreement, even after Webster began enforcing the
provision of the loan Bradley contends was misrepresented to
Bradley did not elect to rescind the loan when it became
clear that the 10% concentration cap would be enforced; if Bradley
were fraudulently induced into entering into the credit agreement
by relying on Webster to waive the concentration cap, rescission of
the contract may have been appropriate. Instead, Bradley continued
to accept the benefits that flowed to it under the credit agreement
and, when it could not meet its obligations to Webster and became
overadvanced, only then complained of fraudulent inducement.
Accordingly, the claim for fraud in the inducement lacks
validity in fact and in law and therefore is dismissed with
Bradley asserts that Chambers personally deposited funds into
employees, and notwithstanding a demand for release of the funds,
Webster refused to release them.
Bradley has stated confusingly
that the alleged COBRA funds “were not [Bradley’s] funds, nor
Webster’s” (Doc. 141, p. 5) yet Bradley argues now that Webster is
obligated to release these funds to Bradley. Bradley has submitted
no evidence to substantiate its claim that it made a request to
vehemently disputes that any such request was made.
deposited in Webster’s lock-box account are the property of Webster
and are to be applied against the loan balance.
Doc. 1-1, p. 13.
As no genuine issue of material fact exists with regard to the
claim for conversion, it is dismissed with prejudice.
Bradley’s claim for promissory estoppel is that “Webster’s
Counter-Plaintiffs, causing it to formulate business decisions
based upon the conduct and representations of Webster, such as
Doc. 141, pp. 15-16.
The Court has determined above that any reliance by Bradley
upon alleged pre-contractual oral promises made by Webster were not
binding, as the written contract between the parties controlled,
and any alleged oral promises were never reduced to writing.
Furthermore, Bradley’s assertion that it was damaged by virtue
of having to change “its primary finance source” appears to refer
to Bradley’s decision to switch its loan from Simmons Bank to
Webster when it entered into a borrower/lender agreement with
Webster in 2006.
The facts show that Bradley’s previous lender,
Simmons Bank, froze Bradley’s line of credit before Bradley entered
into the credit agreement with Webster (see Doc. 247, Exhs. 1, p.
201; 13; 14 (discussing Simmons Bank’s need to develop “exit
Bradley was compelled to find a lender other than
Simmons, and Bradley did so in contracting with Webster. Bradley’s
promissory estoppel claim is consequently without merit and is
dismissed with prejudice.
Bradley alleges that Webster breached its duty of commercial
reasonableness both before and after Webster acquired possession of
Bradley’s collateral under the credit agreement.
defaulted under the terms of the credit agreement, Bradley alleges
it was harmed when Webster placed tags on lumber inventory stored
at the sawmill facility indicating that such inventory was subject
to Webster’s security interest. Bradley claims it was difficult to
sell the lumber with Webster’s tags on it.
In addition, Bradley
claims that Webster instructed Bradley to sell the collateral “at
any price,” which resulted in Bradley selling the collateral at a
The record reflects that on December 18, 2008, the Court
entered an order (Doc. 26) which stated that under the terms of the
parties’ credit agreement, Webster had the right to take possession
of the collateral, foreclose on the collateral, and sell any or all
accomplish the liquidation of the collateral.
At the time of the
Court’s Order, Webster had provided an inventory of collateral to
the Court reporting a $2.8 million shortfall.
allegations only, and thus any allegation that Webster acted
commercially unreasonably with regard to Bradley’s collateral after
Webster took possession is an issue that is preserved for trial.
With regard to the pre-possession allegations, the law is
clear that there is no duty on the part of a lender to act
possession of the collateral.
See Chase Equipment Leasing Inc. V.
Architectural Air, L.L.C., 922 N.Y.S.2d 69, 70 (N.Y. App. Div.
Dept 2011)(no duty to act commercially reasonably under New York
Uniform Commercial Code § 9-207 until the creditor comes into
possession of the collateral as a matter of law); Bank Leumi USA v.
Agati, 5 A.D.3d 292, 293 (N.Y. App. Div. 1 Dept 2004).
expressly allowed Webster to mark inventory that was subject to its
liens following a default (Doc. 1-2, § 12.1).
This constitutes a
second independent justification for Webster’s conduct and thus
cannot form the basis of a commercial reasonableness claim prior to
Webster’s possession of the collateral.
Accordingly, this claim
with regard to the commercial reasonableness of Webster before it
took possession of the loan collateral is dismissed with prejudice.
The Court adopts in its entirety the report and recommendation
of the Magistrate, filed June 17, 2011 (Doc. 233), regarding
Plaintiff’s Motion for Partial Summary Judgment and Dismissal of
Counterclaim and Defenses (Doc. 121).
Motion for Summary Judgment and Dismissal of Counterclaim and
Defenses (Doc. 121) is GRANTED IN PART with regard to summary
judgment of Counts I-IV of the Complaint and DENIED AS MOOT with
regard to dismissal of Defendants’ Counterclaim and Defenses.
prejudice, and Plaintiff shall collect the amount of $2,888,307.72
from Defendants, such amount being due pursuant to the Webster loan
as of September 22, 2008, exclusive of additional interest, fees,
and other expenses.
Plaintiff is also entitled to recover all
attorneys’ fees incurred on behalf of Plaintiff.
The Court declines to adopt the report and recommendation of
Plaintiff’s Motion to Dismiss Defendants’ Amended Counterclaims and
conversion of Plaintiff’s Motion to Dismiss (Doc. 210) into a
Motion for Summary Judgment, the Court finds that Plaintiff’s
Motion (Doc. 210) is GRANTED IN PART AND DENIED IN PART.
counterclaims and defenses set forth by Defendants are dismissed
with prejudice except the claim for commercial unreasonableness,
which is preserved only with regard to actions Webster took after
Webster took possession of Defendants’ collateral.
IT IS SO ORDERED this 29th day of November, 2011.
/s/ Robert T. Dawson
Honorable Robert T. Dawson
United States District Judge
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