PNC Bank National Association v. Orchid Group Investments, L.L.C. et al

Filing 120

ORDER granting 93 Plaintiff PNC Bank, National Association's Renewed Motion for Summary Judgment. a. Plaintiff is awarded damages against Defendants, jointly and severally, in the form of unpaid principal and interest under the 2011 Promissor y Note and the 2011 Commercial Guaranties in the amount of $5,010,266.51 together with prejudgment interest in the amount of $1,865.39 per day from June 11, 2014 through the date of final judgment as well as expenses, court costs, and attor neys' fees to be determined post-judgment. b. Plaintiff shall file a proposed order on entry of final judgment of foreclosure in favor of Plaintiff and against Defendants on or before August 8, 2014. An order to conduct a foreclosure sale of t he real property encumbered by the mortgage, generally referenced as twenty (20) acres in Cape Coral, Florida located on the Northeast corner of Pine Island Road and Corbett Road, is appropriate. Thus, the parties shall file a motion for appointment of master to conduct foreclosure sale on or before August 15, 2014. The Clerk of the Court shall maintain the three (3) promissory notes Plaintiff surrendered to the Court on or about July 25, 2014, with the finance records pending cancellation. De fendants Kristen Flaharty and Patrick Flaharty's Motion to Strike Kurt Knaus Affidavit 102 is DENIED. Plaintiff's Unopposed Renewed Motion for Separate Trial on Defendants Kristen Flaharty and Patrick Flaherty's Crossclaim 96 is D ENIED as moot. Given the parties' statements at the final pretrial conference held before the undersigned on August 1, 2014, the parties shall advise the Court as to the status of Defendants Kristen Flaharty and Patrick Flaherty's cross-cla ims against Defendants Lynne Washburn and John Arnold, Jr. within thirty (30) days from the entry of final judgment. Defendants Kristen Flaharty and Patrick Flaharty's Motion in Limine 110 is DENIED as moot.. Signed by Judge Sheri Polster Chappell on 8/6/2014. (LMF)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION

PNC BANK, NATIONAL ASSOCIATION
successor to RBC BANK (USA),
Plaintiff,
v.

Case No: 2:13-cv-12-FtM-38CM

ORCHID GROUP INVESTMENTS,
L.L.C., a Florida limited liability
company, LYNNE W. WASHBURN,
an individual, KRISTEN FLAHARTY,
an individual, PATRICK FLAHARTY,
an individual, and JOHN P.
ARNOLD, JR., an individual,
Defendants.
/
ORDER1
This matter comes before the Court on Plaintiff PNC Bank, National Association's
Renewed Motion for Final Summary Judgment (Doc. #93) filed on June 12, 2014.
Defendants Orchid Investments, L.L.C., Lynne W. Washburn, and John P. Arnold, Jr. filed
a Response to Plaintiff's Renewed Motion for Final Summary Judgment (Doc. #100) on
June 26, 2014.

Defendants Patrick Flaharty and Kristen Flaherty (the "Flaharty

Defendants") filed an Opposition to Plaintiff's Renewed Motion for Final Summary
Judgment and Motion to Strike Kurt Knaus Affidavit (Doc. #102) on July 3, 2014. Plaintiff

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thereafter filed a Response to the Flaharty Defendants' Motion to Strike Knaus Affidavit
(Doc. #108) on July 17, 2014. Finally, Plaintiff filed an Unopposed Renewed Motion for
Separate Trial on Defendants Kristen Flaharty and Patrick Flaherty's Crossclaim (Doc.
#96) on June 18, 2014. These three matters are thus ripe for review.
BACKGROUND2
I. Factual history
A. Original loan with Community Bank of Naples, N.A.
On June 21, 2005, Community Bank of Naples, N.A. loaned the sum of
$3,965,000.00 to Defendant Orchid Investments, L.L.C. ("Defendant Orchid" or
"Borrower"). (Doc. #105 at ¶ 9). To evidence the loan, Defendant Orchid executed and
delivered a promissory note ("2005 Note") to Community Bank of Naples on June 21,
2005. (Doc. #105 at ¶ 10; Doc. #37-1 at 11-15). Under the 2005 Note, Defendant Orchid
agreed to make consecutive monthly payments of accrued interest starting on July 20,
2005, through June 20, 2007 (the "Maturity Date"). (Doc. #37-1 at 11).
To secure the 2005 Note, Defendant Orchid entered into a Mortgage and Security
Agreement and Assignment of Leases and Rents (the "2005 Mortgage"). (Doc. #105 at
¶ 14; Doc. #37-1 at 19-41). Two tracts of land served as collateral for the 2005 Mortgage.
(Doc. #37-1 at 19-21, 41). Defendant Orchid recorded the 2005 Mortgage in the Official
Records of Lee County, Florida on June 30, 2005. (Doc. #105 at ¶ 14).
On June 21, 2005, Defendants Washburn, Arnold, P. Flaharty, and K. Flaharty
(collectively "Defendant Guarantors") each executed separate guaranties to Community
Bank of Naples, guaranteeing payment of the indebtedness, i.e., principal and interest on

2

For simplicity's sake, the Court adopts the statement of admitted facts from the parties' Amended Joint
Final Pretrial Statement. (Doc. #105).

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the 2005 Note, collection costs and attorney's fees, and payment and performance of all
Defendant Orchid's obligations under the 2005 Note and related loan documents. (Doc.
#37-1 at 43-89).
On June 20, 2007, Defendant Orchid and Community Bank of Naples executed a
Loan Modification Agreement, extending the Maturity Date until August 20, 2007. (Doc.
#37-1 at 17). All other terms and conditions of the 2005 Note remained the same. (Doc.
#37-1 at 17).
On August 20, 2007, Defendant Orchid executed and delivered a Renewal/ReWrite/Reamortalization/Rate Modification of the Note dated August 20, 2007 (the "2007
Renewal Note") in the amount of $3,965,000.00. (Doc. #37-1 at 91-93). The 2007
Renewal Note extended the Maturity Date to August 20, 2008. (Doc. #37-1 at 91).
B. Community Bank of Naples merges with RBC Bank (USA)
On April 10, 2008, Community Bank of Naples merged with RBC Bank (USA).
(Doc. #37-1 at 96). Thereafter, on December 12, 2008, RBC Bank and Defendant Orchid
entered into a "Change In Terms Agreement" to increase the principle amount of the loan
to $3,986,683.02 and extend the Maturity Date to December 11, 2009. (Doc. #37-1 at
99-100). Defendant Guarantors also executed new guarantees to RBC Bank, again
guaranteeing payment of the indebtedness. (Doc. #37-1 at 2-15, 102-05).
On January 26, 2009, RBC Bank and Defendant Orchid entered into a second
"Change in Terms Agreement," decreasing the principal amount of the loan to
$3,980,780.55 and extending the Maturity Date to December 11, 2009. (Doc. #37-2 at
17-19). To secure payment of the 2005 Note, as modified, RBC Bank and Defendant
Orchid entered into a Mortgage Future Advances (the "2009 Mortgage") on January 26,

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2009. (Doc. #37-2 at 21-32). The 2009 Mortgage was recorded on March 4, 2009, in the
Official Records of Lee County, Florida. (Doc. #37-2 at 21-32).
In July 2010, RBC Bank and Defendant Orchid entered into a third "Change In
Terms Agreement," but this time only extending the Maturity Date to August 11, 2010.
(Doc. #37-2 at 34-37). On October 22, 2010, RBC Bank and Defendant Orchid again
extended the Maturity Date to December 31, 2010. (Doc. #37-2 at 39-46).
On January 14, 2011, RBC Bank renewed the loan to Defendant Orchid. (Doc.
#37-2 at 48-50). On that same date, Defendant Orchid executed and delivered to RBC
Bank a Commercial Promissory Note (the "2011 Note") in the amount of $3,730,781.00.
(Doc. #37-2 at 52-55).

The 2011 Note amended, restated, and renewed the 2007

Renewal Note, as modified, and provided for the loan to mature on January 31, 2013.
(Doc. #105 at ¶ 24). Pursuant to the 2011 Note, Defendant Orchid agreed to make
consecutive monthly installments of interest, commencing on March 1, 2011 through
January 31, 2013, at which time all outstanding amounts on the 2011 Note were to be
due. (Doc. #37-2 at 53; Doc. #114 at ¶ 11). In connection with the 2011 Note's closing,
Defendant Orchid paid $250,000.00 to reduce the principal owed on the 2007 Note and
paid $200,000.00 to establish an interest reserve. (Doc. #114 at ¶ 16).
On January 14, 2011, Defendant Orchid also executed and delivered to RBC Bank
an Amended and Restated Mortgage ("2011 Mortgage"), which was recorded on
February 24, 2011, in the Official Records of Lee County, Florida. (Doc. #37-2 at 57-70).
The 2011 Mortgage amended and restated the 2009 Mortgage, and it deleted the property
described in the 2005 Mortgage and replaced it with different real property, namely 20
acres in Cape Coral, Florida located on the Northeast corner of Pine Island Road and

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Corbett Road ("2011 Mortgaged Property"). (Doc. #37 at ¶ 45; Doc. #37-2 at 53, 70).
Moreover, to induce RBC Bank to enter into the 2011 Loan Agreement, Defendant
Guarantors each executed separate Single Loan Guaranty Agreements on January 14,
2011. (Doc. #37-2 at 72-90). Importantly, the 2011 Note, 2011 Loan Agreement, 2011
Mortgage, and Single Loan Guaranty Agreements superseded the prior loan documents.
C. RBC Bank merges with Plaintiff
Effective March 2, 2012, RBC Bank merged with Plaintiff. (Doc. #37-2 at 92-93).
Plaintiff was the surviving entity. (Doc. #114 at ¶ 16). As such, Plaintiff owns and holds
all legal and beneficial interest in the 2011 Note, 2011 Mortgage, the 2011 Guaranties,
and other loan documents. (Doc. #105 at 12-13; Doc. #114 at ¶ 21).
Following the merger, Plaintiff took custody of RBC Bank's books and records,
including those records regarding Defendant Orchid's loan. (Doc. #114 at ¶ 19). RBC
Bank used a computer software system, Commercial Loan System ("CLS"), to maintain
its loan history servicing records. (Doc. #114 at ¶ 17). Sometime after the merger,
Plaintiff converted RBC Bank's records to its own computer system called Advanced
Commercial Banking System ("ACBS"). (Doc. #114 at ¶ 20).
Defendant Orchid defaulted under the terms of the 2011 Note and 2011 Mortgage
by failing to make payment when due on August 1, 2012. (Doc. #114 at ¶ 22). Plaintiff
sent a demand letter to Defendant Orchid and Defendant Guarantors on September 20,
2012, accelerating and demanding immediate payment of all amounts owed under the
2011 Note. (Doc. #37-2 at 95-96). Defendant Orchid failed to cure the default and has
not made payments due and owing under the 2011 Note since July 2012. (Doc. #114 at

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¶ 24). Additionally, Defendant Guarantors have failed to make any payments to Plaintiff
pursuant to the 2011 Guaranties. (Doc. #114 at ¶ 25).
II. Instant action
On January 1, 2013, Plaintiff commenced this action to foreclose on the 2011
Mortgaged Property. (Doc. #1). Plaintiff thereafter filed a Verified Amended Complaint
to Foreclose Mortgage and for Other Relief on July 2, 2013. (Doc. #37). Plaintiff's claims
are mortgage foreclosure against all Defendants (Count I); foreclosure of security interest
in leases and rents against all Defendants (Count II); breach of note against Defendant
Orchid (Count III); and breach of guaranties against Defendants Washburn, Arnold, K.
Flaharty, and P. Flaharty (Counts IV-VII). Defendants timely answered the Verified
Amended Complaint. (Doc. #38, Doc. #39, Doc. #40, Doc. #44).
On August 15, 2013, the Flaharty Defendants brought two cross-claims against
Defendants Washburn and Arnold for contribution. (Doc. #44 at 15-18). The Flaharty
Defendants allege they "have or will have contributed more than their proportionate share
of the obligation incurred by the borrower, [Defendant] Orchid, either by settlement,
judgment or otherwise, with the lender, [Plaintiff] PNC Bank," and Defendants Washburn
and Arnold "should be required to contribute a proportionate share of the money paid by
the Flahartys to [Plaintiff] on the obligation incurred by the borrower, [Defendant] Orchid."
(Doc. #44 at 17-18).
On December 13, 2013, Plaintiff filed a motion for summary judgment (Doc. #59),
which the Court denied on February 13, 2014. (Doc. #78). The Court then held a final
pretrial conference on February 21, 2014. (Doc. #84). Based on its discussion with the
parties, the Court extended discovery, dispositive motions, and pretrial filings, and the

6

trial term. (Doc. #88). The deadline for the additional discovery has now expired, and
Plaintiff has filed the pending Renewed Motion for Summary Judgment. (Doc. #93).
Plaintiff seeks a final judgment of foreclosure against all Defendants and an award of
damages.
DISCUSSION
I. Plaintiff's Renewed Motion for Summary Judgment
A. Standard of review
"The court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and [she] is entitled to judgment as a matter of
law." Fed. R. Civ. P. 56(a). An issue is genuine if there is sufficient evidence such that
a reasonable jury could return a verdict for either party. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). Similarly, an issue of fact is material if it may affect the
outcome of the suit under governing law. Id.
The moving party bears the burden of showing the absence of any genuine issue
of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In deciding
whether the moving party has met this initial burden, courts must review the record and
draw all reasonable inferences from the record in a light most favorable to the non-moving
party. See Whatley v. CNA Ins. Co., 189 F.3d 1310, 1313 (11th Cir. 1999). Once the
court determines the moving party has met this burden, the burden then shifts to the nonmoving party to present specific facts showing a genuine issue of fact exists that
precludes summary judgment. See Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). "The evidence presented cannot consist of conclusory
allegations, legal conclusions or evidence which would be inadmissible at trial." Demyan

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v. Sun Life Assurance Co. of Can., 148 F. Supp. 2d 1316, 1320 (S.D. Fla. 2001) (citing
Avirgan v. Hull, 932 F.2d 1572, 1577 (11th Cir. 1991)). Failure to show sufficient evidence
as to any essential element is fatal to the claim and the court should grant summary
judgment. See Celotex, 477 U.S. at 322-23. Conversely, if reasonable minds could find
a genuine issue of material fact then summary judgment should be denied. See Miranda
v. B & B Cash Grocery Store, Inc., 975 F.2d 1518, 1532 (11th Cir. 1992).
B. Analysis
To prevail on Plaintiff's claim for a judgment of foreclosure and an award of
damages, Plaintiff must establish (1) it holds and is entitled to enforce the 2011 Note and
2011 Guaranties; (2) Defendants are liable to Plaintiff on the 2011 Note and 2011
Guaranties; and (3) the amounts due and owing on the 2011 Note. The parties neither
dispute Plaintiff's enforceability of the 2011 Note and 2011 Guaranties nor Defendants'
liability.3 Accordingly, the Court finds, as a matter of law, Defendants are liable to Plaintiff
on Counts I through VII of the Amended Verified Complaint.4
Turning to damages, it is uncontested the principal balance on the 2011 Note
remains unpaid and interest has accrued from July 1, 2012 to the date of this Order. (Doc.
#109 at 1-2). Defendants, however, argue that Plaintiff cannot establish by admissible

3

Defendants concede (1) the 2011 Note, 2011 Mortgage, and 2011 Guaranties are valid and enforceable;
(2) Plaintiff owns and holds the 2011 Note; (3) Defendant Guarantors signed the 2011 Note and 2011
Guaranties; (3) Defendant Orchid defaulted on its obligations under the 2011 Note and thus breached the
terms of the 2011 Note; (4) Plaintiff is entitled to foreclose the 2011 Mortgage due to Defendant Orchid
breaching the 2011 Note; and (5) Defendant Guarantors breached their obligations under the 2011
Guaranties by failing to make payment of the debt when Defendant Orchid failed to do so. (Doc. #102;
Doc. #105).
4

In Plaintiff's Reply brief, it "waive[d] any claim to late charges and will not seek late charges by summary
judgment or at trial" and requested a post-judgment determination of Plaintiff's entitlement to attorney's fees
and costs. (Doc. #109 at 3-7). Based on Plaintiff's unequivocal affirmations to the Court, no material issues
of fact exist as to these issues to preclude summary judgment.

8

evidence the amounts due on the 2011 Note, and thus Plaintiff is not entitled to an award
of damages on summary judgment. (Doc. #114 at 2).
Plaintiff proffers that Defendants are jointly and severally liable for $5,010,266.51
due on Defendant Orchid's loan. (Doc. #105 at 15). To establish this amount, Plaintiff
attach the Affidavit of Kurt G. Knaus, its senior asset manager and vice president ("Knaus
Affidavit"), to the Renewed Motion for Summary Judgment. (Doc. #93-1). Attached to
the Knaus Affidavit are, among other things, (1) RBC Bank's CLS Formatted Master Note
Print Report dated March 4, 2012 ("RBC Records"), which shows the payment history of
Defendant Orchid's loan while RBC Bank owned the promissory note, and (2) Plaintiff's
ACBS Loan Reamortization File Request Report dated January 10, 2014 ("Plaintiff
Records"), which shows the payment history of Defendant Orchid's loan since Plaintiff
acquired RBC Bank. (Doc. #93-1 at 69-87).
According to the Flaharty Defendants, the Knaus Affidavit fails to meet the
requirements of Rule 56(c)(4) of the Federal Rules of Civil Procedure. Rule 56(c)(4)
provides when affidavits are used to support a summary judgment motion, they "must be
made on personal knowledge, set out facts that would be admissible in evidence, and
show that the affiant or declarant is competent to testify on the matters stated." Fed. R.
Civ. P. 56(c)(4). The Flaharty Defendants aver that the Knaus Affidavit and the attached
records do not meet the admissibility requirements for business records under Federal
Rule of Evidence 803(6) because Knaus lacks the requisite personal knowledge on the

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RBC Records and Plaintiff Records to qualify him as a "custodian or other qualified
witness."5 (Doc. #102 at 7-8).
Hearsay "is a statement, other than one made by the declarant while testifying at
the trial or hearing, offered in evidence to prove the truth of the matter asserted." Fed. R.
Evid. 801(c). Hearsay is inadmissible unless it falls within an enumerated exception. One
such exception is for business records of a regularly conducted activity. See Fed. R.
Evid. 803(6). Rule 803(6) provides, in pertinent part, that
[a] record of an act, event, condition, opinion, or diagnosis [is
admissible] if: (A) the records was made at or near the time
by—or from information transmitted by—someone with
knowledge; (B) the record was kept in the course of a regularly
conducted activity of a business, organization, occupation, or
calling, whether or not for profit; (C) making the record was a
regular practice of that activity; (D) all these conditions are
shown by the testimony of the custodian or another qualified
witness, or by a certification that complies with Rule 902(11)
or (12) or with a statute permitting certification; and (E) neither
the source of information nor the method or circumstances of
preparation indicate a lack of trustworthiness.
Fed. R. Evid. 803(6); see also United States v. Arias-Izquierdo, 449 F.3d 1168, 1183
(11th Cir. 2006) ("The touchstone of admissibility under Rule 803(6) is reliability, and a
trial judge has broad discretion to determine the admissibility of such evidence.").
As indicated by the text above, Rule 803(6) permits the introduction of business
records through a custodian or qualified witness. To be admitted on such grounds, "'the
person who actually prepared the documents need not have testified so long as other
circumstantial evidence and testimony suggest[s] [the documents] trustworthiness.'" Itel
Capital Corp. v. Cups Coal Co., 707 F.2d 1253, 1259 (11th Cir. 1983) (quoting United

5

As an aside, documentary evidence found to be admissible under the business records exception to the
hearsay rule must also be authenticated under Rule 901 of the Federal Rules of Evidence. The Flaharty
Defendants, however, do no object to the authenticity of the Knaus Affidavit and attached records.

10

States v. Parker, 749 F.2d 628, 633 (11th Cir. 1984)). "'It is not essential that the offering
witness be the recorder or even be certain of who recorded the item. It is sufficient that
the witness be able to identify the record as authentic and specify that it was made and
preserved in the regular course of business.'" United States v. Langford, 647 F.3d 1309,
1327 (11th Cir. 2011) (quoting United States v. Atchley, 699 F.2d 1055, 1058 (11th Cir.
1983)).
In this case, the Court finds, for the following reasons, the Knaus Affidavit is based
on personal knowledge from Knaus' review of Plaintiff's business records and it sets forth
a sufficient basis for admitting those records under Federal Rule of Evidence 803(6).
1. RBC Records
Since RBC Bank never employed Knaus and Knaus did not affiliate with RBC
Bank, the Flaharty Defendants argue he lacks the requisite personal knowledge to affirm
the RBC Records meet Rule 803(6)'s admissibility requirements. (Doc. #102 at 7).
Although attractive at first blush, a closer review of this argument reveals it contravenes
clear Eleventh Circuit law.
In United States v. Parker, the Eleventh Circuit stated business records which
qualify under Federal Rule of Evidence 803(6) need not "be prepared by the business
which has custody of them." 749 F.2d 628, 633 (11th Cir. 1984). The court noted, "[t]hat
the witness[es] and [their] compan[ies] had neither prepared the [documents] nor had
first-hand knowledge of the preparation does not contravene Rule 803(6)." Parker, 749
F.2d at 633. Drawing from Parker, the Northern District of Alabama recently held "when
business records pass from a predecessor entity to a successor entity under a merger or
receivership, the successor entity is able to authenticate the business records of its

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predecessor." Phillips v. Mortg. Elec. Registration Sys., Inc., No. 5:09-cv-2507, 2013 WL
1498956, at *2 (N.D. Ala. Apr. 5, 2013). The district court explained
[t]his assessment of FRE 803(6) is based on the practical
consideration that "it would be extremely difficult for a
successor bank to recover debt owed to a failed bank, . . . ,
since the custodian of the failed bank's records may no longer
be able or willing to participate in efforts to recover debts owed
to the bank that went into receivership. Such a standard
would inhibit the FDIC in its receivership role when it must find
solvent banks to take over insolvent banks."
Id. (quoting FirstMerit Bank, N.A. v. Balin, No. 11 C 8809, 2012 WL 4017948, at *4 (N.D.
Ill. Sept. 11, 2012)). As such, the district court denied a motion to strike an affidavit of a
bank representative even though the representative relied on records of predecessor
banks with whom he had "no apparent employment or agency relationship." Id. (citing
U.S. Bank Nat. Ass'n v. Am. Screw & Rivet Corp., No. 09 C 7312, 2010 WL 3172772, at
*3 (N.D. Ill. Aug. 10, 2010) (holding a witness from successor bank could authenticate
records of bank that went into receivership); Krawczyk v. Centurion Capital Corp., No.
06–C–6273, 2009 WL 395458, at *5 (N.D. Ill. 2009) (indicating a bank can rely on its
predecessor's business records and that "[u]ltimately, the primary emphasis of Rule
803(6) is on the reliability or trustworthiness of the records sought to be introduced")).
Under the case authority discussed above, Knaus is qualified to show the RBC
Records meet the admissibility prerequisites under Rule 803(6), even though he was
neither employed by nor affiliated with RBC Bank. See also Certusbank, N.A. v. MLJJ
Props., LLC, No. 3:12-cv-46, 2013 WL 4009658, at *3 (M.D. Ga. Aug. 5, 2013) (finding a
predecessor bank's records of the defendant's loan fell under the business records
exception so that the plaintiff properly relied on these records to establish the amount the
defendants owed under a promissory note). As the Knaus Affidavit reflects, the RBC
12

Records "are regularly and routinely relied upon by [Plaintiff] in its administration of loans
that [Plaintiff] acquired as a result of its merger with RBC when it is necessary to
understand the history of a loan prior to [Plaintiff] PNC's acquisition of RBC." (Doc. #931 at ¶ 36). Simply put, the RBC Records are "[Plaintiff] PNC records now." (Knaus Dep.
112:23-113:1). Since the RBC Records are part of Plaintiff's Records with respect to
Defendant Orchid's loan, Knaus can testify to them based upon his review of those
records. See United States v. Jakobetz, 955 F.2d 786, 801 (2nd Cir. 1992) (stating that
"[e]ven if the document is originally created by another entity, its creator need not testify
when the document has been incorporated into the business records of the testifying
entity").
The authorities the Flaharty Defendants cite in opposition are unpersuasive. A
pertinent example is Glarum v. LaSalle Bank N.A., 83 So.3d 780 (Fla. 4th DCA 2011). In
Glarum, a bank brought a mortgage foreclosure action against a borrower. To prove the
amount due on the mortgage, the bank offered the affidavit of a "specialist" who worked
at an independent loan servicer company. 83 So.3d at 782. The borrower, however,
cited to the specialist's deposition to raise a material issue of fact regarding the amount
due. Id. Specifically, the borrower pointed to the specialist's testimony in which the
specialist stated he determined the amount due from his company's computer system,
although he did not know who entered the data and could not verify the entries were
correct at the time they were made. Id. at 782. He also relied in part on data retrieved
from a prior servicer of the borrower's loan. Id. The appellate court found the specialist's
affidavit to be inadmissible hearsay because he "did not know who, how, or when the data
entries were made into [his loan servicer's] computer system" and "[h]e could not state if

13

the records were made in the regular course of business."

Id.

Glarum is plainly

distinguishable. The affiant in Glarum was employed by an outside company, which is
not the case here. Knaus is Plaintiff's vice president and he directly participated in
Plaintiff's audit of the RBC Bank records. Additionally, the appellate court in Glarum
stated, which the Flaharty Defendants conveniently omit, "[w]e stress that this case
stands alone and its outcome could very well have been different had the affiant's
testimony demonstrated that he knew the simple basics" of Florida's version of the
business records exception to the hearsay rule. 83 So.3d at 783 n.3.
In short, Knaus testified (1) the RBC Records were printed and maintained in
Plaintiff's files; (2) he is "familiar with and ha[s] reviewed servicing history printouts from
various computerized loan systems"; and (3) he is familiar with servicing records from
RBC Bank's system when Plaintiff acquired RBC Bank. (Doc. #93-1 at ¶¶ 29-34, 38).
The Court finds no record evidence, and Defendants do not point to any, that the RBC
Records are untrustworthy. Thus, the Flaharty Defendants' argument as to the Knaus
Affidavit and the RBC Records are wholly without merit.6
Accordingly, based on the Eleventh Circuit's clear precedent, the RBC Records
are business records properly considered under Federal Rule of Evidence 803(6) and
Knaus is a proper witness through which the RBC Records may be introduced for the
Court's consideration on summary judgment.

6

Defendants Orchid, Arnold, and Washburn also oppose summary judgment, in part, on the ground that
"handwritten notes" appear on a RBC Bank record for Defendant Orchid's loan indicate errors in
calculations. (Doc. #100 at 3). The record forming the basis of this argument pertains to a 2008 printout of
a servicing history of Community Bank of Naples. (Doc. #109 at 3 (citing Doc. #92-1 at 171-73)). As Plaintiff
aptly points out, this issue is irrelevant because, when Defendants signed the new loan documents in
January 2011, they agreed to the outstanding principal balance at that time, as is set forth on the face of
the 2011 Note and 2011 Guaranties. (Doc. #93-1 at 27, 49).

14

2. Plaintiff Records
Next, the Flaharty Defendants present a twofold challenge to the validity of Plaintiff
Records. They initially argue the only evidence related to Defendant Orchid's loan from
March 2012 to the present is inadmissible hearsay because the Knaus Affidavit does not
establish who created Plaintiff Records, when they were created, whether Plaintiff kept
them in the course of regularly conducted business activity, or whether it was Plaintiff's
regular practice to create such records. (Doc. #102 at 11-12; Knaus Dep. 95:4-12). The
Court disagrees. Knaus' affirmations are made based on his personal knowledge or his
review of Plaintiff Records, including the promissory notes, mortgage, mortgage
modifications, loan agreements, and guaranty agreements executed by Defendants.
(Doc. #93-1 at ¶ 10). Furthermore, Knaus explains that loan administrators who report to
him post customers' payments and other transactions on ACBS at or about the time
Plaintiff receives those payments. (Doc. #93-1 at ¶¶ 36, 40-41). From there, he testifies
that ACBS automatically tracks account balances, charged interest, and payments
posted, he has access to servicing history reports ACBS creates, and he has the authority
to make corrections to those reports. (Doc. #93-1 at ¶¶ 37-38, 40).

As such, Plaintiff

regularly uses the records maintained in ACBS to manage its commercial loans. (Doc.
#93-1 at ¶ 41). The Knaus Affidavit clearly establishes Knaus' personal knowledge of
how Plaintiff's Records are maintained on a regular basis and his review of Plaintiff's
Records as they pertain to Defendant Orchid's loan, all of which is acceptable for
purposes of Federal Rules of Evidence 803(6).
Next, the Flaharty Defendants claim that genuine questions of material fact exist
regarding the accuracy of the evidence related to Defendant Orchid's loan from March

15

2012 to the present. The Flaharty Defendants rely on Knaus' deposition testimony in
which he states the balances shown on Plaintiff Records as of January 10, 2014 were
incorrect.

(Doc. #102 at 13 (citing Knaus Dep. 102:16-18)).

From the Flaharty

Defendants' isolated perspective, Knaus indicated a different report would need to be run
in order to arrive at the correct amount due and no such report had been run at the time
of his deposition. (Doc. #102 at 13-14 (citing Knaus Dep. 102:19-24)). The Flaharty
Defendants, however, misconstrue Knaus' testimony. At the time of the report dated
January 10, 2014, the interest rate used in ACBS was the contract rate of four percent
(4%), and not the default interest rate of eighteen percent (18%). As Knaus testified in
his deposition, he has a regular practice of calculating by hand the default rate interest
owed after a customer defaults on a loan. (Doc. #92-1 at 102-03).
Accordingly, Plaintiff Records are business records properly considered under
Federal Rule of Evidence 803(6) and Knaus is a proper witness through which those
records may be introduced.
Beyond challenging the admissibility of the Knaus affidavit, Defendants do not
otherwise dispute the unpaid principal and interest due on the 2011 Note and Guaranties.
For instance, Defendants do not argue they made any payments on the 2011 Note that
are not reflected in Plaintiff Records or that Plaintiff misapplied any such payment to the
wrong account. Plaintiff, therefore, is entitled to summary judgment on the issue of
damages.
Accordingly, Defendants are jointly and severally liable to Plaintiff for the following
amounts:

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Principle

$3,730,780.55

Interest

$1,279,485.96

TOTAL

$5,010,266.51

This total amount of $5,010,266.51 is together with prejudgment interest in the amount of
$1,865.39 per day from June 11, 2014 through the date of final judgment as well as
expenses, court costs, and attorneys' fees to be determined post-judgment.
II. Court's Order dated February 13, 2014
The Court takes this opportunity to clarify its Order dated February 13, 2014, (Doc.
#78), denying Plaintiff's first motion for summary judgment. The Court found Plaintiff's
motion premature, as Plaintiff had neither filed the original or subsequent promissory
notes at issue in this case nor provided a certification that it possessed the original
promissory note. (Doc. #78 at 13). In reaching its conclusion, the Court cited to Florida
Statute § 702.015 (2013).

Plaintiff has since challenged the Court's reliance on

§ 702.015. (Doc. #93).
Section 702.015 "applies to cases filed on or after July 1, 2013."

Fla. Stat.

§ 702.015, Note A. Plaintiff commenced this action on January 8, 2013, (Doc. #1), but
filed the Amended Verified Complaint, (Doc. #37), the operative pleading in this case, on
July 2, 2013. Nevertheless, the Court agrees with Plaintiff that § 702.015 does not apply
because this case was commenced before § 702.015 became effective. Also, to the
extent the Court specifically cited to § 702.015(2) in its Order, (Doc. #78), Plaintiff correctly
points out that § 702.015(2) applies to residential mortgage loans, not commercial
mortgage loans as is the case here.

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Furthermore, the Court cited to § 702.015(4), which pertains to promissory notes.
Section 702.015(4) reads
[i]f the plaintiff is in possession of the original promissory note,
the plaintiff must file under penalty of perjury a certification
with the court, contemporaneously with the filing of the
complaint for foreclosure, that the plaintiff is in possession of
the original promissory note. The certification must set forth
the location of the note, the name and title of the individual
giving the certification, the name of the person who personally
verified such possession, and the time and date on which the
possession was verified. Correct copies of the note and all
allonges to the note must be attached to the certification. The
original note and the allonges must be filed with the court
before the entry of any judgment of foreclosure or judgment
on the note.
Fla. Stat. § 702.015(4). Unlike § 702.015(2), which applies to residential mortgages, the
Florida Legislature did not delineate that § 702.015(4) applies only to promissory notes
for residential properties. Additionally, regardless of the effective date of § 702.015, the
requirement that an original promissory note be filed before the court can enter judgment
on the note has long been the law in Florida. See W.H. Downing v. First National Bank
of Lake City, 81 So. 2d 486, 488 (Fla. 1955) (requiring production of only the original
promissory note prior to the entry of a decree of foreclosure).
III.

Unopposed Renewed Motion for Separate Trial on Defendants Kristen
Flaharty and Patrick Flaherty's Crossclaim
On June 18, 2014, Plaintiff filed an Unopposed Renewed Motion for Separate Trial

on Defendants Kristen Flaharty and Patrick Flaherty's Crossclaim (Doc. #96).

As

previously stated, the Flaharty Defendants alleged two cross-claims against Defendants
Washburn and Arnold for contribution. (Doc. #44). At the final pretrial conference/status
conference the undersigned held on August 1, 2014, the Flaharty Defendants conceded
the cross-claims are premature at this time. Defendants Washburn and Arnold did not
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object to the Flaharty Defendants' concession. In addition, the Flaharty Defendants
noted, and the Court agrees, the contribution cross-claims are better left for the
appropriate Florida state court to resolve, as the cross-claimants and cross-defendants
are non-diverse parties.
Accordingly, it is now
ORDERED:
(1) Plaintiff PNC Bank, National Association's Renewed Motion for Summary
Judgment (Doc. #93) is GRANTED.
a. Plaintiff is awarded damages against Defendants, jointly and severally,
in the form of unpaid principal and interest under the 2011 Promissory
Note and the 2011 Commercial Guaranties in the amount of
$5,010,266.51 together with prejudgment interest in the amount of
$1,865.39 per day from June 11, 2014 through the date of final judgment
as well as expenses, court costs, and attorneys' fees to be determined
post-judgment.
b. Plaintiff shall file a proposed order on entry of final judgment of
foreclosure in favor of Plaintiff and against Defendants on or before
August 8, 2014.
(2) An order to conduct a foreclosure sale of the real property encumbered by the
mortgage, generally referenced as twenty (20) acres in Cape Coral, Florida
located on the Northeast corner of Pine Island Road and Corbett Road, is
appropriate. Thus, the parties shall file a motion for appointment of master to
conduct foreclosure sale on or before August 15, 2014.

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(3) The Clerk of the Court shall maintain the three (3) promissory notes Plaintiff
surrendered to the Court on or about July 25, 2014, with the finance records
pending cancellation.
(4) Defendants Kristen Flaharty and Patrick Flaharty's Motion to Strike Kurt Knaus
Affidavit (Doc. #102) is DENIED.
(5) Plaintiff's Unopposed Renewed Motion for Separate Trial on Defendants
Kristen Flaharty and Patrick Flaherty's Crossclaim (Doc. #96) is DENIED as
moot.
(6) Given the parties' statements at the final pretrial conference held before the
undersigned on August 1, 2014, the parties shall advise the Court as to the
status of Defendants Kristen Flaharty and Patrick Flaherty's cross-claims
against Defendants Lynne Washburn and John Arnold, Jr. within thirty (30)
days from the entry of final judgment.
(7) Defendants Kristen Flaharty and Patrick Flaharty's Motion in Limine (Doc.
#110) is DENIED as moot.
DONE and ORDERED in Fort Myers, Florida this 6th day of August, 2014.

Copies: All Parties of Record

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