HSBC Realty Credit Corporation v. O'Neill

Filing 26

Judge Richard G. Stearns: ORDER entered granting 22 Motion for Judgment on the Pleadings (RGS, law4)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 12-11733-RGS
HSBC REALTY CREDIT CORPORATION (USA)
v.
J. BRIAN O’NEILL

MEMORANDUM AND ORDER ON PLAINTIFF HSBC’S
MOTION FOR JUDGMENT ON THE PLEADINGS
January 30, 2013
STEARNS, D.J.
On September 24, 2012, plaintiff HSBC Realty Credit Corporation (USA)
(“HSBC”) brought this lawsuit against defendant J. Brian O’Neill to recover monies
due under O’Neill’s guaranty of a loan made by HSBC to Brandywine Partners, LLC
(“Brandywine”). Before the court is HSBC’s motion for judgment on the pleadings.
BACKGROUND
The facts, in the light most favorable to O’Neill as the non-moving party, are
as follows. HSBC is a Delaware corporation with its principal place of business in
New York. Compl. ¶ 1. O’Neill is domiciled in the Commonwealth of Pennsylvania.
Id. ¶ 2. On August 20, 2007, HSBC entered into a Project Loan Agreement with
Brandywine, pursuant to which HSBC loaned Brandywine the principal sum of

$15,900,000.00. Id. ¶¶ 6-7. Brandywine’s repayment obligation was memorialized
in a promissory note dated the same day. Compl., Ex. B.
Brandywine took the loan to purchase abandoned industrial property in
Wilmington, Delaware, and redevelop it as residential housing. See Countercl. ¶ 7.
To convert the property to residential use, Brandywine was required to surmount a
number of environmental hurdles and, after reviewing the results of a selfcommissioned safety study, decided that the most efficient course was to demolish
the existing buildings and start from scratch. Id. ¶¶ 19-42. After its own assessment
of Brandywine’s proposal, HSBC valued the Wilmington property at
$26,500,000.00.1 Id. ¶¶ 16, 42. Brandywine agreed to a mortgage on the property as
security, together with the pledge of “all the personal property of [Brandywine].”
Countercl. ¶ 6, Ex. 2 (Schedule A). The Project Loan Agreement further states:
[Brandywine] acknowledges that [HSBC] ha[s] a valid interest in
maintaining the value of the Property so as to ensure that, should
[Brandywine] default in the repayment and performance of the
Obligations under the Project Loan Documents, [HSBC] can recover the
Obligations by a sale of the Property.
Project Loan Agreement § 6.1, Compl., Ex. A, at 58.
As required by the Project Loan Agreement, O’Neill executed a “Guaranty of
The figure is calculated by O’Neill by extrapolating from a provision in the
Project Loan Agreement that requires a Loan-to-Value Ratio of 60 percent. See
Project Loan Agreement, Compl., Ex. A, at 26-27.
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Payment” (“Guaranty”) that is also dated August 20, 2007. Compl. ¶ 9, Countercl.
¶ 9.

The Guaranty states that O’Neill has a “direct or indirect interest in

[Brandywine] and [that O’Neill] will directly benefit” from HSBC’s loan to
Brandywine, and further that HSBC “is not willing to make the Loan . . . unless
[O’Neill] unconditionally guarantees payment and performance . . . .” Guaranty,
Compl., Ex. C, at 1. A provision entitled “Guaranty of Obligation” states that
“[s]ubject to the limitations contained in Section 6.15, [O’Neill] hereby irrevocably,
absolutely and unconditionally guarantees to [HSBC] . . . performance of the
Guaranteed Obligations as and when the same shall be due and payable . . . . [O’Neill]
hereby irrevocably and unconditionally covenants and agrees that [he] is liable for the
Guaranteed Obligations as a primary obligor.”2 Id. § 1.1, at 1. Section 6.15 of the
Guaranty places a cap on O’Neill’s personal liability at $8,100,000. Id. § 6.15, at 16.
To further “induce” HSBC to make the loan, O’Neill “represent[ed] and
warrant[ed]” that he was personally familiar with the value of the property offered as
collateral for the loan, and that the pledge of the collateral was not an inducement to
enter the Guaranty. Id. § 3.2, at 7. O’Neill also represented that HSBC did not make
any “representation, warranty or statement”to induce him to execute the Guaranty.

“Guaranteed Obligations” is defined as the “prompt and unconditional
payment by [Brandywine] of the Loan and interest thereon . . . .” Id. § 1.2, at 2.
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Id. § 3.3, at 7.
The Guaranty additionally includes (as will become pertinent), a section titled
“No Duty to Pursue Others”:
It shall not be necessary for [HSBC] (and [O’Neill] hereby waives any
rights which [O’Neill] may have to require [HSBC]), in order to enforce
the obligations of [O’Neill] hereunder, first to (I) institute suit or exhaust
its remedies against [Brandywine] or others liable on the Loan or the
Guaranteed Obligations or any other person, (ii) enforce [HSBC’s]
rights against any collateral which shall ever have been given to secure
the Loan . . . (v) exhaust any remedies available to [HSBC] against any
collateral which shall ever have been given to secure the Loan, or (vi)
resort to any other means of obtaining payment of the Guaranteed
Obligations. [HSBC] shall [not] be required to mitigate damages or take
any other action to reduce, collect or enforce the Guaranteed
Obligations.
Id. § 1.6, at 3-4. O’Neill also waived “any common law, equitable, statutory or other
rights” he might have with regard to any actions taken with respect to the loan or
collateral that “increases the likelihood [O’Neill] will be required to pay the
Guaranteed Obligations . . . .” Id. § 2.13, at 5, 7. Finally, the Guaranty contains an
integration clause stating that the document is a “final and complete” expression of
the terms of the Guaranty, and that no extrinsic evidence of any nature shall be used
to contradict or modify its terms. Id. § 6.11, at 14.
Brandywine failed to repay the principal of the loan on or before the stipulated
April 20, 2009 due date. On May 15, 2012, HSBC sent a letter to Brandywine and

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O’Neill, demanding payment in full as well as the immediate payment of O’Neill’s
$8,100,000 liability under the Guaranty. Demand Letter #1, Compl., Ex. D. HSBC
sent a second demand letter on August 23, 2012. Demand Letter #2, Compl., Ex. E.
O’Neill did not make good on any portion of his personal Guaranty leading to this
lawsuit. Jurisdiction is asserted in this court under the diversity statute, 28 U.S.C. §
1332, and the forum selection clause of the Guaranty.3
DISCUSSION
Rule 12(c) permits a party to move for judgment on the pleadings at any time
“[a]fter the pleadings are closed,” as long as the motion does not delay the trial. Fed.
R. Civ. P. 12(c). A Rule 12(c) motion differs from a Rule 12(b)(6) motion in that it
implicates the pleadings as a whole. “In the archetypical case, the fate of such a
motion will depend upon whether the pleadings, taken as a whole, reveal any
potential dispute about one or more of the material facts.” Gulf Coast Bank & Trust
Co. v. Reder, 355 F.3d 35, 38 (1st Cir. 2004). “Because [a Rule 12(c)] motion calls
for an assessment of the merits of the case at an embryonic stage, the court must view

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Forum selection clauses, like the one in the Guaranty, are binding on the
parties to a contract. See Rivera v. Centro Medico de Turabo, Inc., 575 F.3d 10, 18
(1st Cir. 2009) (“It is well established that forum selection clauses are prima facie
valid and should be enforced unless enforcement is shown by the resisting party to
be unreasonable under the circumstances.”) (internal quotation marks and citation
omitted).
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the facts contained in the pleadings in the light most favorable to the nonmovant and
draw all reasonable inferences therefrom . . . . ” Perez-Acevedo v. Rivero-Cubano,
520 F.3d 26, 29 (1st Cir. 2009), quoting R.G. Fin. Corp. v. Vergara-Nunez, 446 F.3d
178, 182 (1st Cir. 2006). In doing so, the court “may consider ‘documents the
authenticity of which are not disputed by the parties; . . . documents central to
plaintiffs’ claim; [and] documents sufficiently referred to in the complaint.’” Curran
v. Cousins, 509 F.3d 36, 44 (1st Cir. 2007), quoting Watterson v. Page, 987 F.2d 1,
3 (1st Cir. 1993) (punctuation and alteration in original).
HSBC argues that there are no material facts in dispute and that a judgment
should enter enforcing the express terms of the Guaranty. O’Neill resists by raising
eighteen affirmative defenses and eight counterclaims as bars to the enforcement of
the Guaranty, but does not deny that Brandywine is in default and that he has failed
to repay any part of the money personally owed to HSBC. O’Neill’s affirmative
defenses and counterclaims have a common thread woven around two propositions:
(1) that HSBC must seek to recover any amount owed by Brandywine by proceeding
against the Wilmington property before turning to O’Neill’s personal Guaranty,
because (2) HSBC allegedly represented to him that it would in the first instance seek

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recourse against the collateral property in the event of a default.4
O’Neill’s affirmative defenses are eviscerated by the plain language of the
Guaranty. The contention that HSBC must first seek recourse against the collateral
is flatly contradicted by the “No Duty to Pursue Others” provision of the Guaranty,
which explicitly states that HSBC may enforce its rights against O’Neill without first
seeking to recover the debt from any pledged collateral.

Moreover, O’Neill

“irrevocably, absolutely and unconditionally” guaranteed the performance of the loan,
an undertaking that Massachusetts law will see strictly implemented. See New Bank
of New England v. Baker, 1993 WL 343671, at *2 (D. Mass. Aug. 26, 1993) (“[A]
secured party may proceed against an unconditional guarantor without looking first
to the principal debtor or collateral for satisfaction of the underlying debt.”), citing

O’Neill also contends that HSBC’s demand for payment is barred because it
exerted undue influence in negotiating and executing the loan documents, the
Guaranty is an unconscionable contract of adhesion, and the equitable “doctrine of
marshalling” requires HSBC to first seek recourse against the collateral property.
O’Neill has identified no facts in support of these defenses. Nor could he. The first
two claims are belied by O’Neill’s sophistication in real estate matters and by the
language of the Guaranty itself. The third claim is based on a misunderstanding of
the doctrine of marshalling, which is intended to protect the rights of a junior creditor
against a senior creditor with a broader right of recourse. It is not a doctrine intended
to extend protection to a debtor. See In re Beacon Distribs., Inc., 441 F.2d 547, 548
(1st Cir. 1971) (marshalling may be invoked only where a “first creditor has available
two properties of the same debtor.”) (emphasis added). Moreover, the Brandywine
collateral and the personal funds of O’Neill are not property of the same debtor as the
doctrine would otherwise require.
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Bowen v. Stackhouse, 10 Mass. App. Ct. 859, 859 (1980) (payee not required to look
to mortgages for satisfaction of debt before proceeding against guarantor).
O’Neill’s attempt to hang the first recourse argument on the permissive
language of § 6.1 of the Project Loan Agreement is no more persuasive. As noted,
the Guaranty explicitly states that HSBC need not first foreclose on the collateral
property. “[P]arties are bound by the plain terms of their contract.” Hiller v.
Submarine Signal Co., 325 Mass. 546, 550 (1950). Where these are unambiguous,
“the contract must be enforced according to its terms.” Edmonds v. United States,
642 F.2d 877, 881 (1st Cir. 1981). The Guaranty also contains an integration clause,
which states that the Guaranty is the “final, entire agreement” between HSBC and
O’Neill, and “supersedes any and all prior commitments, agreements, representations,
and understandings, whether written or oral . . . .” As a matter of law, it is the
Guaranty agreement between HSBC and O’Neill – and not the Project Loan
Agreement between HSBC and Brandywine – that gives HSBC the right to recover
from O’Neill. See First Nat’l Bank of Boston v. Ibarra, 47 Mass. App. Ct. 660, 662663 (1999) (“Instruments of guaranty, like other contracts, are enforceable in
accordance with their terms, and the rights of the parties must be ascertained from
the terms of the guaranty instrument.”) (emphasis added), citing Merrimack Valley
Nat’l Bank v. Baird, 372 Mass. 721, 725-726 (1977).
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O’Neill’s eight counterclaims also fail to raise any issue of material fact.5
O’Neill points again to § 6.1 (providing that HSBC “can recover the Obligations by
sale of the [collateral] Property”) and the Loan-to-Value Ratio in the Project Loan
Agreement in sounding the now familiar refrain that HSBC is obligated to move
against the collateral property before turning to him personally for satisfaction of the
debt.6 Because, as discussed above, O’Neill’s obligations are defined by the Guaranty
and not by the Project Loan Agreement (to which he was not a party), his claims for
breach of contract, breach of the covenant of good faith and fair dealing, and breach

The specific counterclaims are for: (1) fraudulent inducement, (2) promissory
estoppel, (3) negligent misrepresentation, (4) violation of Mass. Gen. Laws ch. 93A,
(5) breach of covenant of good faith and fair dealing, (6) breach of duty to mitigate
damages, (7) declaratory and injunctive relief due to hardship of enforcing the
Guaranty without first seeking recourse against the collateral property, and (8) breach
of contract.
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Even if O’Neill could entrench himself in the Project Loan Agreement, it does
not by its express terms requires that HSBC first seek recourse against the collateral
property. Section 6.1 provides that HSBC can sell the collateral, but it does not
require it to do so. Similarly, the Loan-to-Value Ratio was a condition precedent to
HSBC disbursing the loan, it does not bestow any enforceable rights on Brandywine
or O’Neill. Nor can O’Neill credibly claim that HSBC’s internal valuation induced
him to enter the Guaranty. Under §§ 3.2 and 3.3 of the Guaranty, O’Neill warranted
that he was independently familiar with the value of the collateral property, that he
was not relying on the collateral as an inducement to enter the Guaranty, and that
HSBC did not make any representation to induce O’Neill to execute the Guaranty.
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of the duty to mitigate damages are nonstarters from the get-go.7
Next, because HSBC’s alleged inducements and misrepresentations flatly
contradict the express terms of the Guaranty, any reliance by O’Neill on their
purported substance would have been per se unreasonable. See Turner v. Johnson &
Johnson, 809 F.2d 90, 97 (1st Cir. 1986) (rejecting deceit claim where the alleged
representation was flatly inconsistent with a contract provision specifically addressing
the point at issue).

O’Neill’s claims for fraudulent inducement, negligent

misrepresentation, promissory estoppel, and violation of Chapter 93A thus fail as a
matter of law. See Elias Bros. Restaurants, Inc. v. Acorn Enters., Inc., 831 F. Supp.
920, 926 (D. Mass. 1993) (fraud allegations failed to state a claim because alleged
prior representations were directly contrary to terms of agreements and thus
agreements “serve[d] as a bar to any reasonable reliance”); Kuwait Danish Computer
Co. v. Digital Equip. Corp., 438 Mass. 459, 468-469 (2003) (reliance on
representation was unjustifiable as matter of law where it conflicted with the language

O’Neill’s contractually-based defenses and counterclaims are also barred by
the express waiver provisions of the Guaranty. See F.D.I.C. v. Elder Care Servs.,
Inc., 82 F.3d 524, 526 (1st Cir. 1996) (“Massachusetts law does permit a guarantor
to waive defenses, but probably such a waiver could not immunize bad faith or
fraud.”) (citation omitted); United States v. Mallett, 782 F.2d 302, 303 (1st Cir. 1986)
(“The case law is replete with examples of guarantors attempting to traverse [ ]
standard-form guaranty language. The courts, however, have uniformly upheld the
‘waiver-of-defenses’ language.”).
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of the governing document); Zuckerman v. McDonald’s Corp., 35 F. Supp. 2d 135,
147 (D. Mass. 1999) (“Because plaintiff’s common law misrepresentation claims fail,
plaintiffs are unable, as a matter of law, to proceed on their chapter 93A claim.”); see
also Merillat Indus., Inc. v. Johnston, 865 F. Supp. 60, 64 (D. Mass. 1994) (“With
respect to the allegation of fraudulent inducement, courts have held that even it is not
a defense to an absolute and unconditional personal guarantee.”); Sound Techniques,
Inc. v. Hoffman, 50 Mass. App. Ct. 425, 432-433 (2000) (in a commercial transaction,
a merger clause precludes liability for negligent misrepresentation).
Finally, O’Neill alleges that, apart from the language of the Project Loan
Agreement, HSBC “made intentional, false statements of fact” concerning its
intentions regarding the collateral, and that these allegations are sufficient in and of
themselves to defeat the motion for judgment on the pleadings. While O’Neill has
it right that the court, under present circumstances at least, must accept his allegations
of fact as true, O’Neill pleads no such facts. He makes only conclusory assertions
about unidentified statements that unidentified representatives of HSBC are said to
have made. Fed. R. Civ. P. 9(b) requires that “[i]n all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be stated with particularity.”
O’Neill, in other words, had an obligation in raising claims of fraudulent
misrepresentation to “specify[] the false statements and by whom they were made”
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and “set[] forth specific facts that make it reasonable to believe that [counterclaim]
defendant knew that a statement was materially false or misleading.” N. Am. Catholic
Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009)
(citation omitted). Because O’Neill has not satisfied even the outlines of Rule 9(b),
there is no issue of material fact preventing the allowance of HSBC’s motion.
Perhaps in recognition of the weaknesses of his claims, O’Neill asks the court
for leave to replead his counterclaims and affirmative defenses. Fed. R. Civ. P. 15(a)
reflects a liberal amendment policy by counseling courts to “freely give leave when
justice so requires.” See O’Connell v. Hyatt Hotels of P.R., 357 F.3d 152, 154 (1st
Cir. 2004). There is, however, a conspicuous exception when any attempt to amend
would be futile. ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 56 (1st Cir.
2008). “‘Futility’ means that the complaint, as amended, would fail to state a claim
upon which relief could be granted.” Glassman v. Computervision Corp., 90 F.3d
617, 623 (1st Cir. 1996). That is the case here. While it is clear under Massachusetts
law that a party may not contract out of fraud, see Bates v. Southgate, 308 Mass. 170,
182 (1941), it is equally clear that, as discussed above, reliance on representations
that contradict the terms of a written and integrated agreement between parties of
equal standing and sophistication is unreasonable and cannot support a claim for
fraud. See Starr v. Fordham, 420 Mass. 178, 188 (1995) (“[I]f the contract was fully
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negotiated and voluntarily signed, [then] plaintiffs may not raise as fraudulent any
prior oral assertion inconsistent with a contract provision that specifically addressed
the particular point at issue.”), quoting Turner, 809 F.2d at 97. Because O’Neill
cannot plead around the express language of the Guaranty, any repleading would be
futile.
ORDER
For the foregoing reasons, HSBC’s motion for judgment on the pleadings is
ALLOWED. O’Neill’s motion to replead is DENIED. The Clerk will enter Judgment
for HSBC and close the case.
SO ORDERED.
/s/ Richard G. Stearns
_______________________________
UNITED STATES DISTRICT JUDGE

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