WESTMORELAND OPPORTUNITY FUND, LLC v. ZAPPALA et al
Filing
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MEMORANDUM OPINION indicating that, for the reasons more fully stated within, Plaintiff's Motion for Summary 37 will be granted in part and denied in part. Plaintiff's Motion will be granted with respect to the scope of the Defendants 39; liability for alleged Section 22(b) violations of the Mortgage. The Motion will be denied, without prejudice, with respect to whether Defendants' liability has, in fact, been triggered. Defendants' Motion for Summary Judgment 41 will be denied. An appropriate Order follows. Signed by Judge Nora Barry Fischer on 7/11/14. (rlh)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
WESTMORELAND OPPORTUNITY
FUND, L.L.C.,
Plaintiff,
v.
RICHARD A. ZAPPALA,
FRANK J. ZAPPALA, and
RONALD A. ROSENFELD,
Defendants.
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Civil Action No. 2:13-cv-456
Judge Nora Barry Fischer
MEMORANDUM OPINION
NORA BARRY FISCHER, District Judge.
I. Introduction
At issue on cross-motions for summary judgment is the scope of Richard A. Zappala,
Frank J. Zappala, and Ronald A. Rosenfeld’s (“Defendants”) personal liability resulting from
their execution of a “Principals’ Indemnification Agreement” in connection with a real estate
transaction in May 2005 in Pittsburgh, Pennsylvania. Westmoreland Opportunity Fund, L.L.C.,
(“Plaintiff”), filed suit on March 27, 2013 asserting breach of contract claims against Defendants
under the law of the Commonwealth of Pennsylvania and seeks greater than $75,000.00 in
damages. (ECF No. 19). This Court exercises subject-matter jurisdiction over Plaintiff’s claims
pursuant to 28 U.S.C. § 1332 (diversity).
II. Factual and Procedural Background1
Plaintiff is a Pennsylvania corporation located in Monroeville, Pennsylvania. (ECF No.
19 at ¶ 1, ECF No. 39 at ¶ 1). Defendants Richard A. Zappala and Frank J. Zappala are residents
of Florida, and Defendant Ronald A. Rosenfeld is a resident of Virginia. (ECF No. 19 at ¶¶ 2-4,
1
The facts recited herein are derived from the pleadings and record taken as a whole and are essentially undisputed.
1
ECF No. 39 at ¶ 2). Defendants are or were the principals of a Pennsylvania limited partnership
doing business as FRA Associates, L.P. (“Borrower”), with a registered address in Pittsburgh,
Pennsylvania. (ECF No. 19 at ¶ 3, ECF No. 39 at ¶ 3).
In May 2005, Borrower purchased real property located in Penn Hills, Pennsylvania by
executing an “Open-End Mortgage Note” (ECF No. 40 at pp. 46-61), “Open-End Mortgage and
Security Agreement” (ECF No. 40 at pp. 62-109), “Principals’ Indemnification Agreement”
(“PIA”) (ECF No. 40 at pp. 110-126), and “Environmental and Accessibility Indemnity
Agreement” (ECF No. 19-4) (collectively, “Loan Documents”), with Nationwide Life Insurance
Company (“Lender”) in the original principal sum of $4,200,000.00. (ECF No. 19 at ¶ 10).
Through a series of assignments, Plaintiff ultimately became the holder of the Loan Documents,
and the rights and obligations contained therein, on December 11, 2012. (ECF No. 19 at ¶¶ 1423).
Under the terms of the Loan Documents, Borrower was required to pay 119 consecutive
monthly installments of $24,536.75, beginning on July 1, 2005 and ending on June 1, 2015.
(ECF No. 19 at ¶ 25, ECF No. 39 at ¶ 17). Borrower failed to make payments beyond July 2011,
and was in monetary default as a result. (ECF No. 19 at ¶ 26, ECF No. 39 at ¶ 19). Complaints
were subsequently filed against Borrower in the Pennsylvania state court in January and
February 2013, seeking Confession of Judgment and Foreclosure. (ECF No. 19 at ¶¶ 27-29, ECF
No. 39 at ¶¶ 22-24). These Complaints resulted in a Judgment in Mortgage Foreclosure being
entered on April 3, 2013, and a Writ of Execution in Mortgage Foreclosure against the property
was issued on June 27, 2013. (ECF No. 27 at ¶ 28, ECF No. 39 at ¶¶ 25-26).
Thereafter, the subject property was sold to Plaintiff by the Allegheny County Sheriff at a
public judicial sale conducted on October 7, 2013. (ECF No. 27 at ¶ 28). Plaintiff in turn sold
2
the property to an unrelated third party for $1,800,000.00 on December 2, 2013. (ECF No. 39 at
¶ 28, ECF No. 40 at p. 178, Wolper Aff. at ¶ 9). On January 24, 2014, Plaintiff filed a Petition to
Fix Fair Market Value under 42 Pa.C.S. § 8103(a) in the state court action, requesting that the
Court of Common Pleas set the fair market value of the property at $1,800,000.00. (ECF No. 40
at pp. 203-212).
While pursuing its remedies against the Borrower in state court, Plaintiff filed a
Complaint (ECF No. 1) against Defendants in this Court on March 27, 2013, which was
subsequently amended on August 5, 2013. (ECF No. 19). In Counts I through III of its First
Amended Complaint, Plaintiff sought to hold Defendants personally liable for the Borrower’s
breach of certain covenants contained in the Loan Documents as a result of their execution of the
PIA and the Environmental and Accessibility Indemnity Agreement. (ECF No. 19). Defendants
subsequently filed a Motion to Dismiss, arguing that the language contained within all of the
Loan Documents was incompatible with the finding of a guaranty, that the debt was nonrecourse, and that the environmental indemnification liability had not been triggered by the facts
pled by Plaintiff. (ECF No. 21 at pp. 4-12).
In a Memorandum Opinion dated October 28, 2013, this Court found that certain
provisions of the PIA constituted the plausible creation of at least a partial guaranty relationship
between Defendants and Plaintiff under Pennsylvania law (Count I). (ECF No. 24 at p. 6).
However, the Court also found that Plaintiff had not adequately pled enough facts necessary to
sustain its claims under the PIA and the Environmental and Accessibility Indemnity Agreement
(Count II). Id. at pp. 11-13. Finally, the Court concluded that Plaintiff’s First Amended
Complaint was sufficiently pled with respect to its claim for attorneys’ fees pursuant to the PIA
3
(Count III). Id. at pp. 13-14. Accordingly, Defendants’ Motion to Dismiss was granted in part
and denied in part, with Count II being dismissed without prejudice. Id. at p. 15.2
Thereafter, the Court entered a Case Management Order directing the parties to file crossmotions for summary judgment with respect to Count I of the First Amended Complaint (ECF
No. 33), and cross-motions for summary judgment followed (ECF Nos. 37, 41). The Court held
oral argument on April 11, 2014.3 Having considered the Motions, supporting Briefs, the factual
record before the Court and the parties’ arguments, and for the reasons set forth below,
Plaintiff’s Motion for Summary Judgment (ECF No. 37) will be granted in part and denied in
part, and Defendant’s Motion for Summary Judgment (ECF No. 41) will be denied.
III. 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 the movant is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(a). Pursuant to Rule 56, the Court must enter summary judgment against the
party “who fails to make a showing sufficient to establish the existence of an element essential to
that party’s case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v.
2
The Court allowed Plaintiff the opportunity to amend Count II no later than November 12, 2013; however, no
Second Amended Complaint was filed. (ECF No. 25 at p. 1).
3
Prior to oral argument, the Court granted Plaintiff’s Motion to Strike the Unsworn Declarations of Bartoszewicz,
Hardiman, Sitko, and Contrella (ECF No. 55) in support of the Defendants’ alternative theory that the Loan
Documents contained ambiguities. (ECF No. 70). The Court held that in the event it determined the disputed
contracts were ambiguous, the Court would allow the parties to complete discovery prior to analyzing such
evidence. Id. at pp. 1-2. The Court further granted in part the Defendants’ Motion to Strike Plaintiff’s Reply Brief
(ECF No. 59), and denied without prejudice Plaintiff’s Motion for Leave to File a Second Amended Complaint
(ECF No. 66). The Court explained that it would not consider a newly raised legal theory argued by Plaintiff for the
first time in its Reply Brief which was not included in the First Amended Complaint and upon which the Court
permitted the expedited summary judgment order to be entered in the first instance. Id. at p. 2. The parties were
advised by the Court that the scheduled oral argument was confined to the straightforward legal issues of contract
interpretation which were discussed at the initial case management conference and they were to demonstrate to the
Court that the contractual agreements were unambigious and there were no genuine issues of material fact. Id.
Finally, the parties were advised that to the extent they believed it was necessary to move beyond the scope of the
Case Management Order in order to effectively represent their respective clients, they were to inform the Court
immediately and the Court would deny the current pending motions for summary judgment without prejudice and
allow the parties to refile after they completed fact and expert discovery. Id. No notification was received by the
Court and oral argument proceeded as previously scheduled.
4
Catrett, 477 U.S. 317, 322, 106 S.C.t 2548, 91 L.Ed.2d 265 (1986). A motion for summary
judgment will only be denied when there is a genuine issue of material fact, i.e., if the evidence
is such that a reasonable jury could return a verdict for the non-moving party. McGreevy v.
Stroup, 413 F.3d 359, 363 (3d Cir. 2005). The mere existence of some disputed facts is
insufficient to defeat a motion for summary judgment. Anderson v. Liberty Lobby, 477 U.S. 242,
247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). As to materiality, “only disputes over facts that
might affect the outcome of the suit under the governing law will properly preclude the entry of
summary judgment.” Anderson, 477 U.S. at 248.
In determining whether the dispute is genuine, the court’s function is not to weigh the
evidence, to determine the truth of the matter, or to evaluate credibility. The court is only to
determine whether the evidence of record is such that a reasonable jury could return a verdict for
the non-moving party. McGreevy, 413 F.3d at 363; Simpson v. Kay Jewelers, 142 F.3d 639, 643
n.3 (3d Cir. 1998) (quoting Fuentes v. Perski, 32 F.3d 759, 762 n.1 (3d Cir. 1994)). In
evaluating the evidence, the court must interpret the facts in the light most favorable to the nonmoving party, and draw all reasonable inferences in its favor. Watson v. Abington Twp., 478
F.3d 144, 147 (3d Cir. 2007).
IV. Discussion
Defendants do not dispute the allegations concerning Borrower’s breach of its contractual
duties to make payments on the loan, and have admitted that Borrower monetarily defaulted and
did not contest the foreclosure proceedings against the property. (ECF No. 21 at pp. 11-12). In
addition to its monetary default, however, Plaintiff contends that Borrower also committed
incurable default as a result of its breach of Section 22 of the Mortgage, specifically, Section
22(b)(vii), the one percent covenant, and Section 22(b)(xix), the inadequate capital covenant.
5
(ECF No. 19 at ¶ 50). Section 22(b)(vii) of the Mortgage provides that Borrower’s “outstanding
principal balance of [non-Loan] debt shall not exceed at any one time 1% of the outstanding
Loan[.]” (ECF No. 40 at p. 83). Section 22(b)(xix) requires the Borrower “to maintain adequate
capital for the normal obligations reasonably foreseeable in a business of its size and character
and in light of its contemplated business operations (except for principal and interest due under
the Note which shall be paid from the cash flow generated by the Property).” Id. at p. 84.
Plaintiff argues that, as a result of the Borrower’s incurable default of these covenants,
Defendants became liable for payment of the full value of the Note in accordance with the PIA.
(ECF No. 19 at ¶¶ 35-55).
As an initial matter, the Court revisits its previous ruling with respect to Defendants’
Motion to Dismiss, wherein the Court specifically rejected Defendants’ argument that their
alleged liability under Section 22 of the Mortgage was only as indemnitors, and not guarantors.
(ECF No. 24 at pp. 8-9). In this regard, the Court held:
… Presently, the plain language of the “Principals’ Indemnification Agreement”
provides that upon violation of Section 22 of the Mortgage by Borrower,
Defendants – having signed an independent agreement with the Lender –
automatically become fully liable for payment of the Note. See Hastings, 106 A.
at 310 (the guarantee to pay a note is a guaranty). In this Court’s opinion, this
language is sufficient to constitute at least a guaranty, with the only condition
being that a third party (Borrower) violate a condition of a separate agreement
(i.e., the Mortgage) in order to create potential liability.
(ECF No. 24 at p. 9). At that time, the Court concluded that Plaintiff had pled sufficient facts
stating a plausible claim that Defendants were guarantors of the Note with respect to the alleged
breach of Section 22 of the Mortgage by Borrower (Count I). Id. at p. 10.
Defendants acknowledge that the “plain language” in the PIA “can be read to make the
Defendants guarantors of the Note[,]” but argue that “other plain language in the PIA can just as
well be read to provide that does not occur” where the Defendants’ liability is predicated upon a
6
violation of Section 22(b) of the Mortgage. (ECF No. 50 at p. 2). Section 1 of the PIA speaks to
the Defendants’ liability, and provides, in relevant part:
1. Guarantees and Indemnities. Notwithstanding any provision in the
Note, the Mortgage or any other instrument evidencing or securing the Loan (the
Note, the Mortgage and such other instruments being collectively referred to as
the “Loan Documents”) limiting or negating Borrower’s personal liability, the
Indemnitors hereby jointly and severally, unconditionally and absolutely (a)
indemnify and … (b) guaranty to Lender payment and performance of each of the
same (hereinafter collectively referred to as the “Guaranteed Obligations”):
…
(m) the failure to comply or breach or default under the single purpose
entity provisions as set forth in Section 22(b) of the Mortgage.
Notwithstanding anything herein to the contrary, in the event that Lender
seeks remedies or enforces its rights hereunder or under any other Loan
Document for any sums due under subsections (a) through (m) above, such action
shall not cause the Loan to become fully recourse, but merely shall make
Borrower and the Indemnitors liable for amounts due, costs, losses, damages,
losses in value or claims as provided in such subsections (a) through (m) above.
The obligations in subsections (a) through (m), except as specifically provided in
subsections (k) and (l), shall survive the repayment and satisfaction of the Note.
Lender’s rights under this Agreement are in addition to all rights of Lender under
the Mortgage and the Loan Documents, and payments by the Indemnitors under
this Agreement shall not reduce the obligations and liabilities of Borrower under
the Note, the Mortgage or the other Loan Documents; provided, however, this
shall not be construed to permit Lender to collect from Borrower for the same
obligations or liabilities for which Lender has already received payment from the
Indemnitors.
Notwithstanding anything to the contrary contained herein, in the Note or
in the other Loan Documents, the Indemnitors shall be personally, fully and
completely liable for the payment of the Note (including all principal, interest and
other charges) and performance under the Loan Documents in the event (a)
Borrower violates the covenant governing the placing of subordinate financing on
the Property as set forth in the Mortgage; (b) Borrower violates the covenant
restricting transfers of interests in the Property or transfers of general partnership
interests in Borrower as set forth in the Mortgage; or (c) Borrower or its general
partner violate the provisions of Section 22 of the Mortgage or there is filed
against Borrower or the Indemnitors a petition in bankruptcy or for the
appointment of a receiver, or there commences under any bankruptcy or
insolvency law, proceedings for Borrower’s or Indemnitors’ relief, or for the
compromise, extension, arrangement or adjustment of Borrower’s or Indemnitors’
obligations is [sic] not dismissed within ninety (90) days after the filing of same.
7
(ECF No. 40 at pp. 110, 113).
The dispute centers on the parties’ competing interpretations of paragraphs two and three.
Defendants argue that the second paragraph is the operative remedy for the Section 22(b)
violations alleged here; therefore, Plaintiff’s exclusive remedy is indemnification for losses, and
not guaranty liability for the Note. In other words, Defendants argue paragraph two trumps
paragraph three. Plaintiff, on the other hand, contends that paragraphs two and three provide for
cumulative and complimentary remedies for alleged violations of Section 22(b) of the Mortgage.
Both parties rely on basic principles of contract construction in support of their respective
positions. Accordingly, the Court begins our analysis with a discussion of these guiding legal
principles.
Under Pennsylvania law, guaranty contracts are subject to the same rules of interpretation
as other contracts. Eastern Elec. Corp. of New Jersey v. Shoemaker Const. Co., 652 F. Supp. 2d
599, 605 (E.D.Pa. 2009); Paul Revere Protective Life Ins. Co. v. Weis, 535 F. Supp. 379, 386
(E.D.Pa. 1981), aff’d without opinion, 707 F.2d 1403 (3d Cir. 1982).4 Pennsylvania rules of
contract interpretation require this Court to “ascertain and give effect to the intent of the
contracting parties.” Murphy v. Duquesne University, 777 A.2d 418, 429 (Pa. 2001). Such
intent is to be determined from reading the entire agreement as a whole and “[c]ourts do not
assume that a contract’s language was chosen carelessly, nor do they assume that the parties
were ignorant of the meaning of the language they employed.” Murphy, 777 A.2d at 429
(citations omitted). One part of a contract cannot be interpreted so as to annul another part, and a
contract must be construed, if possible, to give effect to all of its terms. Capek v. Devito, 767
A.2d 1047, 1050 (Pa. 2001); Cerceo v. DeMarco, 137 A.2d 296, 298 (Pa. 1958); Flatley v.
4
The parties have agreed that the PIA shall be interpreted under the laws of the Commonwealth of Pennsylvania.
See (ECF No. 40 at p. 119 § 21).
8
Penman, 632 A.2d 1342, 1344 (Pa. Super. 1993), appeal denied, 641 A.2d 586 (Pa. 1994);
Second Federal Sav. and Loan Ass’n. v. Brennan, 598 A.2d 997, 1000 (Pa. Super. 1991).
Clauses that seem in conflict must be construed, where possible, as consistent with one another.
Flatley, 632 A.2d at 1344 (“Clauses in a contract should not be read as independent agreements
thrown together without any consideration of their combined effect.”).
“When a writing is clear and unequivocal, its meaning must be determined by its contents
alone.” Murphy, 777 A.2d at 429 (internal quotation omitted). If the terms of a contract are
unambiguous, the plain meaning of the terms of the agreement will be enforced. Id. To this end,
Pennsylvania courts generally enforce the unambiguous terms of agreements between
sophisticated parties that are freely negotiated at arm’s length in order to allow the parties to such
agreements the benefits of their bargains. See McMullen v. Kutz, 985 A.2d 769, 778 (Pa. 2009)
(“freely negotiated agreements entered into at arm’s length are generally enforced according to
their terms to allow parties the benefit of their bargains.”); see also John B. Conomos, Inc. v.
Sun, Inc., 831 A.2d 696, 708 (Pa. Super. Ct. 2003) (“courts should not [generally] set aside terms
on which sophisticated parties agreed.”).
If the terms of a contract are ambiguous, extrinsic and parole evidence is admissible to
interpret the ambiguous portions of the contract. Murphy, 777 A.2d at 429. However, a contract
is not ambiguous merely because the parties disagree on its construction. Bohler-Uddeholm
America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 93 (3d Cir. 2001) (citing Samuel Rappaport
Family Partnership v. Meridian Bank, 657 A.2d 17, 21-22 (Pa. Super. 1995); see also County of
Mercer v. Unilect Corp., 612 F. Supp. 2d 638, 649 (W.D.Pa. 2009) (“Different interpretations by
the parties does not necessarily render the contract ambiguous.”), aff’d, 381 F. App’x 156 (3d
Cir. 2010). “A contract contains an ambiguity if it is reasonably susceptible of different
9
constructions and capable of being understood in more than one sense. This question, however,
is not resolved in a vacuum. Instead, contractual terms are ambiguous if they are subject to more
than one reasonable interpretation when applied to a particular set of facts.” Murphy, 777 A.2d
at 429. “The ‘reasonably’ qualifier is important: there is no ambiguity if one of the two proffered
meanings is unreasonable.” Trizechahn Gateway, LLC v. Titus, 976 A.2d 474, 483 (Pa. 2009)
(citing Murphy, 777 A.2d at 430).
Having fully considered the parties’ arguments and applying the standards discussed
above, the Court finds that the language of the PIA is not ambiguous and the two paragraphs are
not inconsistent. The only reasonable interpretation of the PIA is that the parties did not, as
Defendants contend, intend to limit Defendants’ liability for alleged Section 22(b) violations as
non-recourse only. First, we observe that the PIA does not contain any language which
expressly limits the Defendants to indemnification liability for an alleged violation of Section
22(b) of the Mortgage. Paragraph two simply states that “in the event” the Lender seeks
remedies or enforces its rights for “sums due,” the Loan shall not become fully recourse and the
Defendants’ obligation is to indemnify the Plaintiff. (ECF No. 40 at p. 113) (emphasis added).
Moreover, paragraph two specifically provides that the Lender’s rights under the agreement “are
in addition to all rights of Lender under the Mortgage and the Loan Documents.” Id. at p. 113
(emphasis added). Paragraph three provides that Defendants are “fully and completely liable” if
the Borrower violates the provisions of Section 22 of the Mortgage. Id. There is no language
suggesting that the two remedies are mutually exclusive, and interpreting them as cumulative
gives effect to both paragraphs. Capek, 767 A.2d at 1050.
Furthermore, as Plaintiff points out, the two violations alleged in this case, namely the
one percent covenant and the inadequate capital covenant, are not expense covenants for which
10
“sums” or expenses are due per se, but rather, are financial covenants. If the Court were to adopt
the Defendants’ reading of the PIA, it would foreclose the possibility of full recourse liability for
any Section 22(b) violation of the Mortgage, and would require the Court to construe paragraph
three as providing for full recourse liability only for a Section 22(a) violation. This is not,
however, what the PIA states, and “[t]he law will not imply a different contract than that which
the parties have expressly adopted.” Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 388 (Pa.
1986). The PIA was developed after negotiations among sophisticated business entities and
individuals represented by experienced, knowledgeable counsel. As such, these sophisticated
entities and individuals can be assumed to have chosen their contract language carefully,
Murphy, 777 A.2d at 429, and they were free to contract as they deemed appropriate. In this
vain, Defendants were free to structure their potential liability in any way they chose, and if they
had wanted to limit their liability as they now suggest, they could have expressly done so.
The Court’s conclusion is further bolstered when paragraphs two and three are considered
in relation to other provisions in the PIA. The first page of the PIA states that the Lender was
unwilling to make the Loan to the Borrower unless the Defendants agreed to provide a guaranty,
and Defendants agreed to provide the guaranty in order to induce the Lender to make the Loan.
(ECF No. 40 at p. 110). Section 2 of the PIA states that the guaranty is absolute and
unconditional, and is a guaranty of payment, not collection. (ECF No. 40 at p. 113). In addition,
Section 22 provides:
22. Personal Liability. Indemnitors hereby acknowledge and agree that
notwithstanding any other provision of this Agreement, the Note, the Mortgage or
any of the other Loan Documents to the contrary, the obligations of Indemnitors
under this Agreement shall, except as otherwise expressly set forth in this
Agreement, be unlimited and unconditional personal obligations, and that Lender
would not enter into the Loan but for the personal liability undertaken by
Indemnitors under this Agreement.
11
(ECF No. 40 at p. 120). It is apparent that the parties’ intent was to provide full recourse liability
for payment of the Note.
In support of their interpretation that the second paragraph is the Plaintiff’s exclusive
remedy for alleged Section 22(b) violations, Defendants rely primarily on the rule of contract
construction set forth in A. G. Cullen Construction, Inc. v. State System of Higher Ed., 898 A.2d
1145 (Pa. Commw. Ct. 2006), namely, that “where specific or exact terms seem to conflict with
broader or more general terms, the former is more likely to express the meaning of the parties
with respect to the situation than the general language.” Id. (quoting PBS Coal, Inc. v. Hardhat
Mining, Inc., 632 A.2d 903, 906 (Pa. Super. 1993)). The Court has concluded, however, that
paragraphs two and three are not in conflict, and accordingly, there is no need to resort to this
particular rule of construction. See Musko v. Musko, 697 A.2d 255, 256 (Pa. 1997) (holding that
rule has no application when “[t]here is no apparent conflict between specific and general terms
which would justify its use.”).
This rule of construction is inapplicable for the additional reason that the PIA does not
stand alone; rather, it is one component of a multi-document transaction. Where multiple
documents memorialize a single transaction, those documents are read together to ascertain the
parties’ true intent. Dollar Bank v. Swartz, 657 A.2d 1242, 1244 (Pa. 1995) (mortgage, guaranty,
and suretyship agreement interpreted together); Housing Mortgage Corp. v. Allied Construction,
Inc., 97 A.2d 802, 805 (Pa. 1953) (purchase money mortgage, deed, advance-money mortgages,
and construction loan agreements interpreted together); Howard Industries, Inc. v. Allegheny
Ludlum Corp., 2010 WL 2933959 at *5 n.3 (W.D.Pa. 2010) (“It is a general rule of contract law
that where two writings are executed at the same time and are intertwined by the same subject
matter, they should be construed together and interpreted as a whole, each one contributing to the
12
ascertainment of the true intent of the parties.”). This is true even if the documents were not
executed by the same parties. Housing Mortgage, 97 A.2d at 805 (interpreting documents
together, “even though not made by the same parties, they were part and parcel of the same
transaction.”); Conshohocken Fed. Savings and Loan Assoc. v. Period and Country Homes, Inc.,
430 A.2d 1173. 1179 (Pa. Super. 1981) (“The three agreements entered into … all dealt with the
same subject matter and should be interpreted together even though they were not made by the
same parties.”).
With these principles in mind, the Court notes that the language of the Note and
Mortgage include parallel provisions that inform on the scope of liability. For example, the Note
initially provides for non-recourse liability of the Borrower for the payment of principal and
interest, but then provides that:
… Notwithstanding the foregoing, nothing herein contained shall be deemed to be
a release or impairment of the Loan evidenced by this Note or the security
therefor intended by the other Loan Documents, or be deemed to preclude Lender
from exercising its rights to foreclose the Mortgage or to enforce any of its other
rights or remedies under the Loan Documents, including but not limited to that
certain Principals’ Indemnification Agreement of even date herewith from
Richard A. Zappala, Frank J. Zappala, Jr., and Ronald A. Rosenfeld (collectively
referred to herein as the “Principals”) to Lender[.]
Notwithstanding the foregoing, it is expressly understood and agreed that
the aforesaid limitation on liability shall in no way effect or apply to the continued
personal liability of Borrower or the Principals for all sums due to:
…
(m) the failure to comply or breach or default under the single purpose
entity provisions as set forth in Section 22(b) of the Mortgage.
Notwithstanding anything herein to the contrary, in the event that Lender
seeks remedies or enforces its rights hereunder or under any other Loan
Document for any sums due under subsections (a) through (m) above, such action
shall not cause the Loan to become fully recourse, but merely shall make
Borrower and the Principals liable for amounts due, costs, losses, damages, losses
in value or claims as provided in such subsections (a) through (m) above. The
obligations of Borrower in subsections (a) through (m) above, except as
13
specifically provided in subsections (k) and (l), shall survive the repayment of the
Loan evidenced by this Note, and satisfaction of the Mortgage.
10. Full Recourse. Notwithstanding any provisions in this Note to the
contrary, including without limitation the provisions set forth in the section
captioned “Exculpation” hereinabove, Borrower shall be personally liable, jointly
and severally whether one or more, for the entire indebtedness evidenced by this
Note (including all principal, interest and other charges) in the event (a) Borrower
violates the covenant governing the placing of subordinate financing on the
Property as set forth in the Mortgage; (b) Borrower violates the covenant
restricting transfers of interest in the Property or transfers of general partnership
interests in Borrower as set forth in the Mortgage; or (c) Borrower or its general
partner violate the provisions of Section 22 of the Mortgage or there is filed
against Borrower or any guarantor or indemnitor of the Loan, a petition in
bankruptcy or for the appointment of a receiver, or there commences under any
bankruptcy or insolvency law, proceedings for Borrower’s relief, or for the
compromise, extension, arrangement or adjustment of Borrower’s obligations
which is not dismissed within ninety (90) days after the filing of same.
(ECF No. 40 at p. 54-55 § 9, p. 57-58 § 10). Substantially similar provisions are also included
in the Mortgage. (ECF No. 40 at pp. 100-103, §§ 47 and 48).
In addition to these parallel provisions, the Mortgage specifically incorporates the PIA in
the Cross-Default provision, and further provides that the rights of the Lender are cumulative:
36. Cross-Default. The Note is also secured by the terms, conditions and
provisions of the Assignment and, additionally, may be secured by contracts or
agreements of guaranty or other security instruments. The terms, covenants,
conditions and agreements of each security instrument shall be considered a part
hereof as if set forth herein verbatim. Any Event of Default under this Mortgage
or any of the other Loan Documents shall constitute an Event of Default
hereunder and under each of the other Loan Documents. Notwithstanding the
foregoing, the enforcement or attempted enforcement of this Mortgage or any of
the other Loan Documents now or hereafter held by Lender shall not prejudice or
in any manner affect the right of Lender to enforce any other Loan Document; it
being understood and agreed that Lender shall be entitled to enforce this
Mortgage and any of the other Loan Documents now or hereinafter held by it in
such order and manner as Lender, in its sole discretion, shall determine.
…
45. Rights of Lender Cumulative. The rights of Lender arising under the
terms, covenants, conditions and agreements contained in this Mortgage shall be
separate, distinct and cumulative, and none of them shall be in exclusion of the
others. No act of Lender shall be construed as an election to proceed under any
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one provision herein to the exclusion of any other provisions, anything herein or
otherwise to the contrary notwithstanding.
(ECF No. 40 at p. 95-95 § 36, p. 100 § 45).
Based upon the parties’ intent, as expressed in the Note and Mortgage, coupled with the
language of the Mortgage incorporating the terms of the Note and the PIA, Plaintiff is not limited
to the indemnification remedy set forth in paragraph two of the PIA, but may, at its sole
discretion, seek full recourse liability pursuant to paragraph three. The Court will not read the
PIA in a manner that creates a conflict between the intent expressed in the Mortgage and the
Note. It thus rejects Defendants’ contention that a different intent is evidenced in each
agreement because there are different parties to each one. As previously stated, the Court
construes multiple documents together in order to determine the parties’ true intent, see Dollar
Bank, 657 A.2d at 1244, even when the documents are not executed by the same parties.
Housing Mortgage, 97 A.2d at 805.
In sum, the Court concludes that the PIA unambiguously renders Defendants subject to
full recourse liability for alleged violations of Section 22(b)(vii) and (xix) of the Mortgage. That
having been said, the Court expresses no view as to whether the Defendants’ liability has, in fact,
been triggered. The only issue decided by the Court today with respect to the instant crossmotions for summary judgment is the threshold issue of whether the language of the PIA
provides for full personal liability of the Defendants for the alleged violations of these covenants.
The Court leaves for another day, on a more fully developed record following discovery, the
issue of whether Borrower violated the one percent covenant of Section 22(b)(vii), and/or the
inadequate capital covenant of Section 22(b)(xix), thereby triggering the Defendants’ personal
liability. We also leave for another day the issue of whether the Lender waived the alleged
default.
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V. Conclusion
Based upon the above, Plaintiff’s Motion for Summary Judgment (ECF No. 37) will be
granted in part and denied in part. Specifically, Plaintiff’s Motion will be granted with respect to
the scope of the Defendants’ liability for alleged Section 22(b) violations of the Mortgage. The
Motion will be denied, without prejudice, with respect to whether Defendants’ liability has, in
fact, been triggered. Additionally, Defendants’ Motion for Summary Judgment (ECF No. 41)
will be denied. An appropriate Order follows.
s/Nora Barry Fischer
Nora Barry Fischer
United States District Judge
Dated: July 11, 2014
cc/ecf: All counsel of record.
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