Newton et al v. Bank of McKenney et al
Filing
56
MEMORANDUM OPINION. Signed by District Judge John A. Gibney, Jr. on 05/16/2012. (walk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
BURL I. NEWTON and
SHARON C. NEWTON,
Plaintiffs,
Civil Case No. 3:11 cv493-JAG
BANK OF MCKENNEY and
WILLIAM D. ALLEN, III,
Defendants.
MEMORANDUM OPINION
This case is before the Court on cross-motions for summary judgment. In May 2005,
Sharon Newton, a military reservist, received orders activating her to military service. At the
time, the plaintiffs, Burl and Sharon Newton, owned closely-held corporations that had incurred
debt to open a hardware store. Their store was ultimately a failure—the property was eventually
foreclosed upon and its inventory sold at auction.
This case centers on the effect of the
Servicemembers' Civil Relief Act ("SCRA" or the "Act"), 50 U.S.C. App. § 501 et seg., on a)
loans that the defendant-Bank of McKenney (the "Bank") made to the plaintiffs' corporations,1
and b) the collateral pledged to secure those corporate loans.
The activation of Mrs. Newton leads the plaintiffs to raise several claims under the
SCRA. Specifically, the Newtons claim that the SCRA provides them a haven from the sale of
corporate assets to satisfy business debt. They also allege that the Bank should have lowered the
Notably, there are two defendants in this case. Defendant-William D. Allen, III is the Bank's
trustee and the individual who conducted the auction and foreclosures at issue. For the purposes
of this Memorandum Opinion, however, this distinction is immaterial. Essentially, the Court
will treat the Bank as representing both defendants.
annual interest rate on one of their loans to 6% when Mrs. Newton was called to active service.
Finally, they insist that the Bank made an unlawful credit report about them, and sold some of
their personal property when it auctioned the corporate assets.
For these various alleged
violations of the SCRA, the plaintiffs seek compensatory and punitive damages.
As explained herein, the Court will grant the Bank's motion for summary judgment on all
claims for money damages. Since the collateral sold to satisfy the corporate debt was corporate
property, the SCRA did not prevent the sale; the Act only protects property of the servicemember
and her dependents. For the same reason, the Bank had no obligation to reduce the interest rate
charged to the corporate entities. Moreover, while the Bank may have had an obligation to
reduce the interest charged to the Newtons individually as guarantors of the loan, the Newtons
still have suffered no injury because of excessive interest: the Bank forgave all interest in excess
of 6% before the Newtons made any payments. The plaintiffs have not responded to the Bank's
motion for summary judgment as to the allegedly unlawful credit report; therefore, judgment in
the Bank's favor is appropriate. With respect to the claim that the Bank sold some of the
Newtons' personal property while auctioning off the corporate assets, the plaintiffs have
produced no evidence that their personal property was sold.
That cause of action will be
dismissed as well.
Both the Newtons and the Bank also seek equitable relief under the SCRA.2 The Court
denies the motions for summary judgment by both parties as to the equitable claims, with one
exception. In Count VII, the Newtons seek a permanent injunction against any efforts to collect
on their guarantee of the loans at issue. (Compl. fl 45.) As the SCRA does not allow the Court to
The plaintiffs seek equitable relief in the first and sixth "Causes of Action" of their amended
complaint filed December 13, 2011 (the "Complaint"). The Court will hereinafter refer to the
plaintiffs' seven causes of action as Counts I-VII. The defendants seek a declaratory judgment in
Count I of their counterclaim (the "Counterclaim").
completely forgive debt, summary judgment dismissing Count VII is proper. The remaining
equitable claims involve material, disputed issues of fact and law, and require the parties to
produce additional evidence and legal analysis. The motions for summary judgment as to those
claims are, therefore, denied.
I. Legal Standard
Under Rule 56(a), summary judgment is appropriate "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). The relevant inquiry in a summary judgment analysis is "whether
the evidence presents a sufficient disagreement to require submission to a jury or whether it is so
one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 251-52 (1986). In deciding the motion, the Court must view the record as a whole and
in the light most favorable to the nonmovant. Terry's Floor Fashions, Inc. v. Burlington Indus.,
Inc., 763 F.2d 604, 610 (4th Cir. 1985).
When confronted with cross-motions for summary judgment, "the standards upon which
the court evaluates the motions for summary judgment do not change." Taft Broad. Co. v.
United States, 929 F.2d 240, 248 (6th Cir. 1991); Gordon v. Pete's Auto Serv. ofDenbigh, Inc.,
No. 4:08cvl24, 2012 U.S. Dist. LEXIS 32262, at *5-7 (E.D. Va. Mar. 12, 2012). "[T]he Court
must review each motion separately on its own merits 'to determine whether either of the parties
deserves judgment as a matter of law.'" Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.
2003) (quoting Philip Morris Inc. v. Harshbarger, 122 F.3d 58, 62 n.4 (1st Cir. 1997)). The
mere fact that both sides have moved for summary judgment does not establish that no genuine
dispute of material fact exists, thus requiring that judgment be granted to one side or the other.
See Worldwide Rights Ltd. P'ship v. Combe Inc., 955 F.2d 242, 244 (4th Cir. 1992); Am. Fid. &
Cas. Co. v. London & Edinburgh Ins. Co., 354 F.2d 214, 216 (4th Cir. 1965). Even if the basic
facts are not in dispute, the parties may nevertheless disagree as to the inferences that reasonably
may be drawn from them, in which case summary judgment may be inappropriate, necessitating
the denial of both motions. See Am. Fid. & Cas. Co., 354 F.2d at 216.
Nevertheless, summary judgment must be granted if the nonmoving party "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. Catrett, All U.S. 317,
322 (1986). To defeat an otherwise properly supported motion, the nonmoving party "must rely
on more than conclusory allegations, mere speculation, the building of one inference upon
another, the mere existence of a scintilla of evidence, or the appearance of some metaphysical
doubt concerning a material fact." Lewis v. City of Va. Beach Sheriff's Office, 409 F. Supp. 2d
696, 704 (E.D. Va. 2006) (internal quotation marks and citations omitted). The Court cannot
weigh the evidence or make credibility determinations in its summary judgment analysis.
Williams v. Staples, Inc., 372 F.3d 662, 667 (4th Cir. 2004).
II. Facts
The following facts are not in dispute.
In 1998, the Newtons decided to open the
Edgehill Ace Hardware store (the "Store") in Dinwiddie County, Virginia. They turned to the
Bank for financing.
In connection with the business, the plaintiffs formed two separate corporate entities.
First, they formed B&S Commercial Properties, LC ("B&S"), which purchased the building for
the Store. Second, they created Edgehill Ace Hardware, Inc. ("Edgehill"), to actually operate the
Store. Edgehill rented the building from B&S. The Newtons are the sole members of B&S and
the sole owners of Edgehill.
Both corporate entities borrowed money from the Bank to finance their operations. B&S
borrowed $360,000.003 to purchase the building, (Defs. Summ. Judg. Memo., Ex. D (the "B&S
Note")), and Edgehill borrowed $700,000.00 for inventory, equipment, and operating funds for
the store. (Id., Ex. H (the "Edgehill Note").) The Newtons personally guaranteed payment of
both notes by signing separate, guaranty agreements. In addition, the Bank received collateral
for the loans. To secure the Edgehill Note, the Bank took a security interest in the "inventory,
chattel paper, accounts, general intangibles, and fixtures" of the store. (See Pis. Summ. Judg.
Memo., Ex. 7.) Moreover, the Bank received a second deed of trust covering the store building,
the Newton's home and some agricultural property owned by Mr. Newton. (Id., Ex. 8.) To
secure the B&S Note, the parties executed a deed of trust covering the store building. (Id., Ex.
3.)
The hardware business failed miserably. In eight years of operation, 1998 to 2006, it
showed a profit in only one year. Both B&S and Edgehill were often late on loan payments or
skipped them entirely. In an attempt to nurse the business along, the Bank modified the Edgehill
Note several times. (Defs. Summ. Judg. Memo. 1fl( 13-14.) In 2004, the Bank changed the note
to require interest payments only for six months. In 2005, the Bank again modified the note to
require only interest payments. Despite these changes, the corporations chronically made late
payments, and eventually stopped paying at all. The last payment on either the B&S or the
Edgehill Note occurred in November 2005. On January 16, 2006, the Newtons notified the Bank
that they intended to close the store, which they did in April of that year.
In the midst of the Store's failure, the United States Navy mobilized Sharon Newton to
active duty in the military. On June 15, 2005, two days after her call-up, she requested the Bank
This loan was later modified at a principal amount of $330,848.07.
5
to reduce the annual interest rate on her loans to 6%, pursuant to the SCRA. See 50 U.S.C. App.
§ 527(a)(1).
She also provided the requisite documentation under the Act.
The Bank
immediately lowered the rate on all indebtedness of the Newtons, and on the B&S Note, to 6%.
Because the Small Business Administration ("SBA") guaranteed the Edgehill Note, the Bank
requested the SBA's permission to lower its interest rate. The SBA waffled on the issue, first
telling the Bank to get the approval of the loan servicing company, then approving the new rate,
and later disapproving it. In 2007, the Bank reduced the Edgehill Note's interest rate to 6%
beginning in May of that year.4 It later raised the rate back to the original contract figure. In
2010, the Bank decided to lower the interest rate to 6% for the entire time Mrs. Newton on active
duty. As a practical matter, this made no difference to the Newtons—they had failed to make a
loan payment for five years, since November 2005.
Still, the Bank calculated the interest
charged in excess of 6%, and credited that amount to the Edgehill Note, reducing the
indebtedness by a relatively small amount.
On April 25, 2007, the Bank foreclosed on the Store pursuant to the B&S Note and deed
of trust.5 The foreclosure sale generated enough money to pay off the B&S Note entirely, and to
reduce the balance on the Edgehill Note.
4The Bank apparently chose May 24, 2007, because that is the day after it auctioned off the
Store's assets, as discussed below. The Bank must have believed that on that date, the Newtons
became liable as guarantors, and that the Bank could not assess a higher interest rate because of
the SCRA provision limiting interest to 6% for active members of the military.
5 In July 2006, B&S filed for bankruptcy in order to forestall the foreclosure. The parties
eventually agreed to a consent order in the bankruptcy case, allowing the foreclosure to go
forward. The consent order waived any rights B&S had under the SCRA, but preserved any
SCRA claims of the Newtons. The Newtons, as individuals, were not parties to the bankruptcy
proceeding.
On May 23, 2007, the Bank auctioned the inventory, fixtures, and equipment of the Store,
pursuant to the Edgehill Note and financing agreement. The sale did not generate enough funds
to pay off the Edgehill Note, which has a currentbalance of over $300,000.00.
Before the sale of the Edgehill assets, the Bank allowed the Newtons to retrieve any
personal items from the Store.
Mr. Newton met with Bank officers, retrieved his personal
property, and signed an inventory. Although at the time he did not mention it, Mr. Newton now
says that the Bank auctioned off his personal mower deck. Yet, the auctioneer's inventory of
items sold does not contain the mower deck.
Thereafter, in 2007, the Bank began to send monthly letters to Edgehill and the Newtons
demanding payment of the outstanding balance on the Edgehill Note.
Before the sales of the B&S and Edgehill assets, the Bank did not petition any court for
permission to do so. In its Counterclaim, the Bank now asks permission to foreclose on the
Newton's home and certain farm properties titled to Mr. Newton, both of which were pledged as
security for the Edgehill Note.
III. Discussion
A. Introduction
The SCRA protects members of our military forces from various civil claims and debt-
collection activities while on active duty. The Act has become particularly important as our
nation has increasingly relied on reservists to carry out military jobs that members of a standing
army formerly would have handled. The armed forces often pluck reservists out of civilian life
for indeterminate lengths of service, leaving the reservists' various civil obligations unattended.
The SCRA lessens the impact of reservists' absence on their civilian life and obligations.
This case involves six provisions of the SCRA dealing with the administration and
collection of private debts. Those provisions are summarized as follows:
•
§ 518(3) states that a servicemember's claim for SCRA protection "shall not itself
(without regard to other considerations)" provide the basis for an adverse credit report on
the servicemember. 50 U.S.C. App. § 518(3).
•
§ 527 provides that obligations incurred by the servicemember before entering military
service may not bear an interest rate greater than 6% during the period of military service
and, in some cases, for a year after discharge from the military. 50 U.S.C. App. § 527.
•
§ 533(b) allows the servicemember to request a court not only to stay lawsuits enforcing
debts but also to restructure the obligation "to preserve the interests of all parties." 50
U.S.C. App. § 533(b).
•
§ 533(c) forbids foreclosures or forced sales of real or personal collateral of an active
military member pledged before activation, unless the creditor obtains court permission
to do so. The servicemember enjoys this protection for nine (9) months after discharge.
50 U.S.C. App. § 533(c).
•
§ 591 allows a servicemember to petition a court for relief from collection of debts, and
restructuring of indebtedness. 50 U.S.C. App. § 591.
•
§ 596 provides that the non-business assets of a servicemember may not be used to
satisfy an obligation arising from the servicemember's business, unless the creditor
obtains a court order allowing execution on non-business assets. 50 U.S.C. App. § 596.
This litigation raises questions about (a) the applicability of these provisions to corporate, as
opposed to individual, debt, (b) the damages available to plaintiffs under the Act, and (c) the
proper equitable remedies that a court may grant under the statute.
8
B. Non-Judicial Sales - Count HI
First, the Court finds that the Bank properly foreclosed on the real and personal assets of
the corporations, for the simple reason that the corporations are not "servicemembers" under the
SCRA.
Virginia law zealously guards the separateness of corporations and their members or
shareholders. Cheatle v. Rudd's Swimming Pool Supply Co., 234 Va. 207, 212, (1987) ("The
proposition is elementary that a corporation is a legal entity entirely separate and distinct from
the shareholders or members who compose it.
This immunity of stockholders is a basic
provision of statutory and common law and supports a vital economic policy underlying the
whole corporate concept."); see Gowin v. Granite Depot, LLC, 272 Va. 246, 254 (2006); Barnett
v. Kite, 271 Va. 65, 70 (2006); see also C.F. Trust, Inc. v. First Flight Ltd. P'Ship, 306 F.3d 126,
134 (4th Cir. 2002) ("Virginia courts strongly adhere to the principle that a corporation is a legal
entity entirely separate and distinct from the shareholders or members who compose it" (citations
omitted)). Even a closely-held corporation, such as the companies in this case, is a separate legal
entity from its owners. See Gowin, 272 Va. at 254 (2006) ("We find no difference between the
two entity forms that would justify applying the protection of the rule to actions of closely held
corporations . . ."). Many sound reasons support this principle, but the primary justification is a
limitation of liability. Corporate owners of a company stand to lose only their investment if the
corporation fails or incurs an enormous liability; creditors cannot reach the owners' personal
assets. With risks lessened, investors are more likely to engage in corporate economic activity,
creating opportunities and benefits for society.
The benefits of this distinction to the Newtons are apparent. Had someone fallen in the
Edgehill store and incurred catastrophic harm, the injured person could not sue either of the
Newtons individually.
Had a supplier sued the store on an open account, the only proper
defendant in the suit would be the corporation. Of course, the corporation itself enjoys some
benefits from the corporate/individual distinction. Had someone stolen corporate assets, the thief
could only be sued by corporate entity, because the company, not the Newtons, owned the
property.
The distinction between corporate and individual entities is consistent with the provisions
of the SCRA.
The SCRA only provides protection to "servicemembers;" it defines a
"servicemember" as "a member of the uniformed services." 50 U.S.C. App. § 511(1). The Act
also extends its protections to dependents of military members. 50 U.S.C. App. § 513; see also
50 U.S.C. App. § 511(4). The Act does not say, however, that closely-held corporations are
servicemembers who enjoy statutory protection. Had Congress meant to embrace corporations
within the ambit of the SCRA, it certainly could have done so, just as it did with dependents. See
Keene Corp. v. U.S., 508 U.S. 200, 208 (1993) ("[W]here Congress includes particular language
in one section of a statute but omits it in another .. ., it is generally presumed that Congress acts
intentionally and purposely in the disparate inclusion or exclusion.") (quoting Russello v. U.S,
464 U.S. 16,22(1983))).
Importantly, § 596 of the SCRA supports the conclusion that Congress intended to
distinguish between the protections offered to corporations and their owners. It provides that:
If the trade or business of a servicemember has an obligation or liability for which
the servicemember is personally liable, the assets of the service member not held
in connection with the trade or business may not be available for satisfaction of
the obligation or liability during the servicemember's military service.
50 U.S.C. App. § 596(a).
In other words, business creditors cannot execute on the
servicemember's non-business assets to satisfy business debt. A necessary corollary to this rule
10
is that business creditors are allowed to execute on the servicemember's business assets to satisfy
business debt, even if the servicemember is personally liable for that business debt.
One could conclude that under section 596, the distinction between corporate and
individual assets used in business is irrelevant, as long as the creditor only enforces the debt
against business assets. Yet, the Court need not reach this conclusion.
Suffice to say that
corporate assets used in a business are available to satisfy corporate debt, even when the
servicemember is on active duty and has personally guaranteed the obligation. The sale of the
Store and Edgehill inventory and supplies was clearly a sale of business assets, as contemplated
by the SCRA. Thus, it did not violate the Act.
The plaintiffs argue that courts should construe the SCRA liberally to achieve its
protective purposes. See Gordon, 2012 U.S. Dist. LEXIS 32262, at *19-20 ("The [SCRA] is
always to be liberally construed to protect those who have been obliged to drop their own affairs
to take up the burdens of the nation." Boone v. Lightner, 319 U.S. 561, 575 (1943)); see also
Gordon v. Pete's Auto Serv. of Denbigh, Inc., 637 F.3d 454, 458 (4th Cir. 2011). But liberal
interpretation does not allow the Court to insert language that does not exist, or to ignore
language that does. The plaintiffs ask the Court to rewrite the Act. The Court cannot, however,
amend the definition of "servicemember" to include closely-held corporations, and cannot repeal
the provision allowing business assets to be used to satisfy business debts.
Relying on Cathey v. First Republic Bank, the Newtons urge the Court to ignore the
distinction between corporate and personal debt. No. 00-2001-M, 2001 U.S. Dist. LEXIS 13150
(W.D. La. July 6, 2001). In that case, a reservist and his wife borrowed money for their family
corporation. When the servicemember was called to active duty, the plaintiffs sought protection
under a predecessor of the SCRA, which the court granted. Cathey, however, differs from the
11
instant case in an important particular. The servicemember and his wife signed the note as
makers, not simply guarantors. Since Cathey involved the maximum interest rate that could be
charged to servicemembers on active duty, the rate on the note had to be lowered. See 50 U.S.C.
App. § 527. Here, the plaintiffs are guarantors. As discussed below, they only became liable
after the corporate defendant defaulted.
Thus, the plaintiffs' liability is distinct from their
corporations' liability. In Cathey, the language of § 596 and the distinction between corporate
and individual liability were rendered meaningless.6 In Fifth Third Bank v. Schoessler's Supply
Room, LLC and Linscott v. Vector Aerospace, the other two cases on which the plaintiffs
primarily rely, the courts simply followed the Cathey reasoning without meaningful discussion
of the distinction between corporate and personal debt or the language of § 596. Linscott v.
Vector Aerospace, No. CV05-682-HU, 2006 U.S. Dist. LEXIS 30023 (D. Or. May 12, 2006);
Fifth Third Bank v. Schoessler's Supply Room, LLC, 190 Ohio App. 3d 1 (Ohio Ct. App. 2010)
The Court finds those decisions unhelpful in its analysis.
In sum, the Newtons did not own the assets on which the Bank foreclosed, and cannot
rely on the SCRA to protect those corporate assets. The Court, therefore, grants the defendants'
motion for summary judgment on Count III, seeking damages for improper foreclosure and sale
of assets.
C. Lowered Interest Rates - Count II
Similarly, the Bank was not required to lower the interest rate charged to the corporate
borrowers upon Mrs. Newton's mobilization. B&S and Edgehill are entirely separate entities
from the individuals who guaranteed their loans.
Section 533 of the SCRA applies to "an
obligation . . . incurred by a servicemember;" for such obligations, a creditor may not charge
Critically, Cathey was decided prior to the December 2003 enactment of § 596 of the SCRA.
12
interest in excess of 6% while the member is in active service. Again, the Act does not say that
corporations owned by servicemembers may claim a reduction in the interest rates on their debt.
For this reason alone, the Bank was not required to lower the interest rate applicable to the
companies.
Nevertheless, other reasons independently lead to the conclusion that the Bank did not
need to lower the interest rates on the B&S and Edgehill Notes.
guarantors, were not primarily obligated on the debt.
First, the Newtons, as
Virginia law distinguishes between
guarantors and makers of debt. The Supreme Court ofVirginia has discussed this distinction in a
case concerning whether a litigant was a surety or guarantor:
The distinctions between a contract of guaranty and one of surety have been
carefully drawn and clearly defined and are ably detailed in Piedmont Guano &
Manuf'g Co. v. Morris &Als., 86 Va. 941, 944, 945, 11 S.E. 883:
'. . . Guaranty is distinguished from suretyship in being a secondary, while the
latter is a primary obligation.
'The contract of the guarantor is his own separate undertaking, in which the
principal does not join. The guarantor contracts to pay, if, by the use of due
diligence, the debt cannot be made out of the principal debtor, while the surety
undertakes directly for the payment, and so is responsible at once if the principal
debtor makes default; or, in other words, guaranty is an undertaking that the
debtor shall pay; suretyship, that the debt shall be paid ...
Phoenix Ins. Co. v. Lester Brothers, Inc., 203 Va. 802, 807 (1962). The guarantor on a note has
a different liability than the maker—liability that only comes into existence when the maker
defaults. As such, the Newtons only incurred liability once the corporation defaulted. The
corporation's liability for interest continued at all times at the contractrate. The Bank, therefore,
had no duty to lower the interest rates on the B&S and Edgehill Notes.
13
This conclusion may lead to a question the answer to which turns on a fine distinction:
can the servicemember be liable as a guarantor for corporate debt that accrues at a rate greater
than 6%? Fortunately, the facts in this case render that question moot.
Here, Mrs. Newton asked the Bank to lower her interest rate to 6% effective on her
mobilization in June 2005. The Bank immediately complied and reduced the rate for all personal
debt of the Newtons. As to the Edgehill Note, however, the Bank waffled. It tried to foist
responsibility for this decision on the SBA, after receiving conflicting directions from its
representatives. Consequently, at one time the Bank said that the contract rate remained in
effect, at another it claimed that the rate would fall to 6% for the period following the sale of
corporate assets, and finally it decided to reduce the rate to 6% for the entire time Mrs. Newton
was on active duty. The Bank did not reach its final decision until 2010; at times between 2005
and 2010, it charged a higher contract rate on the Edgehill Note.
In 2010, the Bank recalculated the interest owed on the loan and retroactively credited the
excess interest to the principal owed. The Newtons never made a payment at the higher rate
while Mrs. Newton was on active service.
Thus, even if the Bank wrongfully charged the
contract rate, that action caused no harm to the Newtons—the Bank has forgiven all excess
interest charges. See Frazier v. HSBC Mortg. Servs., 401 Fed. Appx. 436, 441-42 (11th Cir.
2010). It is as if the interest were never charged.
Notwithstanding, the plaintiffs claim they are entitled to compensatory damages,
presumably for the aggravation and anguish caused by the belief that they were accumulating
interest at a rate higher than 6%. The plaintiffs cannot recover damages for emotional harm
relating to the interest rate, which is a contractual claim. As one court has held, the SCRA
effectively amends the contract between the parties: "[T]he provisions of the SSCRA provide for
14
an effective amendment of contractual provisions regarding interest rates during the period when
a serviceman is in the service on active duty." Cathey, 2001 U.S. Dist. LEXIS 13150, at *16.
The Court, therefore, may only award contractual remedies for a breach of the amended contract.
A claim that the Bank charged interest greater than the rate allowed under the "federally
mandated contractual amendment is pure and simple a contract claim, not a tort claim." Id. at
*16-17.
A party may not recover damages for emotional distress from a breach of contract. Rice
v. Community Health Ass 'n, 203 F.3d 283, 288 (4th Cir. 2000) ("Courts have universally rejected
claims for damages to reputation in breach of contract actions reasoning that such damages are
too speculative and could not reasonably be presumed to have been contemplated by the parties
when they formed the contract." (citations omitted)); Isle of Wight County v. Nogiec, 281 Va.
140, 148-49 (2011) ([A]bsent some tort, damages for humiliation or injury to feelings are not
recoverable in an action for breach of contract. Sea-Land Service, Inc. v. O'Neal, 224 Va. 343,
354 (1982) (quotation marks and citations omitted)). See also Moorehead v. State Farm Fire &
Cas. Co., 123 F. Supp. 2d 1004, 1006-07 (W.D. Va. 2000); Wise v. General Motors Corp., 588
F. Supp. 1207, 1210-12 (W.D. Va. 1984). Ordinarilythe appropriate remedy would be damages
in the amount of the overcharge. Here, however, the plaintiffs never paid any overcharges, and
the Bank eventually reimbursed the higher interest charges in favor of the Edgehill Note. In
short, the plaintiffs have suffered no damage as a result of the excess interest.
Accordingly, the Court will grant summary judgment for the defendants on Count II of
the Complaint.
D. Improper Sale of Mower Deck - Count IV
15
In Count IV, Mr. Newton contends that the Bank improperly sold his personal mower
deck at the auction of the Edgehill inventory, fixtures, and equipment, in violation of 50 U.S.C.
App. § 596. During discovery, the Bank produced an inventory of items sold at auction—the
mower deck does not appear on that inventory list. The plaintiff stated in his deposition that he
had some additional papers to look through that might tell him about the status of the mower
deck and, possibly, other property. (See Burl I. Newton Dep., 103:4-22, ECF No. 34, Ex. B.) To
this day, he has failed to produce any documents or evidence related to the mower deck. The
plaintiffs' evidence, at this stage, essentially shows that Mr. Newton does not know what the
auctioneer sold; he only knows that he does not have his mower deck.
The defendant has produced evidence that the deck was not sold at the auction. As such,
the burden shifts to the plaintiff to produce evidence to refute that position. See Burgoon v.
Potter, 369 F. Supp. 2d 789, 799 (E.D. Va. 2005) (Compelling summary judgment against a
plaintiff who failed to present evidence rebutting the defendant's motion, thereby failing to show
any remaining issues of material fact); Harik v. National Aeronautics and Space Admin., No.
4:06CV56, 2006 WL 2381964, at *14 (E.D. Va. 2006) (Finding summary judgment against a
plaintiff who failed to present any evidence of a genuine issue of material fact). See also Felty v.
Graves-Humphreys Co., 818 F.2d 1126,1128 (4th Cir. 1987) (Noting the trial court's affirmative
duty to prevent "factually unsupported claims and defenses" from reaching trial) (citing Celotex
Corp. v. Catrett, All U.S. 317, 324-25 (1986))). The plaintiffs have produced no such evidence.
The Court, therefore, will grant summary judgment to the defendants on Count IV.
E. Improper Credit Report - Count V
The Bank has moved for summary judgment on Count V, alleging improper disclosure of
information to credit agencies in violation of 50 U.S.C. App § 518. Section 518 forbids creditors
16
from giving poor credit reports after the debtor-servicemember has sought the "stay,
postponement, or suspension" of payment under the SCRA, "without regard to other
considerations." 50 U.S.C. App. § 518. The Bank argues that the Newtons never sought a "stay,
postponement, or suspension," and therefore, have not triggered the protections of § 518.
Additionally, the Bank states that it has not reported the sale of B&S and Edgehill property;
rather, it simply reported that it had received no payments on the Edgehill Note since 2005.
Apparently, the Bank contends that failure to pay for seven years is an "other consideration" that
justifies a report.
The plaintiffs have not responded to this argument. Accordingly, the Court will grant
summary judgment for the Bank on Count V.
F. Equitable Relief- Counts L VL VII and the Defendants' Counterclaim
Both parties have moved for equitable relief. In Count I, the plaintiffs request that the
Court stay foreclosure proceedings; apparently their request deals with their home and farm
property. In Count VI, the Newtons request a reduction in the future interest rate on the Edgehill
Note to 6% for a period equal to the time Mrs. Newton served in the military, seven years.
Pursuant to § 591, the Newtons also ask the Court to restructure the debt in other, unspecified
ways. In Count VII, the plaintiffs request the Court enjoin any efforts to collect on the Edgehill
Note forever—in essence, forgiveness of the entire debt. In Count I of the Counterclaim, the
Bank seeks permission to foreclose on the Newtons' home and farm property.
As previously discussed, nothing in the SCRA remotely implies that the Court should
preclude any collection effort forever, effectively forgiving the Newtons' debt. The Court,
therefore, will grant the Bank's motion for summary judgment on Count VII.
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As to the other claims for equitable relief, the record presents factual and legal disputes
the Court cannot resolve at this juncture. These issues include whether to allow foreclosure on
the non-business real estate as well as whether and how to restructure the loan, if at all. The
SCRA offers little guidance as to what evidence supports equitablerelief and what legal standard
governs the granting of such relief. The motions for summaryjudgment related to Counts I, VI,
and the Counterclaim will, therefore, be denied. Such issues will be heard by the Court on the
date originally set for trial.
IV. Conclusion
The Court grants the Bank's motion for summary judgment as to Counts II, III, IV, V,
and VII of the Complaint. The Court denies the parties' motions for summary judgment as to
Counts I and VI of the Complaint, and Count I of the Counterclaim.
An appropriate order shall issue
Let the Clerk send a copy of this Memorandum Opinion to all counsel of record.
Is!
John A. Gibney, Jr,
United States DistricfJiidge
Date: May 16. 2012
Richmond, VA
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