The Huntington National Bank v. AGS Development, LLC et al

Filing 46

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART THE PLAINTIFFS MOTION TO DISMISS THE DEFENDANTS COUNTERCLAIMS, as to 35 Motion to Dismiss. Signed by Senior Judge Frederick P. Stamp, Jr on 5/31/2011. (Copy counsel of record via CM/ECF)(jmm)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
THE HUNTINGTON NATIONAL BANK,
a national banking association,
Plaintiff,
v.

Civil Action No. 1:10CV135
(STAMP)

ALLEN G. SAOUD, JENNIFER E. SAOUD,
AGS DEVELOPMENT, LLC,
a West Virginia limited liability company,
AGS USED CARS, LLC,
a West Virginia limited liability company,
CHIRODERM, LLC,
a West Virginia limited liability company,
FAIRMONT HOMES, LLC,
a West Virginia limited liability company,
JAB SPA ENTERPRISES, LLC,
a West Virginia limited liability company,
PRIME SPACE, LLC,
a West Virginia limited liability company,
and TITANIUM PROPERTIES, LLC,
a West Virginia limited liability company,
Defendants.
MEMORANDUM OPINION AND ORDER
GRANTING IN PART AND DENYING IN PART
THE PLAINTIFF’S MOTION TO DISMISS
THE DEFENDANTS’ COUNTERCLAIMS
I.

Procedural History

The plaintiff, The Huntington National Bank (“Huntington”),
filed a complaint in this Court against the defendants for alleged
loan deficiencies arising out of the defendants’ alleged default on
a promissory note in the principal sum of $7 million.

The

defendants filed a two count counterclaim, in which they allege
breach of contract and breach of duty of good faith and fair
dealing and tortious interference with business activities.

The

plaintiff then filed a motion to dismiss the counterclaims to which

the defendants responded and the plaintiff replied.

For the

reasons set forth below, the plaintiff’s motion to dismiss the
counterclaim is granted in part and denied in part.
II.

Facts1

On August 22, 2007, the defendants entered into a commercial
loan transaction with Huntington, borrowing $7 million and agreeing
to repay the debt in accordance with the terms set forth in a
promissory note.
Investment

The note was secured by Assignment of Huntington

Company

Asset

Management

Account.

The

defendants

allegedly defaulted on financial and reporting conditions and
covenants in the loan documents associated with the note and, on
July 17, 2009, Huntington caused demand letters to be mailed to the
defendants, demanding payment in full.

The defendants claim in

their counterclaim that this constituted a breach of the contract.
On July 6, 2010, Huntington again caused demand letters to be
mailed to the defendants, demanding payment in full upon expiration
of a six month forbearance period.

The defendants again contend

that this was a breach of contract by the plaintiffs.
defendants allegedly have not yet paid the debt.
2010,

Huntington

sent

defense

counsel

notice

of

The

On August 20,
Huntington’s

intention to liquidate its interest in the Account on August 25,
2010 unless an acceptable workout plan could be reached. On August

1

In accordance with the applicable standard of review, stated
below concerning a motion to dismiss, this Court will accept, for
the purposes of deciding this motion, the factual allegations
contained in the counterclaim as true.
2

27, 2010, Huntington sent the defendants a notice of disposition of
collateral notifying them that Huntington intended to liquidate its
interest in the account on August 30, 2010.

The defendants still

owe $6,083,228.23 on the note along with $12,709.93 in interest.
Liquidation

of

the

account

yield

$5,412,187.84.

Huntington

contends it is entitled to have judgment against the defendants in
the amount of $683,750.33 together with interest of $23.74133 per
day.
III.

Applicable Law

In assessing a motion to dismiss for failure to state a claim
under Rule 12(b)(6), a court must accept all well-pled facts
contained in the counterclaim as true.

Marfork Coal Co. v. Smith,

2011 WL 744727 (S.D. W. Va. Feb. 23, 2011).

However, “legal

conclusions, elements of a cause of action, and bare assertions
devoid of further factual enhancement fail to constitute well-pled
facts for Rule 12(b)(6) purposes.”

Nemet Chevrolet, Ltd v.

Consumeraffairs.com, Inc, 591 F.3d 250, 255 (4th Cir. 2009) (citing
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).
declines

to

consider

“unwarranted

conclusions, or arguments.”

This Court also

inferences,

unreasonable

Wahi v. Charleston Area Med. Ctr.,

Inc., 562 F.3d 599, 615 n.26 (4th Cir. 2009).
It has often been said that the purpose of a motion under Rule
12(b)(6) is to test the formal sufficiency of the statement of the
claim for relief; it is not a procedure for resolving a contest
about the facts or the merits of the case.

3

5B Charles Alan Wright

& Arthur R. Miller, Federal Practice and Procedure § 1356 (3d ed.
1998).

The Rule 12(b)(6) motion also must be distinguished from a

motion for summary judgment under Federal Rule of Civil Procedure
56, which goes to the merits of the claim and is designed to test
whether there is a genuine issue of material fact.

Id.

For

purposes of the motion to dismiss, the complaint, or, in this case,
the counterclaim, is construed in the light most favorable to the
party making the claim and essentially the court’s inquiry is
directed to whether the allegations constitute a statement of a
claim under Federal Rule of Civil Procedure 8(a).

Id. § 1357.

A counterclaim should be dismissed if it does not “‘state a
claim to relief that is plausible on is face.’” Marfork Coal Co.,
2011 WL 744727 (quoting Iqbal, 129 S. Ct. at 1949).

“Facial

plausibility is established once the factual content of a complaint
[or

counterclaim]

inference

that

‘allows

the

the

defendant

court
is

to

liable

draw

the

reasonable

for

the

misconduct

alleged.’” Nemet Chevrolet, 591 F.3d at 256 (quoting Iqbal, 129 S.
Ct. at 1949).

Detailed factual allegations are not required, but

the facts alleged must be sufficient “to raise a right to relief
above the speculative level.”

Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 555 (2007).
IV.
A.

Discussion

Breach of Contract and Breach of Duty of Good Faith and Fair
Dealing
In their counterclaim, the defendants allege that at all times

from August 2007 up to and including August 2010, the defendants
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made all payments upon the $7 million loan in a timely manner.
Additionally, the defendants contend that at all times between
August 2007 and August 2010, the defendants provided the plaintiff
with financial and operating statements on an annual basis similar
in form and substance to those established by past practice and
custom between the plaintiff and the defendants.

They also allege

that during this time period, the defendants kept and maintained
books and records of account in the same fashion as had been
established by the past practice and custom of the plaintiff and
the defendants and which had been deemed satisfactory by the
plaintiff in connection with various loan closings.
The defendants allege that the plaintiff breached its contract
with the defendants on July 17, 2009 when it sent the notice of
default

stating

that

the

defendants

failed

“to

observe

the

financial and reporting conditions and covenants contained in the
loan documents executed in connection with said transactions” and
declared all sums due and payable. In West Virginia, a covenant of
good faith and fair dealing is implied in every contract for the
purpose of evaluating a party’s performance of that contract.2
Knapp v. American General Finance, Inc., 111 F. Supp. 2d 758, 767
(S.D. W. Va. 2000); Hoffmaster v. Guiffrida, 630 F. Supp. 1289,
1290-91 (S.D. W. Va. 1986).

West Virginia law does not recognize

2

Under West Virginia law, “good faith” is defined as “honesty
in fact and the observance of reasonable commercial standards of
fair dealing.” W. Va. Code § 46-1-201(b)(20); see also Fifth Third
Bank v. McClure Properties, Inc., 724 F. Supp. 2d 598, 609 (S.D. W.
Va. 2010).
5

an independent cause of action for a breach of duty of good faith
and fair dealing separate and apart from a breach of contract
claim.

Stand Energy Corp. v. Columbia Gas Transmission Corp., 373

F. Supp. 2d 631, 644 (S.D. W. Va. 2005); Highmark West Virginia
Inc. v. Jamie, 655 S.E.2d 509, 514 (W. Va. 2007).
The plaintiff contends that this counterclaim fails because
the

plaintiff’s

actions

were

authorized

contractual agreements between the parties.

expressly

by

the

Under West Virginia

law, creditors have the express right to foreclose without having
to consider any alternatives.

Lucas v. Fairbanks Capital Corp.,

618 S.E.2d 488, 490 (W. Va. 2005). In the complaint, the plaintiff
states that the note for $7 million was secured by an assignment,
which the plaintiff attached to the complaint. The promissory note
states that “[t]his Note is also secured by an assignment of the
Huntington Asset Management Account of Allen G. Saoud and Jennifer
E. Saoud.”

The assignment states that it is “collateral for Note

in the amount of $7,000,000.00 executed this day. It is understood
that

Allen

G.

Saoud

shall

maintain

a

$7,000,000.00 in this account at all times.”

minimum

balance

of

The plaintiff states

that it declared default based on the defendants’ failure to
maintain adequate records and their failure to maintain adequate
collateral.
In their response to the motion to dismiss, the defendants
state that the failure to maintain $7 million in the account is not
specifically referenced as a grounds for default in the loan

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agreement.

The defendants believe that the plaintiff breached its

obligation to act in good faith and to deal fairly with the
defendants by failing to take additional collateral and to continue
to allow the defendants to make payments on the $7 million note.
The defendants also argue that, even if default were proper, the
plaintiff

did

not

provide

commercially

reasonable

notice

of

disposition of collateral when it sold the collateral three days
after sending the notice of disposition of collateral.
In

reply,

negotiate

with

the

plaintiff

argues

the

defendants

for

that

it

had

modification

no

and

duty
that

to
the

disposition of the collateral was commercially reasonable because
the plaintiff and the defendants engaged in negotiations for 18
months, in which the defendants knew that the plaintiff believed
that the defendants were in default.
At this time, this Court denies the plaintiff’s motion to
dismiss the counterclaim for breach of contract and breach of the
duty of good faith and fair dealing.
the

plaintiffs

that

if

the

This Court does agree with

defendants

were

in

default,

the

plaintiff had no duty to negotiate with a defaulting party.

The

plaintiff does attach to its complaint the promissory note and the
assignment, which shows that the promissory note is secured by the
assignment, which requires the defendants to keep $7 million in the
account at issue. However, the plaintiff did not attach all of the
loan documents.

Taking the alleged facts in the counterclaim as

true, there may be some provision in the loan agreement, which also

7

secures the promissory note, which may show that the defendants
were not in default.
agreement,

it

Because this Court has not seen the loan

declines

to

make

a

finding

as

to

whether

the

defendants defaulted.
Furthermore, this Court agrees with the defendants that, even
if default were proper in this situation, whether the disposition
of collateral was commercially reasonable is a question of fact.
See W. Va. Code § 46-9-612 (providing that
is

sent

within

a

reasonable

time

whether a notification

is

a

question

of

fact).

Accordingly, this Court must deny the plaintiff’s motion to dismiss
the breach of contract and breach of duty of good faith and fair
dealing counterclaim.
B.

Tortious Interference with Business Activities
To establish a prima facie case of tortious interference, the

defendants must prove the following elements: “(1) existence of a
contractual

or

intentional

act

business
of

relationship

interference

by

or

expectancy;

a

party

(2)

outside

an
that

relationship or expectancy; (3) proof that the interference caused
the harm sustained; and (4) damages.”

Syl. Pt. 2, Torbett v.

Wheeling Dollar Savs. & Trust Co., 314 S.E.2d 166 (W. Va. 1983).
The defendants concede that under West Virginia law, they
cannot

state

a

claim

against

the

plaintiff

for

intentional

interference with the loan contract between the plaintiff and the
defendants.
Saoud

had

The defendants state that they allege that defendant
contractual

relationships

8

and/or

the

expectancy

of

financial relationships with other financial institutions and that
the agent of the plaintiff maliciously caused defendant Saoud to be
declared

in

default

of

his

loan

agreement.

The

defendants

acknowledge that they have not suffered any interference with loans
they may seek in the future, but that they expect harm when
defendant Saoud next applies for a loan.

This Court agrees with

the plaintiff that the defendants have no claim for tortious
interference at this time.

Accordingly, this Court grants the

plaintiff’s motion to dismiss the defendants’ counterclaim for
tortious interference with business activities.
V.

Conclusion

For the reasons set forth above, the plaintiff’s motion to
dismiss the defendants’ counterclaims is GRANTED IN PART and DENIED
IN PART.
IT IS SO ORDERED.
The Clerk is directed to transmit a copy of this memorandum
opinion and order to counsel of record herein.
DATED:

May 31, 2011

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

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