ALPHA RHO ALUMNI CORPORATION v. FIRST UNITED BANK AND TRUST, INC.
Filing
54
MEMORANDUM ORDER AND OPINION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT. The Court denies the Defendant's 42 Motion for Summary Judgment and grants the Plaintiff's 43 Motion for Summary Judgment. The Court further orders the parties to submit affidavits as to the damages that Alpha Rho has sustained in this breach of contract action, including prejudgment interest as provided for in WV Code 56-6-27, by 4/22/16. Signed by District Judge John Preston Bailey on 4/8/16. (mh)
IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF WEST VIRGINIA
CLARKSBURG
ALPHA RHO ALUMNI CORPORATION,
Plaintiff,
v.
CIVIL ACTION NO. 1:15-cv-44
(Judge Bailey)
FIRST UNITED BANK AND
TRUST, INC.,
Defendant.
MEMORANDUM ORDER AND OPINION
GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Currently pending before this Court is Plaintiff Alpha Rho Alumni Corporation’s
(“Alpha Rho”) Motion for Summary Judgment [Doc. 43], filed on February 26, 2016. On the
same day, Defendant First United Bank and Trust, Inc., (“First United”) also filed a Motion
for Summary Judgment [Doc. 42]. Both parties filed their respective responses on March
18, 2016 [Docs. 49 and 50]. For the reasons set forth below, this Court grants Alpha Rho’s
Motion for Summary Judgment and denies First United’s Motion for Summary Judgment.
I. BACKGROUND
A. Factual and Procedural History:
This is a removal action which was originally filed in the Circuit Court of Monongalia
County, West Virginia, on February 5, 2015 [Doc. 1-1]. Defendant timely removed the case
to this Court pursuant to 28 U.S.C. § 1332 on March 9, 2015 [Doc. 1]. This matter has
proceeded without any major pretrial motions, aside from the current cross motions for
summary judgment.
On December 21, 2005, Alpha Rho obtained a loan from First United in order to
finance the construction of a new fraternity house [Doc. 1-5 at ¶ 5; Doc. 4 at ¶ 5]. To that
end, the parties executed a Construction Loan Agreement and a Promissory Note
(hereinafter referred to individually as “the agreement” and “the note,” respectively) for
$2,700,000.00, secured by a Deed of Trust [Id. at ¶ 6; Id. at ¶ 5]. Together, the agreement
and note constitute a binding contract between the parties (hereinafter referred to jointly
as “the contract”) and has formed the basis for this breach of contract action [Id. at ¶ 29;
Id. at ¶ 29].
The contract provides for two distinct loan repayment periods, which each featured
a distinct interest rate. First, the contract calls for an interest only payment period
(hereinafter “interest only period”), which would begin on January 21, 2006, and required
Alpha Rho to make “twelve consecutive monthly payments equal to the amount of unpaid
interest accrued on the outstanding principal balance on this note” [Doc. 43-4 at 2; Doc. 435 at 1].1 During the interest only period, interest would accrue “at a floating or fluctuating
rate equal to the highest Prime Rate published in the Money Rates Column of the Wall
Street Journal (hereinafter “WSJ Prime Rate”), adjusted contemporaneously with changes
in the WSJ Prime Rate” [Doc. 43-4 at 3; Doc. 43-5 at 1]. It is clear from the evidence that
the interest only period would apply “during the period of construction,” which was originally
1
This Court notes that while both Alpha Rho and First United have attached copies
of the Agreement, Note, and Loan Modifications to their respective motions for summary
judgment, this Court will cite only to plaintiff’s copies of same for convenience purposes.
2
anticipated to take twelve months [Doc. 43-6; Doc. 43-4 at 3].2
The interest-only period was to be followed by a principal and interest period
(hereinafter “principal and interest period”), which was initially scheduled to begin on
January 21, 2007 [Doc. 43-4 at 3; Doc. 43-5 at 1], and required Alpha Rho to “make . . .
one hundred seventy-nine monthly payments of principal and interest” [Id. at 2-3; Id.]. The
loan repayment was to be completed on December 21, 2021, at which time Alpha Rho
would make a final, “balloon payment equal in amount to the entire outstanding [balance
of the loan, including interest]” [Doc. 43-5 at 1].
The contract also provides for different interest rates during each of these periods.
Upon termination of the interest only period, Alpha Rho would then pay interest at the WSJ
Prime Rate plus 0.25%, fixed for three year intervals and adjusted at the end of each
interval at the then current WSJ Prime Rate plus 0.25% [Doc. 43-4 at 3]. On January 21,
2007, the date on which the fixed rate period was initially set to begin under the contract,
the WSJ Prime Rate was 8.25% [Doc. 1-5 at ¶ 14]. However, construction on the subject
fraternity house was still not complete at that time [Doc. 1-5 at ¶¶ 12; 15]. Accordingly,
First United fixed the initial three year interest rate at 8.5%, and billed Alpha Rho for its first
principal and interest payment to be due February 21, 2007 [Id.]. Alpha Rho paid that initial
billed amount at the fixed interest rate in a timely manner and without objection [Id.; Doc.
42-8].
Due to those construction delays, the parties began discussions to extend the
interest only period and the note maturity date [Id. at ¶ 15; Doc. 42-1 at 2]. On April 20,
2
Of note, the Agreement specifically refers to the interest only period as the
“Construction Interest Rate” period [Doc. 43-4 at 3].
3
2007, First United and Alpha Rho executed the first of three Loan Modification Agreements
(hereinafter “the modifications”), which retroactively extended the length of the interest only
period from January 21, 2007, to July 21, 2007, and extended the note maturity date by the
same number of months [Id. at ¶ 16; Doc. 43-9]. In an April 2, 2007 memorandum from
one First United employee, Steve Lantz, to another, David Kelley, Lantz specifically notes
that the interest only period was intended to apply, “during the period of construction,” and
that construction delays have necessitated an extension of the interest only period [Doc.
43-7]. The parties then executed two additional modifications, which, together, extended
the interest only period to February 21, 2009, changed the date of the first principal and
interest payment to March 21, 2009, and changed the date of the final balloon payment to
February 21, 2024 [Doc. 1-5 at ¶ 18; Doc. 43-10; Doc. 43-11].
Despite the fact that the modifications specifically extended the interest only period,
First United billed and Alpha Rho paid interest at a fixed rate of 8.5% on the loan between
January 21, 2007 and February 21, 2009 [Doc. 1-5 ¶¶ 17-20]. However, the WSJ Prime
Rate fluctuated upward for a time, then varied steadily downward before ultimately holding
steady at 3.25% on February 21, 2009 [Doc. 43-12].3 Alpha Rho now claims that First
United effectively behaved as if the modifications did not extend the fluctuating interest rate
for the interest only period to February 21, 2009, and should have waited until that date to
3
During the time that the interest only period should have applied, the WSJ Prime
Rate fluctuated at the following rates: December 21, 2005, 7.25%; January 31, 2006, 7.5%;
March 28, 2006, 7.75%; May 10, 2006, 8%; June 29, 2006, 8.25%; September 18, 2007,
7.75%; October 31, 2007, 7.5%; December 11, 2007, 7.25%; January 22, 2008, rcent
6.50%; January 30, 2008, 6%; March 18, 2008, 5.25%; April 30, 2008, 5%; October 8,
2008, 4.5%; October 29, 2008, 4%; December 16, 2008, 3.25%; and, finally, it remained
at 3.25% until February 21, 2009 [Doc. 43-12].
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fix the interest rate at 3.5% [Doc. 43-1 at 5-6]. As such, Alpha Rho now claims that it is
entitled to damages that it incurred due to First United’s overbilling the interest rates during
the interest only period and for the incongruence incurred when the interest rate was fixed
at 8.5% instead of 3.5% [Id.].
II. STANDARD OF REVIEW
Fed. R. Civ. P. 56 provides that summary judgment is appropriate “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” The party seeking summary judgment bears
the initial burden of showing the absence of any genuine issues of material fact. See
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). “The burden then shifts to the
nonmoving party to come forward with facts sufficient to create a triable issue of fact.”
Temkin v. Frederick County Comm’rs, 945 F.2d 716, 718 (4th Cir. 1991), cert. denied,
502 U.S. 1095 (1992) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48
(1986)).
However, as the United States Supreme Court noted in Anderson, “Rule 56(e) itself
provides that a party opposing a properly supported motion for summary judgment may not
rest upon the mere allegations or denials of his pleading, but must set forth specific facts
showing that there is a genuine issue for trial.” Id. at 256. “The inquiry performed is the
threshold inquiry of determining whether there is the need for a trial-whether, in other
words, there are any genuine factual issues that properly can be resolved only by a finder
of fact because they may reasonably be resolved in favor of either party.” Id. at 250; see
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also Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979) (Summary
judgment “should be granted only in those cases where it is perfectly clear that no issue
of fact is involved and inquiry into the facts is not desirable to clarify the application of the
law.” (citing Stevens v. Howard D. Johnson Co., 181 F.2d 390, 394 (4th Cir. 1950)). In
reviewing the supported underlying facts, all inferences must be viewed in the light most
favorable to the party opposing the motion. See Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986). Additionally, the party opposing summary
judgment “must do more than simply show that there is some metaphysical doubt as to the
material facts.” Id. at 586. That is, once the movant has met its burden to show absence
of material fact, the party opposing summary judgment must then come forward with
affidavits or other evidence demonstrating there is indeed a genuine issue for trial. Fed.
R. Civ. P. 56(c); Celotex Corp., 477 U.S. at 323-25; Anderson, 477 U.S. at 248. “If the
evidence is merely colorable, or is not significantly probative, summary judgment may be
granted.” Anderson, 477 U.S. at 249 (citations omitted).
III. DISCUSSION:
A. The Standard for Interpreting this Contract:
It has long been settled in West Virginia that “[i]t is province of the Court, and not of
the jury, to interpret a written contract.” Syl. Pt. 1, Stephens v. Bartlett, 118 W.Va. 421,
191 S.E. 550 (1937). When reading the contract and the modifications, this Court is
mindful of a “cardinal principle of contract construction: that a document should be read to
give effect to all its provisions and to render them consistent with each other.”
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63 (1995); see also
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Restatement (Second) of Contracts §§ 202(5), 203(a), and Comment b. “‘[I]n construing
a deed, will, or other written instrument, it is the duty of the court to construe it as a whole,
taking and considering all parts together, and giving effect to the intention of the parties
whenever that is reasonably clear and free from doubt, unless to do so will violate some
principle of law inconsistent therewith.’” Cabot Oil & Gas Corp. v Huffman, 227 W.Va.
109, 118, 705 S.E.2d 806, 815 (2010) (internal citation omitted). A contract should not be
interpreted “merely by a consideration of disjointed or disconnected parts thereof.”
Stephenson v. Kuntz, 131 W.Va. 599, 612 (1948). Accordingly, in rendering its decision,
this Court is mindful to read the contract and the modifications together in order to give
effect to the intention of the parties.
Next, this Court must determine whether the contract provisions at issue are clearly
expressed. “Where parties contract lawfully and their contract is free from ambiguity or
doubt, their agreement furnishes the law which governs them. It is the duty of the court to
construe contracts as they are made by the parties thereto and to give full force and effect
to the language used, when it is clear, plain, simple and unambiguous.” Rollyson v.
Jordan, 205 W.Va. 368, 376, 518 S.E.2d 372, 380 (1999) (internal citations omitted). “A
contract using plain and unambiguous language is to be enforced according to its plain
intent and should not be construed.” Syl. Pt. 2, Orteza v. Monongalia County General
Hospital, 173 W.Va. 461, 318 S.E.2d 40 (1984) (citing Syl. Pt. 2, Bethlethem Mines Corp.
v. Haden, 153 W.Va. 721, 172 S.E.2d 126 (1969)). “The mere fact that parties do not
agree to the construction of a contract does not render it ambiguous. [Instead, t]he question
as to whether a contract is ambiguous is a question of law to be determined by the court.”
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Syl. Pt. 1, Berkeley County Public Service Dist. v. Vitro Corp. of America, 152 W.Va.
252, 267, 162 S.E.2d 189, 200 (1968). When contract language is unclear, it is considered
ambiguous. Id. Accordingly, this Court must decide as a matter of law whether the
language of the contract and modifications is clear and unambiguous.
B. The Plain Language of the Agreement, Note, and Loan Modifications Dictate that
Summary Judgment Must be Granted for Alpha Rho:
The core issue at bar is whether the modifications clearly and unambiguously
modified the original contract to extend the interest only period. As noted above, it is
undisputed that the original contract is comprised of both the agreement and the note, and
that the contract contained separate interest rate provisions for the interest only period and
the principal and interest period [Doc. 43-4 at 2; Doc. 43-5 at 1]. It is also undisputed that
due to construction delays on the subject fraternity house, the parties entered into further
agreements on April 20, 2007 [Doc. 43-9], August 17, 2007 [Doc. 43-10], and January 18,
2008 [Doc. 43-11], which modified the original contract. Accordingly, this Court must
construe that original contract “as a whole,” or, stated differently, in tandem with the
modifications. See Cabot Oil & Gas Corp., 227 W.Va. at 118, 705 S.E.2d at 815.
The language of the contract is clear. Two key provisions, one from the note and
another from the modifications, when read together, indicate that the parties intended for
the interest rate to remain in flux during the interest only period contemplated by the
modifications. Paragraph 4(a) of the note, which begins with the header, “Interest Rate,”
provides:
“During the Interest Only Period . . . the outstanding principal balance on this
Note shall accrue interest at a floating or fluctuating rate equal to the highest
. . . WSJ Prime Rate . . . per annum, adjusted contemporaneously with
8
changes in the WSJ Prime Rate.”
[Doc. 43-5 at 2]. Next, as noted above, the modifications effectively extended the end date
of the interest only period from the date provided for in the contract, January 21, 2007, to
a modified end date of February 21, 2009 [Docs. 43-9, 43-10, and 43-11]. Importantly,
paragraphs 4(a) of each modification features nearly identical language. For example, in
the third modification, that paragraph provide:
[Alpha Rho] shall make monthly ‘interest only’ payments up to and
including February 21, 2009 (emphasis added);
[Doc. 43-11].
Pursuant to this language, it is clear that the parties intended that
modifications extended not only the time of the interest only period, but also the fluctuating
rate distinctive of that period. In 4(a) of the note, the date for interest only payments is not
mentioned at any point. Instead, that period is only described with reference to itself as,
“the interest only period,” and is specifically differentiated as being a period where the
interest rate on the note was to fluctuate. As such, First United should have allowed the
interest rate to fluctuate from December 21, 2005 to February 21, 2009, instead of fixing
that rate on January 21, 2007. Additionally, because the interest only period and rate were
extended by the modifications, the interest rate as to the principal and interest period
should not have been fixed on January 21, 2007 at 8.5%; instead, the interest and principal
period rate should have been fixed on February 21, 2009, at 3.5% [Doc. 43-12].
First United argues that the Loan Modifications simply modified the time period for
the interest only period and principal and interest period, but did not change the contractual
provisions regarding the applicable interest rates to be charged during those periods.
Specifically, they argue that, “[i]f the parties intended to change the interest calculation
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during this period from the fixed rate back to the floating rate,” it should have been
expressed, “by these sophisticated parties” [Doc. 42-1 at 9]. Such an interpretation would
require this Court to turn a blind eye to the language of the modifications cited above [Doc.
43-11]. When reading the contract and modifications as a whole, it is clear that the parties
intended to extend the interest only period date and its requisite fluctuating rate calculation.
Furthermore, other provisions within the contract require this Court to adopt that
interpretation. First, the agreement specifically states that “[u]pon the termination of the
Construction Interest Rate (emphasis added), the Loan shall bear interest of WSJ Rate
plus one quarter percent (0.25%).” [Doc. 43-4 at 3]. This provision indicates that January
21, 2007, was not a hard and fast date selected for any reason other than that the end of
the interest only period was selected to coincide with the anticipated end of construction
on the fraternity. As such, when the parties entered into the modifications to extend the
interest only period of the loan to accommodate the delays in construction, all terms of the
interest only period set forth in the contract, including the formula for calculating the
applicable interest rate, were also extended.
In conclusion, this Court finds that the contested terms of the contract and
modifications are unambiguous. As such, the modifications effectively changed the end
date for interest only payments at a fluctuating rate on the loan from January 21, 2007 to
February 21, 2009. First United improperly fixed the loan interest rate at 8.5% on January
21, 2007, and it should have billed Alpha Rho at a fluctuating rate up through February 21,
2009, in accordance with the terms of the original contract in the interest only period.
Accordingly, First United is liable for contractual damages to Alpha Rho for its failure to
correct the interest rate up through the present day.
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C. Alpha Rho is Entitled to Pre-Judgment Interest:
Alpha Rho argues that as a result of First United’s failure to charge the correct rate
of interest throughout the course of the contract, it has overpaid an amount of $309,305.43
as of November 25, 2015 [Doc. 43-1 at 13-14]. Because plaintiff’s damages collect interest
at three percentage points above the Fifth Federal Reserve District secondary discount rate
under West Virginia law, pursuant to W.Va. Code § 56-6-31(a), Alpha Rho argues that it
is owed an additional $142,816.05 in prejudgment interest as of December 21, 2015 [Id.].
However, as First United correctly argues, W.Va. Code § 56-6-31(a) provides that
prejudgment interest is only recoverable on special damage awards. (“That if the judgment
or decree, or any part thereof, is for special damages, as defined below, or for liquidated
damages, the amount of special or liquidated damages shall bear interest at the rate in
effect for the calendar year in which the right to bring the same shall have accrued . . .”).
See also Beard v. Lim, 185 W.Va. 749, 752, 408 S.E.2d 772, 775 (1991) (“It is undisputed
that the controlling statutory law in West Virginia provides for the award of prejudgment
interest on special damage awards.”). First United is correct in that W.Va. Code § 56-6-31
does not apply to this action.
Instead, a separate provision within the West Virginia Code governs the prospective
interest amount that Alpha Rho may recover. Pursuant to W.Va. Code § 56-6-27, “in any
action founded on contract, [the Court] may allow interest on the principal due, or any part
thereof, and in all cases they shall find the aggregate of principal and interest due at the
time of the trial, after allowing all proper credits, payments and sets-off; and judgment shall
be entered for such aggregate with interest from the date of the verdict.” See also Bd. of
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Educ. of McDowell Cty. v. Zando, Martin & Milstead, Inc., 182 W. Va. 597, 610, 390
S.E.2d 796, 809 (1990) (“A cursory reading of W.Va. Code § 56–6–27, clearly
demonstrates that an award of interest in a contract action is not limited to cases in which
the amount in question is undisputed. Interest is allowable ‘in any action founded on
contract.’”). Accordingly, Alpha Rho may recover prejudgment interest pursuant to W.Va.
Code § 56-6-27.
IV. CONCLUSION
For the reasons stated above, this Court hereby DENIES Defendant First United’s
Motion for Summary Judgment [Doc. 42] and GRANTS Plaintiff Alpha Rho’s Motion for
Summary Judgment [Doc. 43]. This Court further orders that both parties submit affidavits
as to the damages that Alpha Rho has sustained in this breach of contract action, including
prejudgment interest as provided for in W.Va. Code § 56-6-27, by April 22, 2016.
It is so ORDERED.
The Clerk of Court is directed transmit copies of this Order to all counsel of record.
DATED: April 8, 2016.
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