The Huntington National Bank v. Hard Rock Exploration, Inc. et al

Filing 69

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFFS MOTION TO DISMISS COUNTERCLAIMS: The plaintiffs motion to dismiss the counterclaims 40 is DENIED. Signed by Senior Judge Frederick P. Stamp, Jr on 5/16/17. (jss)

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

Civil Action No. 1:16CV48
(STAMP)

HARD ROCK EXPLORATION, INC.,
CARALINE ENERGY COMPANY,
BLUE JACKET GATHERING, LLC,
BLUE JACKET PARTNERSHIP,
BROTHERS REALTY, LLC,
DUANE YOST,
JAMES L. STEPHENS, JR.,
GREGORY LAUGHLIN and
MONICA R. FRANCISCO,
Defendants.
MEMORANDUM OPINION AND ORDER
DENYING PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIMS
I.
Defendants

Hard

Rock

Background
Exploration,

Inc.,

Caraline

Energy

Company, Blue Jacket Gathering, LLC, Blue Jacket Partnership, and
Brothers Realty (collectively, “Hard Rock Entities”) are business
entities affiliated with defendant Hard Rock Exploration, Inc.,
which engages in oil and gas development.

Defendants James

Stephens, Jr., Monica Francisco, Duane Yost, and Gregory Laughlin
(collectively, “principals”) are shareholders of defendant Hard
Rock Exploration, Inc.

The Hard Rock Entities borrowed money from

the plaintiff, The Huntington National Bank, so as to pursue oil
and gas operations.

Several years into the lending relationship,

however, the plaintiff claims that the defendants failed to satisfy

their obligations.

The plaintiff filed this action for breach of

contract.
The plaintiff’s complaint alleges that the following amounts
remain

outstanding:

(1)

a

$500,000.00

loan

(referred

to

as

“Obligation 174”); (2) a $17,887,867.00 loan (“Obligation 158”);
(3) a $6,250,000.00 loan (“Obligation 42”); (4) a $5,000,000.00
loan

(“Obligation

59”);

and

(5)

an

unspecified

credit

card

obligation (“credit card obligation”), which is allegedly worth
$19,148.10.
engaged

in

In addition, the plaintiff alleges that the parties
a

series

of

swap

transactions

and

a

Forbearance

Agreement, which contain the following obligations: (1) termination
charges for the swaps totaling $839,606.02; and (2) a $30,000.00
forbearance fee.

The plaintiff seeks a judgment for the balance

due under the obligations listed above, including legal fees.
The defendants filed their answer and counterclaim.
37.

ECF No.

The counterclaim asserts claims for fraud and deceit (Count

I), interference with prospective business advantage (Count II),
breach of implied covenant of good faith and fair dealing (Count
III), breach of contract (Count IV), economic duress (Count V),
breach of fiduciary duty (Count VI), demand for injunctive relief
(Count VII), demand for declaratory judgment (Count VIII), and
demand for an accounting (Count IX).
The plaintiff then filed a motion to dismiss the defendants’
counterclaims.

ECF Nos. 40 and 41.

2

The plaintiff argues that the

defendants’ counterclaims are barred by the Forbearance Agreement,
which the plaintiff alleges releases the plaintiff from all claims
arising out of its lending relationship with the defendants.
plaintiff

also

argues

that

the

defendants

have

failed

The
to

sufficiently allege their causes of action for each count of the
counterclaim.
The defendants filed a response to the plaintiff’s motion to
dismiss the defendants’ counterclaims. ECF No. 46. The defendants
allege that the Forbearance Agreement is unenforceable and does not
preclude
defendants

the

claims

further

in

the

assert

defendants’
that

the

counterclaim.

counterclaim

The

contains

allegations that, taken as true and construed in the light most
favorable to them, adequately support the claims stated therein.
The plaintiff did not file a reply to the defendants’ response
to the plaintiff’s motion to dismiss the counterclaims.
II.

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 complaint as true.

Nemet Chevrolet, Ltd v.

Consumeraffairs.com, Inc, 591 F.3d 250, 255 (4th Cir. 2009).
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.”

Id.

(citing Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).

This

3

Court

also

declines

to

consider

“unwarranted

unreasonable conclusions, or arguments.”

inferences,

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.

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 is construed in
the

light

essentially

most
the

favorable
court’s

to

the

inquiry

party
is

making

directed

the
to

claim

and

whether

the

allegations constitute a statement of a claim under Federal Rule of
Civil Procedure 8(a).

Id. § 1357.

A complaint should be dismissed “if it does not allege ‘enough
facts to state a claim to relief that is plausible on is face.’”
Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

“Facial

plausibility is established once the factual content of a complaint
‘allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.’” Nemet Chevrolet,

4

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.”

Twombly, 550 U.S. at 555.
III.

Discussion

This Court has construed the counterclaims in the light most
favorable to the defendants for the purposes of this motion to
dismiss.

Although the plaintiff argues that the Forbearance

Agreement is enforceable and precludes all of the defendants’
claims, the defendants have made factual allegations that could
result

in

the

unenforceable.

Forbearance
West

Agreement

Virginia

law

being

states

judged
that

void

and

“[w]here

[a]

plaintiff is forced into a transaction as a result of unlawful
threats or wrongful, oppressive, or unconscionable conduct on the
part of the defendant which leaves the plaintiff with no reasonable
alternative

but

to

acquiesce,

the

plaintiff

may

void

the

transaction and recover any economic loss.” Berardi v. Meadowbrook
Mall Co., 572 S.E.2d 900, 905 (W. Va. 2002) (citing Machinery
Hauling, Inc. v. Steel of W. Va., 384 S.E.2d 139, 140 (W. Va.
1989)).

The counterclaim alleges (1) fraudulent, wrongful, and

oppressive conduct by the plaintiff, and (2) that such conduct
“forced Counterclaim-Plaintiffs into transactions, including, but
not limited to, the Forbearance Agreement, and left Counterclaim-

5

Plaintiffs with no reasonable alternative but to acquiesce.”

ECF

No. 37 at ¶ 65.
It will require discovery to determine whether the Forbearance
Agreement is enforceable, but, at the motion to dismiss stage, this
Court must accept as true the defendants’ allegations that the
Forbearance Agreement is unenforceable.

Thus, the motion to

dismiss cannot be granted based on the plaintiff’s argument that
the

Forbearance

Agreement

defendants’ claims.
enforceability

of

is

enforceable

and

precludes

the

Rather, the allegations relating to the
the

Forbearance

Agreement

raised

in

the

counterclaim are matters to be developed in discovery.
Given that the enforceability of the Forbearance Agreement
cannot at this time be determined, the Court must look at only
whether the defendants have adequately pled their claims such that
there are plausible grounds for relief under West Virginia law. In
Count I, the claim for fraud and deceit, the defendants allege that
the plaintiff falsely promised to work with the defendants to
provide them with a reasonable opportunity to resolve any issues
with the loan ratio requirements and that the plaintiff and its
agents “knew the statements were false at the time they were made.”
ECF No. 37 at ¶ 29.

The plaintiff further alleges that the false

statements “were designed to induce Borrowers to acquiesce to the
Lending Platform Change and/or the Loans, which form the subject
matter of [the] Counterclaim.”

Id.

6

West Virginia law allows for

recovery for promissory fraud claims “[w]here it’s shown that no
intention to keep the promise existed at the time the promise was
made.”

Bluestone Coal Corp. v. CNX Land Res., Inc., No. 1:07-

00549, 2007 WL 6641647, at *5 (S.D. W. Va. Nov. 16, 2007).

Thus,

the defendants have adequately pled Count I.
Count II is the defendants’ claim for interference with
prospective business advantage.

A claim for tortious interference

with business advantage requires (1) the existence of a business
relationship or expectancy; (2) an intentional act of interference
by an outside party; (3) causation; and (4) damages.

Garrison v.

Herbert J. Thomas Mem’l Hosp. Ass’n, 438 S.E.2d 6, 13 (W. Va.
1993).

The

defendants

allege

that

the

plaintiff’s

conduct

“wrongfully and maliciously interfered with the ability of the
Counterclaim-Plaintiffs to move forward with other opportunities
for financing the operations of their business” and that “as a
direct and proximate result of [the plaintiff’s] wrongful conduct
described
suffered

[in
and

the
are

Counterclaim],
entitled

compensatory damages.”

to

Counterclaim-Plaintiffs

recover

from

[the

ECF No. 37 at ¶¶ 53-54.

have

plaintiff]
Thus, the

defendants have adequately pled Count II.
Count VI is the defendants’ claim for breach of fiduciary
duty.

“West Virginia does not recognize a fiduciary duty between

a lender and a borrower unless a special relationship has been
established.”

Wittenberg v. First Indep. Morg. Co., No. 3:10CV58,

7

2011 WL 1357483, at *18 (N.D. W. Va. Apr. 11, 2011).

The

defendants

the

have

alleged

a

special

relationship.

In

counterclaim, the defendants assert:
At all times relevant hereto, [the plaintiff] and its
agents owed a fiduciary duty to [the defendants] by
virtue of the longstanding relationship established
between [the plaintiff] and [the defendants] . . . . At
all times relevant hereto, [the plaintiff] and its agents
held themselves out as having the special skills and
capabilities necessary to financing Hard Rock and the
Hard Rock Entities’ operations, and for providing
adequate Life Insurance Policies necessary to protect
such operations and the lives of the Insureds.
ECF No. 37 at ¶¶ 70-71.

Thus, the defendants have alleged a

special relationship, which is all that is necessary to survive a
motion to dismiss on Count VI.
Counts III, IV, and V state claims for breach of the implied
covenant of good faith and fair dealing, breach of contract, and
economic duress, respectively.

Each of these claims exist under

West Virginia law. See Evans v. United Bank, Inc., 775 S.E.2d 500,
508 (W. Va. 2015) (recognizing that there is a claim in West
Virginia for breach of the implied covenant of good faith and fair
dealing so long as there is also a claim for breach of contract);
White v. AAMG Constr. Lending Ctr., 700 S.E.2d 791, 798 (W. Va.
2010) (holding that, when a lender breaches a contract with a
borrower and causes economic loss, the borrower’s primary remedy is
a breach of contract action); Machinery Hauling, 384 S.E.2d at 142
(recognizing the claim of economic duress).

8

The defendants have adequately pled these claims by alleging
that the plaintiff breached a binding contract with the defendants
providing them with a reasonable opportunity to cure any alleged
deficiencies pertaining to the loan ratio requirements. ECF No. 37
at ¶¶ 61-62. The defendants allege that the plaintiff breached the
implied covenant of good faith and fair dealing by omitting
material

facts,

information,

and

consistently

failing

intentionally

to

refusing

disclose

to

take

material

all

action

necessary to carry out the spirit and terms of the loans.

Id. at

¶ 57. The defendants further allege the Machinery Hauling elements
of economic duress by stating that the plaintiff’s wrongful and
fraudulent
transactions,

conduct

“forced

including,

but

Counterclaim-Plaintiffs
not

limited

to,

the

into

Forbearance

Agreement, and left Counterclaim-Plaintiffs with no reasonable
alternative but to acquiesce.”

Id. at ¶ 65.

Based upon the standard of review for motions to dismiss, this
Court finds that the allegations presented in the counterclaims are
sufficient to warrant denial of the motion to dismiss.

More

detailed factual allegations at this stage are not necessary.
Thus, all counts of the counterclaim have been pled with sufficient
specificity.
IV.

Conclusion

For the reasons set forth above, the plaintiff’s motion to
dismiss the counterclaims (ECF No. 40) is DENIED.

9

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 16, 2017

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

10