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Best Medical International, Inc. v. Wells Fargo Bank, N.A.

United States District Court, E.D. Virginia, Alexandria Division

March 29, 2013

WELLS FARGO BANK, N.A., et al., Defendants

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For Best Medical International, Inc., A Virginia Corporation, Huestis Machine Corp., a Rhode island Corporation, Gunston Hall Realty, Inc., a Virginia Corpration, Best Industries Inc., a Virginina Corporation, Krishnan Suthanthiran, an individual, Plaintiffs: James Michael Brady, Lauri Michele Luxton, Best Medical International Inc, Springfield, VA.

For Wells Fargo, Bank, N.A., as successor in interest to Wachovia Bank, N.A., Defendant: Margaret Melissa Glassman, LEAD ATTORNEY, John David Wilburn, McGuireWoods LLP, McLean, VA; Courtney South Schorr, Kevin James Daniel, Stephen Phillip Mulligan, McGuireWoods LLP (McLean), McLean, VA.

For J. Kent Thompson, Defendant: Courtney South Schorr, Stephen Phillip Mulligan, McGuireWoods LLP (McLean), McLean, VA.


Gerald Bruce Lee, United States District Judge.

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THIS MATTER is before the Court on Defendants' Motion for Summary Judgment. (Doc. 150.) This is a race discrimination in commercial lending case. Plaintiff corporations and an entrepreneur of color allege that Wells Fargo Bank, N.A. (" Wells Fargo" ) engaged in race discrimination in refusing to renew and extend commercial lines of credit and loans to the Plaintiff businesses. Specifically, Plaintiffs allege that Defendant J. Kent Thompson, a senior vice president of Wells Fargo, discriminated against the Plaintiff corporations and the entrepreneur of color based upon the individual entrepreneur's race. Plaintiffs further allege retaliation by Wells Fargo and Mr. Thompson as a result of Plaintiffs' allegations of discrimination and a state court lawsuit based on such allegations. The issue before the Court is whether Plaintiffs present sufficient evidence to demonstrate a genuine issue of material fact regarding its claims that (1) Defendants engaged in discriminatory lending practices based on race and (2) Wells Fargo's decision to initiate default collection procedures, including confession of judgment against Plaintiffs, amounted to unlawful retaliation. The Court holds that Plaintiffs fail to present an issue of material fact on its claim of commercial lending race discrimination because their evidence fails to demonstrate a prima facie case of discrimination, nor does Plaintiff come forward with evidence of pretext to raise a genuine issue of fact regarding Defendants' legitimate, nondiscriminatory reasons for the adverse action denying the loan extension and loan applications. Here, the Defendants have come forward with evidence of nondiscriminatory reasons for denying extensions of Plaintiffs' loans--that is, that the Plaintiffs lack of qualifications, the Plaintiffs' infirm financial condition, and the nature of commercial lending at that time all led to a commercially reasonable decision to deny Plaintiffs' applications for a commercial loan extension. The Plaintiffs have failed to come forward with any evidence demonstrating a genuine issue of fact that Defendant Wells Fargo Bank's decision to deny the loans was a pretext for race discrimination and that the proffered nondiscriminatory reasons were not Defendant Wells Fargo Bank's real reason for denying the loans. The Court further holds that Plaintiffs fail to demonstrate an issue of fact as to their retaliation claims because the evidence before the Court is insufficient to permit a reasonable jury to find a causal connection between Plaintiffs' protected activity and the Defendants' decisions to initiate collection procedures. Accordingly, the Court grants Defendants' Motion for Summary Judgment.

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Plaintiffs Best Medical International, Inc. (" Best Medical" ), Gunston Hall Realty, Inc. (" Gunston" ), Huestis Machine Corporation (" Huestis" ), Best Industries, Inc., and Krishnan Suthanthiran bring this action against Wells Fargo and J. Kent Thompson, a Senior Vice President for Wells Fargo.

This action arises out of various loans and lines of credit Plaintiffs obtained from Defendant Wells Fargo's predecessor, Wachovia Bank, between 2004 and 2006. (Statement of Undisputed Facts ¶ 1 [hereinafter " SUF" ], Doc. 151; Stipulation of Uncontested Facts ¶ ¶ 3, 6 [hereinafter " Stipulation" ], Doc. 136.) In all, Plaintiffs' loans totaled approximately fifteen million dollars. (Stipulation ¶ 20.) Mr. Suthanthiran, the owner of each Plaintiff corporation, personally guaranteed payment of the loans. (SUF ¶ 3; Stipulation ¶ 14, 21.) Wells Fargo merged with Wachovia on or about December 31, 2008. ( Id. ¶ 16.) In doing so, Wells Fargo assumed obligations as the lender for all loan and guarantee agreements between Wachovia and Plaintiffs.

On May 8, 2009, Wells Fargo sent Plaintiffs a notice of default. (SUF ¶ 6; Stipulation ¶ 22.) The notice declared Plaintiffs in default for three reasons: (1) Huestis failed to provide audited financial statements; (2) Huestis failed to maintain a Debt Service Coverage Ratio of not less than 1.24-1.00; and (3) Suthanthiran failed to maintain a liquidity requirement. ( Id. ¶ 23.) Wells Fargo also indicated that Best Medical and Gunston Hall's lines of credit had become due on March 6, 2009. ( Id. ¶ 24.)

On July 31, 2009, the parties modified the terms and conditions of the loans by entering into a Waiver and Amendment Agreement (" WAA" ). (SUF ¶ 8; Stipulation ¶ 26.) The WAA extended the loans and required payment in full of all loans by January 1, 2010. (Stipulation ¶ 26.) The WAA incorporated the terms and conditions of the prior loan documents, and thereby reserved to Wells Fargo the rights and remedies available in the event of Plaintiffs' default. (SUF ¶ 10; Stipulation ¶ 27.) Among the terms incorporated was the security interest in Plaintiffs' accounts receivable, previously granted to Wells Fargo's predecessor, Wachovia. (SUF ¶ 37.) In exchange for the waiver of default and extension, Plaintiffs agreed to provide additional collateral, maintain a minimum net income, and use their best efforts to refinance the loans. (SUF ¶ ¶ 12-13.) Mr. Suthanthiran, the Plaintiff entities, and companies affiliated with Plaintiffs guaranteed the Plaintiffs' obligations under the loan documents. (SUF ¶ 14.) Plaintiffs were represented by counsel during the negotiations culminating in the WAA. (SUF ¶ 9.)

After signing the WAA, Plaintiffs attempted to refinance the loans in accordance with the WAA. (SUF ¶ 15.) In late 2009, Plaintiffs sought professional assistance with applications for refinancing as well as further extension from Wells Fargo. ( Id. ) Although the parties' dispute whether Plaintiffs actually applied for financing from approximately two dozen lenders, Plaintiffs concede that they spoke with two dozen potential lenders regarding the refinancing of their obligations. (SUF ¶ 16; Pls.' Opp'n Mot. Summ. J. at 3, Doc. 188 [hereinafter " Pl.'s Opp'n" ].) Ultimately, none of these lenders provided a loan or line of credit to Plaintiffs. (SUF ¶ 18.) One prospective lender, United Bank, denied Plaintiffs' application for credit, citing concerns regarding cash flow information, lack of accounting controls, and insufficient liquidity, among other reasons. [1] (SUF ¶ 19.)

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On January 1, 2010, Plaintiffs' loans remained unpaid and Plaintiffs had failed to refinance the loans. (SUF ¶ 20.) Further negotiations for an extension past the January 1, 2010 deadline were unsuccessful. (Stipulation ¶ ¶ 28-29.) In March 2010, Wells Fargo allegedly requested the entire Wachovia loan be repaid within six months. (2d Am. Compl. ¶ ¶ 52(b)(i), Doc. 77.) Between March and June 2010, the parties continued to exchange various proposals regarding another forbearance and modification of loan terms. (SUF ¶ 22.) These discussions included a March 18, 2010 proposal by Mr. Thompson that would have extended the loans to October 31, 2010. (SUF ¶ 23.) This same proposal, sent by Mr. Thompson in March 2010, sought a cash payment of one million dollars plus additional collateral in exchange for an extension of the loan deadline. (2d Am. Compl. ¶ 52(B)(ii); Thompson Aff. Ex. G, at 184, Doc. 151-1.) Defendants contend that Plaintiffs rejected this extension offer. (SUF ¶ 24.) Plaintiffs dispute the contention that an explicit rejection occurred, yet Plaintiffs concede that on March 30, 2010, Plaintiffs, through Mr. Suthanthiran, offered instead to pay an additional $250,000 per month toward the principal, beginning April 1, 2010. (Pls.' Opp'n at 5.) On April 6, 2010, Wells Fargo rejected Plaintiffs' offer and reiterated that they remained entitled to exercise the loan documents' rights and remedies in the event of default. (SUF ¶ 25.) On April 21, 2010, Defendants sent Plaintiffs Notices of Default indicating Plaintiffs were in default of the WAA and requesting full payment of the loans by April 30, 2010. (SUF ¶ 26; Stipulation ¶ 30.)

Plaintiffs' loans remained unpaid as of June 2010. (SUF ¶ 28.) As a result, Wells Fargo pressed forward in exercising its rights and remedies pursuant to the loan agreements. On June 10, 2010, Wells Fargo approved the decision to proceed with its rights and remedies, including filing confessed judgments against the Plaintiffs. (SUF ¶ 29.) Wells Fargo based this decision on (1) full maturation of Plaintiffs' loans, (2) the lack of a meeting of the minds with respect to repayment terms, (3) the loans being more than ninety days past due, and (4) provisions within the loan documents granting Wells Fargo the right to initiate default remedies. ( Id. ) Mr.

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Thompson sent Plaintiffs a letter on June 13, 2012 indicating that Wells Fargo would collect on the accounts receivable through the efforts of Receivables Control Corporation. (SUF ¶ 30; Stipulation ¶ 34.) On June 30, 2010, Wells Fargo confessed judgment against Plaintiffs, pursuant to § 1.9 of the Guaranty Agreement. (SUF ¶ 34.) On July 2, 2010 and July 6, 2010, the Circuit Court of Fairfax County entered orders confessing judgments against Mr. Suthanthiran, Gunston, and Best Medical in the sum of $12,119,254.01. (Stipulation ¶ 33.)

On June 24, 2010, Mr. Suthanthiran sent a letter to Mr. Thompson complaining that Mr. Thompson's racial discrimination against him motivated Wells Fargo Bank's treatment of Plaintiffs, acceleration of the loans, and failure to negotiate in good faith. (SUF ¶ 32; Stipulation ¶ 31.) Wells Fargo's counsel responded to this letter on July 1, 2010, denying Mr. Suthanthiran's allegations that racial animus motivated Defendants' actions. (Stipulation ¶ 32.) In August 2010, Plaintiffs sued Wells Fargo in the Circuit Court of Fairfax County for race discrimination under the Virginia Equal Credit Opportunity Act, fraud, equitable estoppel, and breach of duty of good faith and fair dealing. [2] (SUF ¶ 35; Complaint at 5-13, Best Medical Int'l, Inc. v. Wells Fargo, Inc., No. 1:10-CV-988 (E.D. Va. Aug. 30, 2010), Doc. 1-1.) The Circuit Court dismissed the case with prejudice in February 2012. (SUF ¶ 36.) In doing so, the Circuit Court entered judgment in favor of Wells Fargo and against Plaintiffs in the amount of $12,119,254.01, plus $800,086.78 for attorneys' fees. (SUF ¶ 36.) The Court notes that the Plaintiffs have filed a series of lawsuits against Wells Fargo as well as and other individuals and entities associated with Plaintiffs' dire financial condition. Each of the claims in this Court has been dismissed. [3]

Subsequent to the Circuit Court's 2012 judgment, Wells Fargo exercised its rights to take assignment of Plaintiffs' accounts receivable. (SUF ¶ 38.) On May 3, 2012, Wells Fargo sent a subpoena duces tecum to United Bank, one of Plaintiffs' potential lenders, requesting documents related to Plaintiffs' financial condition. On June 13, 2012, Wells Fargo notified Plaintiffs' customers of the assignment of the accounts receivable. (SUF ¶ 39; Stipulation ¶ 34.) This letter further directed the customers to pay Wells Fargo directly, through its agent Receivables Control Corporation. (SUF ¶ 39; Stipulation ¶ 34.) On June 21, 2102, Plaintiffs sent a letter to its customers stating that (1) Wells Fargo's letter was inappropriate, (2) the matter was in dispute, and (3) the customers should continue

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to pay Plaintiffs directly. (Pls.' Opp'n at 7.)

Procedural History

On November 22, 2011, Plaintiffs initiated this lawsuit against Wells Fargo, as successor to Wachovia Bank, alleging lending discrimination in violation of 42 U.S.C. § 1981. (Doc. 1.) On March 19, 2012, the Court dismissed with prejudice any claims based on events predating July 31, 2009, the date of the WAA. (Doc. 22.) The Court further dismissed Plaintiffs' discrimination claim without prejudice. ( Id. )

Plaintiffs filed their First Amended Complaint on March 28, 2012. (Doc. 35.) The First Amended Complaint alleged (1) racial discrimination and harassment in violation of § 1981 and (2) retaliation in violation of § 1981. (1st Am. Compl. at 12-25, Doc. 24-1.) On June 26, 2012, the Court dismissed Plaintiffs' harassment claims with prejudice and permitted Plaintiffs' remaining claims to proceed. (Doc. 57.)

On August 20, 2012, Plaintiffs filed their Second Amended Complaint, adding Mr. Thompson as a defendant. (Doc. 77.) Furthermore, the Second Amended Complaint sought relief on six grounds: Count I--race discrimination by Wells Fargo; Count II--race discrimination by Mr. Thompson; Count III--retaliation by Wells Fargo; Count IV--retaliation by Mr. Thompson; Count V--tortious interference with contract expectancy; and Count VI--tortious interference with prospective business advantage. (2d Am. Compl. at 23-33.) On October 26, 2012, the Court dismissed Counts V and VI with prejudice. (Doc. No 139.) Defendants filed the instant Motion on November 13, 2012 on the basis that no genuine issue of material fact exists with respect to the remaining claims, Counts I-IV. (Doc. 150.)


A. Summary Judgment Standard of Review

Under Federal Rule of Civil Procedure 56, the Court must grant summary judgment if the moving party demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

In reviewing a motion for summary judgment, the Court views the facts in the light most favorable to the nonmoving party. Boitnott v. Corning, Inc., 669 F.3d 172, 175 (4th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (citations omitted). " [T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported ...

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