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Union First Market Bank v. Bly

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

February 6, 2014

UNION FIRST MARKET BANK, Plaintiff,
v.
DONALD A. BLY, II, Defendant.

MEMORANDUM OPINION

JAMES R. SPENCER, District Judge.

THIS MATTER is before the Court on three motions filed by Plaintiff and Counterclaim Defendant Union First Market Bank ("UFMB"): (1) a Motion for Summary Judgment (ECF No. 44); (2) a Motion to Exclude Testimony of Robert E. Ruloff and Strike the Ruloff Declaration ("Motion to Exclude") (ECF No. 58); and (3) a Motion to Compel Documents and Things Related to Proposed Testimony of Robert E. Ruloff ("Motion to Compel") (ECF No. 60).

For the reasons below, the Court resolves each of these motions as follows: the Motion for Summary Judgment is hereby GRANTED, with respect to Count One of UFMB's Complaint, and GRANTED IN PART, with respect to Count Two of UFMB's Complaint only to the extent that UFMB did not owe any fiduciary duties to Bly regarding the May 7, 2011, promissory note ("Note") at issue, and DENIED IN PART, with respect to Bly's Counterclaim. The Motion to Exclude is hereby DENIED. The Motion to Compel is hereby GRANTED IN PART and DENIED IN PART. To the extent that they have not already done so, the subpoenaed parties, Robert E. Ruloff ("Ruloff"), in his individual capacity, Shuttleworth, Ruloff, Swain, Haddad & Morecock, P.C., and DurretteCrump, PLC are DIRECTED to produce any documents which have been admitted as being responsive, but not privileged, as well as any documents memorializing the disputed meeting between Plaintiff, Michael Williams, and Robert E. Ruloff.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Motion for Summary Judgment[1]

On March 12, 2003, UFMB and Bly entered into an investment management agency agreement ("IMAA") pertaining to an investment account ("Investment Account") owned by Bly. Michael Williams ("Williams"), then president of UFMB's Trust and Investment Management Division, signed the IMAA on behalf of UFMB. The IMAA provides, in part:

I [Bly] request that [UFMB] open an Investment Management Agency Account in my name into which you will receive assets subject to the following guidelines [.]...
You are to retain my securities and collect the income therefrom and the proceeds of those securities called, sold or matured. You are to invest the daily cash balances in a short-term money-market account of your choice....
You are to provide investment management for this account and your discretion with respect to the investment and reinvestment of property held therein as though you were the owner of such property. Your authorization extends, though is not limited to the sale and purchase of securities, bonds, mutual funds, subscription rights, other rights of similar nature and participation in corporate reorganizations, except as I may otherwise direct you in writing....
As with any investment of this account, such purchase should be in keeping with our investment objectives and risk tolerance....
At least quarterly, you will send me a detailed listing of all transactions in this account and a listing of assets....
In the management of my account you may employ such Agents as you deem advisable, and you may incur such administrative expenses on my behalf as is usual for an agent to incur with a similar account, charging the expenses to my account....

(Countercl. Ex. A, at 1). The IMAA also provides that "[n]othing contained in this agreement shall be construed to create a trust relationship. The relationship between [UFMB] and [Bly] shall strictly be that of agent and principal." ( Id. at 2).

In or before 2006, Bly's uncle, Daniel Holland, approached Bly regarding an investment opportunity in a proposed Sports Complex property in Virginia Beach, Virginia ("Sports Complex"). Neither the Sports Complex nor Bly's interest therein was ever an asset that was deposited into the Investment Account. No written or oral agreement exists between UFMB and Bly by which UFMB agreed to provide investment management services, investment advice, or financial planning services as to any of Bly's assets held outside of the Investment Account. In order to provide funding for the Sports Complex, Bly executed a series of loans from UFMB, which were memorialized in several promissory notes, commercial pledge agreements, line of credit agreements, and consumer pledge agreements ("Bly Debt Instruments"). Each of the Bly Debt Instruments was signed by Bly and pledged Bly's Investment Account as collateral. In the very first commercial pledge agreement in which Bly designated the Investment Account as collateral, Bly represented and warranted to UFMB that he had "the full right, power and authority to enter into this Agreement and pledge the [Investment Account]." ( See Countercl. Ex. C, at 1). Bly further represented and warranted that execution and delivery of the commercial pledge agreement would "not violate any... agreement governing [Bly] or to which [Bly] is a party." ( Id. ) Bly also agreed that he understood all terms of the agreement. ( Id. at 5). The other Bly Debt Instruments contain similar representations indicating that Bly was acting under his own authority and with full understanding of each instrument's consequences.

The Bly Debt Instruments provide distinct duties for UFMB as lender with respect to the Investment Account as collateral:

LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of the Collateral in its value. In particular, but without limitation, Lender shall have no responsibility for (A) any depreciation in value of the Collateral or for the collection or protection of any Income and Proceeds from the Collateral, (B) preservation of rights against parties to the Collateral or against third persons, (C) ascertaining any maturities, calls, conversions, exchanges, offers, tenders, or similar matters relating to any of the Collateral, or (D) informing Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. Except as provided above, Lender shall have no liability for depreciation or deterioration of the Collateral.

(Countercl. Ex. C, at 2; see also id. at Ex. E, at 2; Ex. G at 2). The most recent of the Bly Debt Instruments was the Note under which Bly agreed to repay UFMB in the principal amount of $1, 995, 555.56 with a contractual default interest rate of 18%. The Note matured on August 7, 2011. As of April 30, 2013, the Note became due according to its terms. Bly has made no payments on the Note and the principal in the amount is due and owing as is interest after default.

The Parties dispute whether Thomas Winston ("Winston"), a UFMB representative from its commercial loan division, promised that UFMB, and perhaps another investor by the name of Markel, would provide additional and permanent financing for the construction of the Sports Complex through loans and/or money from additional investors. The Parties also dispute whether UFMB failed to find other investors to fund the anticipated $18, 000, 000.00 in construction costs for the Sports Complex. Lastly, the Parties dispute whether Williams transferred funds in the amount of $2, 500, 000.00 out of the Investment Account to cover expenses regarding the Sports Complex.

UFMB filed the instant action against Bly on May 24, 2013. In Count One of the Complaint, UFMB alleges that Bly breached the terms of the Note and seeks $1, 995, 555.56 plus interest from April 30, 2013 at the default rate of 18% per annum based on a year of 360 days. In Count Two, UFMB seeks declaratory relief stating (a) that UFMB does not owe Bly any fiduciary duties or obligations with respect or in any way related to the Note; (b) that UFMB did not breach or violate any duties or obligations to Bly; and (c) that Bly has not been damaged in any way by UFMB's alleged breach or violation of any duties or obligations to Bly. Finally, UFMB also seeks its reasonable attorney's fees and costs and any such relief as the Court deems proper. Bly, in turn, filed a Counterclaim on June 19, 2013, alleging that UFMB breached the IMAA. Bly seeks direct and consequential damages in the amount of $12, 000, 000.00.

UFMB filed this Motion for Summary Judgment on December 11, 2013. Bly filed an Opposition on December 26, 2013. UFMB filed its Reply on January 3, 2014. A hearing on the matter was held on January 28, ...


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