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PNC Bank, National Association v. Dominion Energy Management, Inc.

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

April 11, 2018

PNC BANK, NATIONAL ASSOCIATION, Plaintiff,
v.
DOMINION ENERGY MANAGEMENT, INC., et ah, Defendants.

          MEMORANDUM OPINION

          DAVID J. NOVAK, UNITED STATES MAGISTRATE JUDGE.

         Defendants Dominion Energy Management, Inc. ("Dominion"); Gerald Mwangi ("Mwangi"), President of Dominion; and, Youri Brun ("Brun"), Secretary and Vice President of Dominion, (collectively, "Defendants") entered into four commercial loans with Plaintiff PNC Bank, National Association ("PNC"), whereby PNC loaned funds and extended lines of credit to Defendants for business and commercial purposes. When Defendants defaulted on the terms of the loan documents, PNC brought this action. PNC now seeks summary judgment and the matter is ripe for disposition.

         Apart from a now-cured discovery dispute pertaining to the admissibility of evidence used by PNC in support of its Motion for Summary Judgment, neither Dominion nor Brun oppose PNC's Motion for Summary Judgment. Mwangi argues that the Court cannot hold him personally liable for any of PNC's claimed damages, because PNC fraudulently induced Mwangi to enter into certain loan documents and an individual guaranty. Specifically, Mwangi claims that PNC loan officers misrepresented to him that he would not be personally liable for any of Defendants' debts. PNC asserts that Mwangi's fraud claims fail, because his independent review of the loan documents and the guaranty renders Mwangi's reliance on the loan officer's statements unjustifiable. Neither Mwangi's self-serving statements nor any other evidence put forth by the parties raises a genuine issue of material fact that would prevent a reasonable factfinder from returning a verdict in PNC's favor. Consequently, for the reasons set forth below, the Court hereby GRANTS PNC's Motion for Summary Judgment (ECF No. 25).

         I. Factual Background[1]

         The Court views the following facts in the light most favorable to Defendants, the non-movants. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

         A. Defendants' Obligations to PNC

         1. SBA Loan

         On December 16, 2009, Defendants, jointly as borrowers, entered into an agreement with PNC, whereby PNC, with authorization from the U.S. Small Business Administration ("SBA"), loaned $1, 465, 000.00 to Defendants for commercial and business purposes ("SBA Loan"). (Am. Compl. (ECF No. 24) ¶ 9.) The terms of the SBA Loan are set forth in the SBA Loan Agreement and the SBA Note (collectively, the "SBA Loan Documents"), both dated December 16, 2009. (PNC's Mem. at 3, Exs. A (Affidavit of Stephen Bar) (hereinafter, "Barr Aff."), A-l ("SBA Loan Agreement"), A-2 ("SBA Note").) Also on December 16, 2009, Brun executed a Guaranty and Suretyship Agreement ("2009 Brun Guaranty"), in which Brun guaranteed prompt payment and performance of all Dominion's loan obligations to PNC, including Dominion's obligations under the SBA Loan Documents. (PNC's Mem. at 3; Barr Aff., Ex. A-3 ("2009 Brun Guaranty").)

         2. VISA Commercial Card Agreement

         On April 9, 2014, Dominion entered into another commercial loan agreement with PNC, whereby PNC extended a credit limit of $500, 000.00 to Dominion ("Visa Commercial Card Agreement"). (PNC's Mem. at 5-6; Barr. Aff., Ex. A-6 ("Visa Commercial Card Agreement") at 1, 14.) Brun, pursuant to his obligations under the 2009 Brun Guaranty, and Mwangi each personally guaranteed the Visa Commercial Card Agreement. (PNC's Mem. at 6.) Brun personally guaranteed the Visa Commercial Card Agreement through the 2009 Brun Guaranty, which made Brun liable for the prompt payment and performance of all loan obligations that Dominion owed to PNC, including future obligations. (Am. Compl. ¶ 42; 2009 Brun Guaranty at 1, 6.)

         On April 9, 2014, Brun also executed a Consent of Guarantor ("2014 Brun Consent of Guarantor") to further secure the Visa Commercial Card Agreement. (PNC's Mem., Ex. A-7 ("2014 Brun Consent of Guarantor").) That same day, Mwangi personally secured the Visa Commercial Card Agreement by agreeing and signing a Guaranty and Suretyship Agreement ("2014 Mwangi Guaranty"), under which Mwangi ensured the prompt payment and performance of all of Dominion's loan obligations to PNC, including the Visa Commercial Card Agreement. (Am. Compl. ¶ 43; PNC's Mem., Ex. A-8 ("2014 Mwangi Guaranty").) On December 1, 2014, PNC amended the Visa Commercial Card Agreement via letter by reducing Dominion's credit limit to $200, 000.00. (Am. Compl. ¶ 46; Barr. Aff., Ex. A-9.)

         3. Line of Credit and Term Loan

         Shortly after PNC reduced Dominion's credit limit under the Visa Commercial Card Agreement, Defendants entered into another agreement with PNC to open a second line of credit for $400, 000.00 ("Line of Credit"). (PNC's Mem. at 9.) The terms of the Line of Credit are set forth in the Commercial Loan Agreement, dated December 16, 2009, and the Line of Credit Note, dated December 12, 2014. (PNC's Mem. at 9; Barr Aff., Exs. A-13 ("Commercial Loan Agreement"), A-14 ("Line of Credit Note".)[2] Also on December 12, 2014, Brun executed a Guaranty and Suretyship Agreement ("2014 Brun Guaranty") to secure repayment of the Line of Credit Note. (PNC's Mem. at 9-10; Barr. Aff., Ex. A-15 ("2014 Brun Guaranty").) Mwangi also personally guaranteed Dominion's loan obligations under the Line of Credit Documents through the 2014 Mwangi Guaranty. (PNC's Mem. at 9; 2014 Mwangi Guaranty § 1(a).)

         Finally, on December 12, 2014, PNC agreed to loan Dominion $200, 000.00 ("Term Loan"). (PNC's Mem. at 11-12.) The terms of the Term Loan are set forth in the Commercial Loan Agreement and the Term Note. (PNC's Mem. at 11-12, Ex. A-16 ("Term Note"); Commercial Loan Agreement.) Brun and Mwangi each personally guaranteed Dominion's obligations under the Term Loan pursuant to the 2014 Brun Guaranty and 2014 Mwangi Guaranty. (2014 Mwangi Guaranty § 1(a); 2014 Brun Guaranty § 1(a).)

         B. Defendants' Default

         By loaning funds and extending credit to Defendants, PNC performed its obligations under the SBA Loan Documents, the Visa Commercial Card Agreement, the Commercial Loan Agreement, the Line of Credit Note and the Term Note (collectively, the "Loan Documents"). (PNC's Mem. at 1-2.) Under the terms of the Loan Documents, events of defaults include, inter alia - (i) Defendants' failure to make timely payments, (ii) Defendants' default on any other loan with PNC; or, (iii) "the occurrence of any event which would constitute a material adverse change in [Dominion's] business operations, including financial." (Am. Compl. ¶¶ 18, 48, 74, 99; SBA Note § 4; Visa Commercial Card Agreement § 13; Line of Credit Note § 9; Term Note § 8.) In the event of default, the Loan Documents provided that PNC could demand immediate payment of outstanding debts, collect any amounts owed from any borrower or guarantor, or file suit and obtain judgment. (SBA Note § 5; Visa Commercial Card Agreement § 14; Line of Credit Note § 9; Term Note § 8.)

         The following events of default occurred: First, in September 2016, Defendants failed to make timely payments on the Visa Commercial Card Agreement. (PNC's Mem. at 4; Barr Aff., Ex. A-10 (Dominion's billing records from July, August and September 2016)). This constituted an event of default under the Visa Commercial Card Agreement itself, as well as under § 4(a) of the SBA Note (defaulting on any other loan with PNC constitutes an event of default), § 9(ii) of the Line of Credit Note (same) and § 8(ii) of the Term Note (same). (SBA Note § 4(a); Visa Commercial Card Agreement § 13(a); Line of Credit Note § 9(ii); Term Note § 8(ii).)

         Second, Dominion fell behind on its rent payments to Robert Snydor ("Snydor"), the property owner of the office space that Dominion rented in Ashland, Virginia. (Am. Compl. ¶¶ 16-17, 21-22; Pl.'s Reply Br. in Supp. of its Mot. for Summ. J. ("PNC's Reply") (ECF No. 36) at 2-6, Exs. A (Suppl. Barr Aff.); A-l ("Landlord Emails"); A-2 ("Barr Email"); A-3 ("Notice of Lease Default").) Dominion failed to make rent payments to Snydor in June, July, August and September 2016, which ultimately resulted in Dominion's eviction from its business office. (Am. Compl. ¶¶ 21-22.) PNC considered Dominion's eviction "a materially adverse change in Dominion's business operation." (Am. Compl. ¶¶ 54, 78, 103.) This constituted an event of default under the SBA Note, the Visa Commercial Card Agreement, the Line of Credit Note and the Term Note. (SBA Note § 4(K); Visa Commercial Card Agreement § I3(k); Line of Credit Note § 9(viii); Term Note § 8(viii).) PNC also believed that Dominion's breach of its lease and subsequent eviction "materially affected Defendants' ability to repay" their debts. (Am. Compl. ¶ 22.) This constituted an event of default under the SBA note, which held Defendants in default if they "[d]efault[ed] on any loan or agreement with another creditor, if [PNC] believes the default may materially affect [Defendants'] ability to pay this Note." (SBA Note § 4(F).)

         Following these events of default, on October 6, 2016, PNC sent Dominion a termination notice (to Mwangi's attention), notifying Mwangi of Dominion's Default and demanding payment of all outstanding debts due under the Visa Commercial Card Agreement. (PNC's Mem., Ex. A-l 1.) That same day, PNC sent two notices of default to Mwangi and Brun. (Am. Compl., Ex. 4 ("SBA Loan Default Notice"); PNC's Mem., Ex. A-12 ("Dominion Notice of Default").) In the first notice of default, PNC demanded repayment of the SBA Loan in full, plus accrued interest and other charges, totaling $561, 491.25. (SBA Loan Default Notice at 1-3.) In the second notice of default, PNC demanded repayment of the other three commercial loans in full, plus accrued interest and other charges totaling the following amounts - (i) $ 401, 302.25 for the Line of Credit; (ii) $136, 115.28 for the Term Loan; and, (iii) $199, 896.00 for the Visa Commercial Card Agreement. (Dominion Notice of Default at 1, 3.) Both notices also demanded that Defendants pay PNC's attorneys' fees in accordance with the requirements of the Loan Documents. (SBA Loan Default Notice at 2; Dominion Notice of Default at 1.)

         II. PROCEDURAL HISTORY

         On April 20, 2017, PNC filed suit against Defendants in this Court, alleging four counts of breach of contract. (Compl. (ECF No. 1).) By Order of the Court (ECF No. 23), on November 30, 2017, PNC filed its Amended Complaint, clarifying the grounds for diversity jurisdiction in this matter. (Am. Compl. at 1-2.) On December 1, 2017, PNC filed its Motion for Summary Judgment. (PNC's Mot. for Summ. J. (ECF No. 25).) In their response, Defendants alleged that PNC did not comply with the Court's Scheduling and Pretrial Order (ECF No. 15), by not timely producing certain evidence of Defendants' default in initial disclosures. (Defs.' Resp. to PNC's Mot. for Summ. J. (ECF No. 30) ("Defs.' Resp.") at 3-5.) Accordingly, on January 5, 2018, the Court re-opened discovery for the limited purpose of allowing the parties to take certain additional, written discovery and affording PNC the opportunity to depose Mwangi, if PNC so chose. (ECF No. 34 ("January 2018 Order").) The Court also permitted the parties to re-file their respective response and reply to PNC's Motion for Summary Judgment, if so desired. (January 2018 Order.) On January 19, 2018, only Defendant Mwangi elected to re-file his response, alleging that the Court cannot hold him personally liable for Defendants' default on the loans, because PNC fraudulently induced him into signing the Loan Documents and 2014 Mwangi Guaranty. (Mwangi's Opp'n.) On January 26, 2018, PNC re-filed its reply. (PNC's Reply.)

         III. Standard of Review

         Pursuant to Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment should occur "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The relevant inquiry in a summary judgment analysis focuses on "whether the evidence presents a sufficient disagreement to require submission to a [factfinder] or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52. In reviewing a motion for summary judgment, the Court must view the facts in the light most favorable to the non-moving party. Id. at 255. Moreover, the Court cannot weigh the evidence to enter a judgment, but simply must determine whether a genuine issue for trial exists. Greater Balt. Ctr. for Pregnancy Concerns v. Mayor of Baltimore, 721 F.3d 264, 283 (4th Cir. 2013) (quoting Anderson, 477 U.S. at 249).

         Once the moving party properly submits and supports a motion for summary judgment, 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, 585-86 (1986). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; instead, there must be no genuine issue of material fact. Anderson, 477 U.S. at 247-48. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248.

         Indeed, summary judgment must be granted if the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). To defeat an otherwise properly supported motion for summary judgment, the non-moving party "must rely on more than conclusory allegations, 'mere speculation, ' the 'building of one inference upon another, ' the 'mere existence of a scintilla of evidence, ' or the appearance of some 'metaphysical doubt' concerning a material fact." Lewis v. City of Va. Beach Sheriff's Office, 409 F.Supp.2d 696, 704 (E.D. Va. 2006) (citations omitted). A "genuine" issue concerning a "material" fact only arises when the evidence, viewed in the light most favorable to the non-moving party, allows a reasonable factfinder to return a verdict in that party's favor. Anderson, 477 U.S. at 248.

         IV. Discussion

         A. PNC's Breach of Contract Claims

         1. Choice of Law

         Although not addressed by the parties, the Court must first consider the choice of law applicable in this case. Federal courts sitting in diversity apply the law of the forum state to resolve state law claims. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941). Virginia, the forum state, "looks favorably upon choice of law clauses in a contract, giving them full effect except in unusual circumstances." Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 624 (4th Cir. 1999). "Unusual circumstances exist where there is 'no reasonable basis' for the choice-of-law provision, or where a party agreed to the provision due to improper means such as fraud or misrepresentation." Run Them Sweet, LLC v. CPA Glob. Ltd., 224 F.Supp.3d 462, 466 n.2 (E.D. Va. 2016) (citing Wellmore Coal Corp. v. Gates Learjet Corp., 475 F.Supp. 1140, 1144 & n.3 (W.D. Va. 1979)).

         In their briefings, the parties neither acknowledge nor address the applicability of the various choice-of-law provisions in the Loan Documents, individual guaranties or other agreements signed by Defendants. Nevertheless, the Court finds those provisions valid and enforceable for the reasons stated below.

         The following contracts between the parties designate Pennsylvania law - excluding Pennsylvania's conflict of laws rules - as the law governing the interpretation of the contract: the 2009 Brun Guaranty; the Visa Commercial Card Agreement; the 2014 Brun Consent of Guarantor[3]; and, the Commercial Loan Agreement. (2009 Brun Guaranty § 19; Visa Commercial Card Agreement § 29; 2014 Brun Consent of Guarantor; Commercial Loan Agreement § 10.11.) And, the fact that PNC's principal place of business sits in Pittsburgh, Pennsylvania constitutes a "reasonable basis" for the selection of Pennsylvania law. (Am. Compl. ¶ 1.) See Ran Them Sweet, LLC, 224 F.Supp.3d at 466 n.2 (validating choice-of-law provision designating Virginia law as controlling, because defendants' American headquarters were located in Virginia).

         In contrast, the 2014 Brun Guaranty, Line of Credit Note and the Term Note designate Virginia law - excluding Virginia's conflict of laws rules - as the law governing the interpretation of those notes. (2014 Brun Guaranty § 21; Line of Credit Note § 14; Term Note § 13.) These choice-of-law provisions likewise provide a reasonable basis for the selection of Virginia Law, because two out of the three defendants (Dominion and Mwangi) are residents of Virginia.[4] (Am. Compl. ¶¶ 2-3.)

         Finally, the 2014 Mwangi Guaranty designates Georgia law - excluding Georgia's conflict of laws rules - as the law governing the interpretation of the contract. (2014 Mwangi Guaranty § 21.) Because the PNC branch office that issued the 2014 Mwangi Guaranty sits in Atlanta, Georgia, the Court finds that this choice-of-law provision contains a reasonable basis for the selection of Georgia law. (2014 Mwangi Guaranty at 1.)

         Mwangi's general allegations that PNC's loan officers fraudulently induced him to sign the loan documents by misrepresenting Mwangi's personal liability do not invalidate the choice-of-law provisions contained in the contracts. See Zaklit v. Glob. Linguist Sols., LLC, 2014 WL 3109804, at *7 (E.D. Va. July 8, 2014) (under Virginia law, a party resisting "operation of a choice-of-law provision on the basis of overreaching or fraud ... must establish by clear and convincing evidence that the clause itself, as opposed to the contract as a whole, was the product of impropriety"). Here, neither Mwangi nor the other defendants have alleged fraud with respect to any of the choice-of-law provisions in the contracts. Thus, the clauses are valid and enforceable.

         Finally, the SBA Loan Documents do not contain choice-of-law provisions.[5] "Under Virginia choice of law, the law of the place of performance governs questions concerning performance of a contract." Sneed v. Am. Bank Stationary Co., Div. of ABS Corp., 764 F.Supp. 65, 66 (W.D. Va. 1991) (citing Equitable Trust Co. v. Bratwursthaus Mgmt. Corp., 514 F.2d 565, 567 (4th Cir.1975) (additional citations omitted); XL Specialty Ins. Co. v. Truland, 2014 WL 4230388, at *2 (E.D. Va. Aug. 21, 2014) (following Sneed); see also Arkla Lumber and Mfg. Co. v. West Virginia Timber Co., 146 Va. 641, 648 (1926) ("everything relating to the performance of the contract is to be controlled by the law of the place of performance") (emphasis in original) (internal quotations and citations omitted). Defendants' breach of the Loan Documents constitutes a performance issue. XL Specialty Ins. Co., 2014 WL 4230388, at *2. "The place of the payment on a contract is determinative of the place of performance of the contract." FEI Co. v. Cambridge Glob. Servs., Inc., 2010 WL 3009311, at *4 (E.D. Va. July 7, 2010), report and recommendation adopted, 2010 WL 3009312 (E.D. Va. July 26, 2010) (applying Oregon law to contract where one party had to make payments to a company with its principal place of business in Oregon). Here, Pennsylvania law applies, because the SBA Loan Documents required Defendants to make payments to PNC, whose principal place of business lies in Pennsylvania. (Am. Compl. ¶ 1; SBA Loan Agreement; SBA Note.)

         PNC argues that Defendants breached the SBA Loan Documents, Line of Credit Note and Term Note, which are governed by Virginia law, as well as the Visa Commercial Card Agreement and Commercial Loan Agreement, which are governed by Pennsylvania law. Accordingly, the Court will analyze Defendants breach ...


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