Opinion
CIVIL ACTION 02-1160
December 30, 2003
MEMORANDUM
In their complaint, Plaintiffs Hampden Real Estate, Inc. and Jagdish Bansal, Ashok Luhadia, Indu Garg, and Anil Gupta, trading as Hampden Enterprises, L.P., bring claims of breach of contract, unjust enrichment, and conversion against Defendants Metropolitan Management Group, Inc., Skyline Apartments, LLC and Kevin Timochenko, Metropolitan's Chief Executive Officer. Defendant Skyline counterclaims against Plaintiffs for breach of contract, unjust enrichment, and fraudulent and/or negligent misrepresentation. Defendant Timochenko counterclaims against Plaintiffs for fraudulent and/or negligent misrepresentation. Presently before this Court are the parties' Cross Motions for Summary Judgment. Plaintiffs move for partial summary judgment on the issue of breach of contract. Defendants move for summary judgment against Plaintiffs on all of Plaintiffs' counts, which are:
Count 1: Breach of contract, v. Metropolitan Management Group and Skyline Apartments, with respect to the escrow credit.
Count 2: Unjust enrichment, v. Metropolitan Management Group and Skyline Apartments, with respect to the escrow credit.
Count 3: Conversion, v. Metropolitan Management Group and Skyline Apartments, with respect to the escrow credit.
Count 4: Breach of contract v. Kevin Timochenko, with respect to the personal loan.
Count 5: Unjust enrichment v. Kevin Timochenko, with respect to the personal loan.
Count 6: Conversion v. Kevin Timochenko, with respect to the personal loan.
I. Background
The following facts are undisputed. Plaintiffs were the seller and Defendants the buyer of a residential property called Hampden House in Reading, Pennsylvania. An Amended Agreement of Sale ("Agreement of Sale") executed September 24, 2001 provided for the sale of the property for $3.7 million and included a provision that Defendants would assume Plaintiffs' mortgage on the building, serviced by GMAC Commercial Mortgage ("GMAC loan"). The Agreement of Sale also provided that, when the closing occurred, Plaintiff would receive the amount of the sums being held in escrow pursuant to the GMAC loan which, according to the November 16, 2001 loan statement, was $120.549.78. The relevant provision of the Agreement of Sale stated:
1.3(b). Assumption of Financing. Buyer shall receive a credit against the Purchase Price in an amount equal to the outstanding principal balance, as of the date of Closing, of the Existing Loan. In addition, Buyer shall be charged and the Seller shall be credited with the amount of the sums being held in escrow pursuant to the Existing Loan (as confirmed in Assumption Agreement) and being assigned and transferred to Buyer.
The Agreement of Sale also included an integration clause,
12.5. Completeness: Modifications. This Agreement constitutes the entire agreement between the parties hereto with respect to the transactions contemplated hereto and supersedes all prior discussions, understandings, agreements and negotiations between the parties . . . This Agreement may be modified only by a written instrument duly executed by the parties hereto.
Between the execution of the Agreement of Sale and the closing on November 28, 2001, negotiations occurred between the two parties concerning adjustments to the purchase price to compensate for repairs required on the property. While these negotiations were occurring, both parties viewed a draft and final HUD-1 Settlement Statement, prepared by the closing agent, that did not mention the escrow credit in its itemization of the credits and debits associated with the sale of the property. When the closing occurred, the amount in escrow was not credited to Plaintiffs. On December 10, 2001, Plaintiffs demanded the escrow credit and Defendants refused, leading to the filing of this Complaint on March 6, 2002.
In addition to suing for the escrow credit in Counts 1-3, Plaintiffs are also suing for the amount of $100,000 in Counts 4-6, reflecting the credit extended by Plaintiffs to Defendant Timochenko pursuant to a promissory note. Plaintiffs are claiming that Defendant Timochenko is in breach of this note due to the refusal to transmit the escrow funds and are demanding payment on the note.
Defendants counterclaim that Plaintiff received funds related to the property after the closing and did not forward these funds to Defendant, per the Agreement of Sale. In addition, Defendants claim that the property's sewer and water systems were not as represented by Plaintiffs and that Plaintiffs did not maintain these systems between the Agreement of Sale and the closing, per the Agreement of Sale.
Plaintiffs filed their Motion for Partial Summary Judgment as to breach of contract on October 10, 2003, Defendants filed their Cross Motion for Summary Judgment on all counts against Plaintiffs on November 3, 2003 and responses were completed on November 26, 2003. The Court held oral argument on these motions on December 23, 2003.
With regard to breach of contract, Defendants claim that the escrow payment was negotiated away between the Agreement of Sale and the closing. Defendant Timochenko submits an affidavit that he conducted negotiations before the closing with the understanding that the escrow payment, which was not listed on the draft or final HUD-1 Settlement Statement, had been taken away as part of the concessions provided to him to compensate for the insufficiencies in the property.
Plaintiffs contend that the escrow payment was included in the Agreement of Sale and that this contract was never modified. Plaintiffs claim that there was no discussion of the escrow payment in the course of negotiations between the Agreement of Sale and the closing, or in the revisions of the HUD-1 Settlement Statement.
II. Legal Standard
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." Fed.R.Civ.P. 56(c). An issue is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is "material" if it might affect the outcome of the case under governing law. Id.
A party seeking summary judgment always bears the initial responsibility for informing the district court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's initial burden can be met simply by "pointing out to the district court that there is an absence of evidence to support the non-moving party's case." Id. at 325. After the moving party has met its initial burden, "the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). Summary judgment is appropriate if the non-moving party fails to rebut by making a factual 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, 477 U.S. at 322. Under Rule 56, the Court must view the evidence presented on the motion in the light most favorable to the opposing party. Anderson, 477 U.S. at 255.
This Court has jurisdiction pursuant to 28 U.S.C. § 1332, as the parties are residents of different states and the amount in controversy exceeds $75,000.
III. Legal Issues
The parties agree that the issues in this case are whether the HUD-1 Settlement Statement reflects a modification of the Agreement of Sale, and whether that Settlement Statement, if it is a modification, represents a mistake, either unilateral or mutual. Plaintiffs argue that the HUD-1 Settlement Statement is not a written modification of the Agreement of Sale because it is silent on the escrow credit. Plaintiffs argue, in the alternative, that even if the settlement statement were a written modification, it represents a mutual mistaken exclusion of the escrow amount. Defendants argue that the HUD-1 Settlement Statement was intended to reflect all debits and credits associated with the transaction, and that the omission of the escrow credit was a unilateral mistake, due to the fact that the Defendants thought the credit had been removed as part of the negotiations between the Agreement of Sale and the closing.
A. Role of HUD-1 Settlement Statement
The threshold issue in this analysis is the role of the HUD-1 Settlement Statement, based on both the intent of the parties and the custom and usage of the document. In particular, the role the Settlement Statement plays in a contract law analysis depends on whether the HUD-1 Statement is intended to be an Amendment to the Agreement of Sale. The Court also inquired of the parties whether the HUD-1 is customarily used as a comprehensive, exhaustive listing of the credits and debits associated with a real estate sale that binds the parties and, thus, whether the omission of the escrow credit from the Settlement Statement can itself be a modification of the Agreement of Sale.
The parties were asked to file supplemental memoranda addressing the role of the HUD-1 Settlement Statement, specifically whether any cases address the legal effect of a HUD-1 that leaves out a provision of a prior real estate agreement as well as whether the HUD-1 is customarily an exhaustive and binding accounting of a real estate sale.
Plaintiffs, in their supplemental memorandum, argue that the HUD-1 is only a statutorily mandated disclosure document intended to report transactions involving mortgages or loans to the federal government and not a binding contract. Plaintiffs point out that the language of the statute and regulations requiring the HUD-1 specify the required items to be listed,
The Secretary . . . shall develop and prescribe a standard form for the statement of settlement costs which shall be used (with such variations as may be necessary to reflect differences in legal and administrative requirements or practices in different areas of the country) as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. Such form shall conspicuously and clearly itemize all charges imposed upon the borrower and all charges imposed upon the seller in connection with the settlement and shall indicate whether any title insurance premium included in such charges covers or insures the lender's interest in the property, the borrower's interest, or both.12 U.S.C. § 2603(a) (2003). Plaintiffs also note that the statute contains a provision saying that nothing in the statute affects contracts for sale of real estate in connection with the referenced mortgage or loan,
Nothing in this Act shall affect the validity or enforceability of any sale or contract for the sale of real property or any loan, loan agreement, mortgage, or lien made or arising in connection with a federally related mortgage loan.12 U.S.C. § 2615 (2003). Plaintiffs also point out that the HUD-1 in this case was not prepared by counsel, but by a closing agent.
Plaintiffs cite two cases in support of their position. First, they cite Pulte Home Corp. of New England v. Appleton, 2002 WL 1815927 (Conn.Super.Ct. July 1, 2002) for the proposition that a scrivener's error in a HUD-1 Statement, where a sale agreement properly records the terms of sale, is not a bar to recovery. Defendants also cite this case, instead for the proposition that the court determined that the HUD-1 Statement was a binding document on the parties. A close reading of the opinion reveals that the court never explicitly determines that the HUD-1 Statement is a binding contract, but rather assumes that it binds the parties for the purposes of adjudicating an undisputed mistake. The court ultimately follows the terms of the sale agreement. Plaintiffs also citeDass v. Epplen, 424 P.2d 779 (Colo. 1967) for the holding that a settlement statement creates no contractual rights. Defendants do not address this case, but the court explicitly holds that the settlement sheet created no contractual rights and is just an, in this case incomplete, calculation of the credits and debits associated with a real estate transaction.
Defendants, in their supplemental memorandum, argue that the HUD-1 Statement is legally binding and cite two cases in support of their position. In addition to Pulte, discussed above, Defendants also cite Hembree v. Nowlin, 628 So.2d 750 (Ala.Civ.App. 1993) as another case where a court relies on a settlement statement as binding. The facts of this case, however, involve a real estate transaction where there was no contract of sale and the settlement statement was the only written document associated with the transaction. In this case, the court relies on the settlement statement, but does not enforce the mistake contained in it.
The cases cited by both parties are of little assistance in the instant case both because they are not from the relevant jurisdiction and because they involve differing facts from the present case. In general, however, it is worth noting that none of these cases finds the settlement statement to be a binding contract that supplants an Agreement of Sale.
The regulatory genesis of the HUD-1 Statement, coupled with the fact that a closing agent prepared the document, and the absence of case law giving the HUD-1 contractual force, supports the conclusion that this is simply a disclosure document and not a contractual amendment to the Agreement of Sale. In addition, the Agreement of Sale's integration clause supports the conclusion that the HUD-1 Statement, which mentioned neither the escrow credit nor that it was amending the Agreement of Sale, is not a modification of the initial contract. The case might be different if the HUD-1 Statement addressed the escrow credit but provided different details, but as the HUD-1 in this case simply ignored the escrow credit, and both parties agree that there were no oral discussions regarding the escrow credit, the HUD-1 cannot be said to modify the escrow credit provision in the Agreement of Sale.
It is also important to note that Pennsylvania has a stringent parol evidence rule. In a case such as this where an integration clause exists in the initial agreement, Pennsylvania's high jurisdictional reliance on the parol evidence rule requires a written modification. The fundamental rule in interpreting the meaning of a contract is to give effect to the intent of the contracting parties.Murphy v. Duquesne Univ. of the Holy Ghost, 777 A.2d 418, 429 (2001) The intent of the parties to a written agreement is embodied in the writing itself. Steuart v. McChesney, 444 A.2d 659, 661 (1982). "`When a writing is clear and unequivocal, its meaning must be determined by its contents alone.'" Felte v. White, 302 A.2d 347, 351 (Pa. 1973) (quoting East Crossroads Center Inc. v. Mellon-Stuart Co., 416 Pa. 229, 205 A.2d 865, 866 (Pa. 1965)). Only where a contract's language is ambiguous may extrinsic or parol evidence be considered to determine the intent of the parties. Hutchison v. Sunbeam Coal Co., 519 A.2d 385, 390 (Pa. 1986). There is no ambiguity in a case such as this, where an integration clause exists in the initial agreement, Pennsylvania's well known reliance on the parol evidence rule requires a written modification. The HUD-1 Statement in this case is not sufficient to be a written modification and parol evidence cannot be considered to ascertain the intent of the parties beyond that expressed in the Agreement of Sale.
B. Contract Modification and Mistake
If the HUD-1 Statement is not a binding contract, then it cannot properly be treated as a modification of the Agreement of Sale and the Court need not reach the issue of mistake. Thus, the term in the Agreement of Sale providing for the escrow credit remains in force, there is no issue of material fact as to Plaintiffs' breach of contract claim regarding the escrow credit, and the Court will grant Plaintiffs' Motion for Partial Summary Judgment.
C. Remaining Issues
Plaintiffs moved for partial summary judgment as to breach of contract regarding the escrow credit. As the Court finds that the HUD-1 Statement did not constitute a modification of the Agreement of Sale, summary judgment is granted for Plaintiffs as to breach of contract against Metropolitan Management Group, Inc. and Skyline Apartments, LLC.
Defendants moved for summary judgment against Plaintiffs on all of Plaintiffs' counts. As stated above, Plaintiffs' Motion will be granted and Defendants' motion will be denied as to Count 1. Neither Plaintiffs nor Defendants have addressed Counts 2 and 3 in their pleadings regarding summary judgment. As discussed at oral argument, granting Plaintiffs' Motion for Partial Summary Judgment as to Count 1 makes Plaintiffs' claims in Counts 2 and 3 superfluous. Because summary judgment will be granted for Plaintiffs as to Count 1, Counts 2 and 3 will be dismissed as moot.
Counts 4 through 6 address the loan extended from Plaintiffs to Defendant Timochenko pursuant to a promissory note. Neither party has provided more than cursory pleadings regarding these counts and, thus, granting Defendants' Motion for Summary Judgment as to these counts is premature.
IV. Conclusion
As the HUD-1 Settlement Statement will not be construed as a modification of the Agreement of Sale with regard to the escrow credit due Plaintiffs, Plaintiffs' Motion for Partial Summary Judgment will be granted and Defendants' Motion for Summary Judgment will be denied. Therefore, summary judgment is granted for Plaintiffs as to Count 1 and Plaintiffs' Counts 2 and 3 are dismissed as moot.
With this disposition, the remaining claims in the case are Plaintiffs' Counts 4 through 6, listed above. Defendants' counterclaims also remain, and are independent of the issue of breach of contract regarding the escrow credit. Defendants' counterclaims are:
Count 1: Skyline v. Plaintiffs for breach of contract regarding the agreement to operate Hampden House until settlement and to remit funds relating to the operation of Hampden House after settlement.
Count 2: Skyline v. Plaintiffs for unjust enrichment regarding the above agreement.
Count 3: Timochenko v. Plaintiffs for Fraudulent and/or Negligent Misrepresentation regarding the above agreement, as it relates to the personal loan to Timochenko
Count 4: Skyline v. Plaintiffs for Fraudulent and/or Negligent Misrepresentation regarding the above agreement.
As discussed at oral argument, Plaintiffs' Counts 4 through 6 and all of Defendants' counterclaims are therefore reserved for trial. An appropriate order follows.
ORDER
And now, this ___ day of December, 2003, it is ORDERED that Plaintiffs' Motion for Partial Summary Judgment (Doc. No. 23) is GRANTED and Defendants' Cross-Motion for Summary Judgment (Doc. No. 26) is DENIED.Accordingly, Summary Judgment as to Count 1 of Plaintiffs' Complaint (Doc. No. 1) is GRANTED, Counts 2 and 3 are DISMISSED AS MOOT, and Counts 4 through 6, as well as Defendants' counterclaims (Doc. No. 4), are reserved for trial.
The trial pool date for this case is January 20, 2004.