Opinion
CIVIL ACTION NO. 03-5021
April 15, 2004
MEMORANDUM AND ORDER
This case comes to us following a Judgment by Confession entered by this court in favor of Plaintiff sovereign Bank ("Plaintiff or "Sovereign Bank") and against Defendant Ana Catterton ("Defendant") on October 9, 2003. Catterton now moves to strike or open the judgment and to file an answer, counterclaim for damages, and affirmative defenses to the Judgment by Confession. Catterton objects to the Judgment by Confession principally on the grounds that Defendant obtained her guaranty on the loans in question in violation of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691(a)(1). For the reasons stated below, we deny Catterton's motion in its entirety.
I. Factual Background
From March 2000 to December 2002, Ana Catterton's husband, John Catterton, served as Chief Operating Officer for Stonecastle Holdings Corporation ("Stonecastle"), a holding company for Germantown Group, Inc., ("Germantown"), and Chief Operating Officer and director of Germantown. On November 5, 2001, Germantown obtained approval to refinance its secured debt through loans in the amount of $4.2 million from Main Street Bank ("Main Street"), which was later acquired by Sovereign Bank on March 8, 2002. Main Street required that the loans to Germantown be secured by a guaranty from Stonecastle, which was executed on January 22, 2002, by Stonecastle President Moffette Tharpe, Jr., and Chief Financial Officer Terry J. Rush. In addition, a personal Guaranty and Suretyship Agreement was also executed on that day by Moffette Tharpe, Jr., and John Catterton and their spouses, Mary Tharpe and Ana Catterton.
Main Street Bank made four separate loans to Germantown in the amounts of $2,300,000; $1,200,000; $500,000; and $200,000.
The parties disagree as to how Defendant Ana Catterton came to sign the personal Guaranty and Suretyship Agreement. According to Defendant, she was notified near closing that she would be required to execute a personal guaranty. Defendant avers that until that point in time, she had had no prior involvement in the loan process and was not provided with an explanation as to why her personal guaranty was required. In addition, she believes that Sovereign Bank did not conduct an investigation into her husband's or her own creditworthiness. Plaintiff sovereign Bank contends, however, that Catterton could not have been by surprised by the prospect of signing a Guaranty and Suretyship Agreement on January 22, 2002, because she had previously executed a Commitment Letter on November 12, 2001, which was intended to induce Main Street to approve the loans. This, Plaintiff argues, indicates that Defendant was not in any way forced to become a guarantor, but instead offered to do so in order to make Germantown a more attractive borrower. Plaintiff also denies that it had no knowledge of the Cattertons' creditworthiness, since it had on file a financial statement submitted by the couple in connection with a note issued on October 11, 2001.
In April 2003, after Germantown defaulted on its loans, Sovereign Bank, successor in interest to Main Street, proposed a forbearance agreement in order to restructure the loans so that the parties would be able to repay them. The Cattertons refused to enter into this agreement and on September 5, 2003, Sovereign Bank filed a Complaint in Confession of Judgment against Ana Catterton. This court entered the Confession of Judgment against Ana Catterton on October 9, 2003.
II. Standard of Review
A motion to strike a confessed judgment may only be granted if defects or irregularities exist on the face of the record. See Resolution Trust Corp. v. Copley Qu-Wayne Assoc., 546 Pa. 98, 106 (1996). In reviewing a motion to strike a confessed judgment, the court may only look to the record "as filed by the party in whose favor the warrant is given, i.e. the complaint, and the documents which contain confession of judgment clauses." Id. If the record is self-sustaining and supports the judgment, the motion may not be granted. Id. Moreover, where a dispute exists as to the facts contained in the record, a motion to strike is not appropriate and the proper course is to instead seek to open the judgment. Id. It does not appear from Defendant's motion that she alleges any defects or irregularities on the face of the record. Thus we will consider her arguments in support of a motion to open the confessed judgment.
In the case of a motion to open a confessed judgment, the motion should be granted if issues are presented which, in a jury trial, would require the issues to be submitted to the jury. Id. Since a motion to open a confessed judgment implicates equitable principles, the court may consider evidence in addition to the complaint and confession of judgment clauses. See Keystone Bank v. Flooring Spec., Inc., 513 Pa. 103 (1986). In addition, the court should consider whether the "judgment will visit prejudice on the plaintiff, whether the defendant has a meritorious defense, and whether the default was the result of the defendant's culpable conduct."Resolution Trust Corp., v. Forest Grove. Inc., 33 F.3d 284, 288 (3d Cir. 1994). The evidence presented in this regard should be viewed in a light most favorable to the petitioner and the court should accept as true "all evidence and proper inferences from it which support the defense while rejecting adverse allegations of the party obtaining the judgment." FDIC v. Deglau, 207 F.3d 153, 168 (3d Cir. 2000). It should be noted, however, that in making a motion to open, a petitioner may not rest on mere assertions, but must offer "clear, direct, precise, and believable evidence of [the] meritorious defenses." Id.
III. Discussion
A. Defendant's Counterclaim That Plaintiff Violated the ECOA
Defendant seeks to counterclaim for actual damages in the amount of at least $4,364,628.66, punitive damages in the amount of $10,000, and attorney's fees for Plaintiff's alleged violation of the ECOA. Under the ECOA, it is unlawful for a creditor to discriminate against applicants on the basis of their marital status. See 15 U.S.C. § 1691(a)(1). However, affirmative claims under the ECOA are subject to a two year statute of limitations. See 15 U.S.C. § 1691(f). Generally, the statute of limitations runs from the time the credit application was signed, in this case, on January 22, 2002. See Roseman v. Premier Financial Services, 1997 U.S. Dist. LEXIS 13836, * 7-8 (E.D. Pa. 1997). Since Defendant did not file her ECOA counterclaim until February 20, 2004, it would appear that she is barred from asserting her claim.
Defendant asserts correctly, however, that the Third Circuit has held that an ECOA violation may always be asserted as a defense to a confessed judgment.See Silverman v. Eastrich Multiple Investor Fund, 51 F.3d 28, 32 (3d Cir. 1995). In Silverman, the plaintiff brought a claim against the lender for an alleged ECOA violation. The lender argued that the plaintiff was barred from asserting such a claim by the two year statute of limitations. However, the court held that since the plaintiff had brought her claim in direct response to a confessed judgment, and was thus effectively raising it as a defense to the confessed judgement, her claim could not be barred by the statute of limitations. Id.
Nothwithstanding Silverman, we disagree with Defendant's contention that she is entitled to assert a counterclaim for damages under the ECOA. While the court in Silverman allowed the plaintiff to go forward with her ECOA claim after the statute of limitations had run, it allowed her to do so only by way of a right of recoupment. It did so in order to prevent creditors from benefitting from a violation of the ECOA by seeking to enforce an illegally obtained guaranty after the statute of limitations had run. Id. at 32-33, citing Integra Bank v. Freeman, 839 F. Supp. 326, 329 (E.D. Pa. 1993). The court stated that if the lender "did in fact violate the ECOA, then plaintiff may have a valid defense and obtain relief from her obligations under the Guaranty," thus preventing the creditor from looking for payment from parties "`who, but for the ECOA violation, would not have incurred personal liability on the underlying debt in the first instance.'" Id. It is clear from this language that while the court intended to allow guarantors to obtain relief from guaranties obtained in violation of the ECOA, it did not intend for guarantors to be able to affirmatively file claims for damages under the ECOA after the two year statute of limitations has run. Both prior and subsequent decisions in the Eastern District of Pennsylvania are in accordance with Silverman, in that they support the right of guarantors to invoke a right of recoupment as a defense while denying them the right to seek damages once the two year statute of limitations has run. See Roseman, 1997 U.S. Dist. LEXIS 13836, * 11-12; Integra, 839 F.supp. at 331. Thus we conclude that while Defendant is not barred from asserting a right of recoupment, the statute of limitations bars her from making a counterclaim for damages under the ECOA.
B. Right of Recoupment
We turn now to Defendant's asserted right of recoupment. Defendant claims that she is entitled to seek recoupment in the amount of $4,364,628.66, or such amount as Plaintiff claims it is owed under the loans made to Germantown, damages in the amount of $10,000, attorneys fees, and an injunction preventing Plaintiff from taking any further action to enforce the guaranty signed by Defendant. We have already stated above that Defendant is barred by the statute of limitations from attempting to recover damages that are otherwise available under the ECOA, such as for humiliation, embarrassment, mental anguish, and injury to credit and reputation, as well as attorneys fees. Integra, 839 F. Supp. at 331. Thus all that remains of Defendant's right of recoupment defense is the amount of the loans ostensibly guaranteed by Defendant in violation of the ECOA and the injunction she seeks to prevent Plaintiff from enforcing the guaranty.
Defendant argues that the Judgment by Confession should be opened because she was forced to become a guarantor of the loans to Germantown as a spouse regardless of her husband's or her own creditworthiness. Requiring Defendant to sign the guaranty merely on the basis of her status as a spouse of one of the principals of Germantown, if that indeed is what occurred, would constitute discrimination under the ECOA. See 15 U.S.C. § 1691(a)(1). However, we need not determine whether such a violation occurred here because we find that Defendant has not presented sufficient evidence that Sovereign Bank, as the successor in interest to Main Street, was aware of the alleged wrongdoing.
Under the regulations accompanying the ECOA, 15 U.S.C. § 1691, a creditor under the Act is defined as
a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor's assignee, transferee, or subrogee who so participates.12 C.F.R. § 202.2(1).
However, the definition of creditor goes on to specifically exclude from coverage creditors who had no knowledge that a violation was committed:
A person is not a creditor regarding any violation of the Act or this regulation committed by another creditor unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before becoming involved in the credit transaction.Id.
As indicated by the facts before us, the alleged violation of the ECOA was committed by Main Street, Sovereign Bank's predecessor. Thus, unless Defendant can offer "clear, direct, precise, and believable evidence,"Deglau, 207 F.3d at 168, that Sovereign Bank was involved in or on notice of the alleged ECOA violation by Main Street Bank, she cannot assert it as a defense. Silverman, 51 F.3d at 33.
Defendant has proffered no evidence that Sovereign Bank was involved in or aware of the execution of a guaranty by Defendant on January 22, 2002. Although Main Street and Sovereign Bank were in the process of merging at that time, the official date on which the merger was consummated was March 8, 2002, some 45 days after Defendant executed her guaranty with Main Street. Defendant's bald assertion that Sovereign Bank had "full knowledge and involvement" in the loan transaction simply because it had announced its intention to acquire Main Street Bank on July 17, 2001, and its shareholders had approved the merger on December 20, 2001, is unsupported by any evidence and therefore unwarranted. (Def.'s Mem. at 3-4.) Moreover, we fail to see how the inclusion of a general release in the forbearance agreement proposed by Sovereign Bank amounts to Sovereign Bank, as alleged by Defendant, essentially admitting that the ECOA and its accompanying regulation were violated. (Id. at 14.) Having failed to present any clear, direct, precise or believable evidence that Sovereign Bank was on notice that an ECOA violation was committed by Main Street, Defendant has not met its burden of asserting a meritorious defense which would warrant opening the confessed judgment. Thus we deny the motion to open judgment.
Defendant contends that "Sovereign Bank knew of ECOA violation as is clearly evidenced in its Forbearance Agreement dated April 24, 2003." Her further statement that "Sovereign Bank essentially admits that the ECOA and Regulation B were violated and forces the guarantors who endorsed the letter to release all claims they may have against Sovereign Bank, including any ECOA and Regulation B claims" is somewhat misleading because it gives the impression that the forbearance agreement contained an explicit release for any claims under the ECOA. In actuality, the proposed forbearance agreement contained a general release for all potential claims pertaining to the loan agreements and did not name any specific type of claim. (See Def.'s Ex. 2, Forbearance Agreement, April 24, 2003, para. 20.)
Defendant asserts numerous other affirmative defenses in her motion, but fails to argue them in her accompanying Memorandum. In the absence of supporting legal argument and/or evidence as to these affirmative motions, we cannot be expected to divine Defendant's contentions. See Purcell v. Universal Bank, N.A., 2003 U.S. Dist. LEXIS 547 (E.D. Pa. Jan. 3, 2003). Thus the motion to open judgment is denied as to these other affirmative defenses.
C. Attorney's Fees
Finally, Defendant moves to open judgment on the grounds that Plaintiff misrepresented the amount of attorneys' fees it was entitled to receive in enforcing the liabilities incurred under the loans to Germantown. According to the Guaranty and Suretyship Agreement executed by her, Defendant is liable for "all present and future liabilities of the Guarantors to the Lender under this Guaranty, together with all reasonable attorneys' fees, costs and expenses of collection incurred by the Lender in enforcing such liabilities." (Pl's Ex. G, Guaranty and Suretyship, p. 1.) Following the "reasonable attorneys' fees" provision of the Guaranty and Suretyship Agreement, Defendant, in its Complaint in Confession of Judgment, assessed attorneys' fees at 10% of each of the four loans made to Germantown, for a total of $329,000. Defendant argues that Plaintiff is not entitled to recover 10% of the loan balances because it is inconsistent with the attorneys' fees provision contained in the actual loan agreements executed by Germantown. According to these documents, Sovereign Bank is entitled to attorneys' fees of no more than 5% of the debt, unless it petitions the court for more.
We fail to see how the terms of the contract between the lender, Sovereign Bank, and the borrower, Germantown, should be considered binding with regard to Defendant, who was not a party to the loan agreement. Furthermore, Defendant offers no legal support for her position that Sovereign Bank should be bound by any terms other than those contained in the Guaranty and Suretyship Agreement executed by Defendant. As to the reasonableness of attorneys' fees, we note that Pennsylvania courts have consistently upheld 10% or more of the debt as reasonable and Defendant has cited no authority to the contrary. See Dollar Bank v. Northwood Cheese Co., 637 A.2d 309, 314 (Pa.Super. 1994); Citicorp. Mortgage. Inc. v. Morrisville Hampton Village Realty Ltd. Partnership, 662 A.2d 1120, 1123 (Pa.Super. 1995). Thus we deny Defendant's Motion to Open Judgment as to the attorneys' fees owed to Sovereign Bank.
IV. Conclusion
Defendant's Motion to Open Judgment is denied because she has failed to establish a meritorious defense to the confessed judgment. She is barred by the statute of limitations from asserting a counterclaim for damages against Plaintiff's overeign Bank under the ECOA. Although a right of recoupment may be asserted as a defense to a confessed judgment, Defendant has also failed to establish a meritorious defense in this regard because she has not presented any evidence that Plaintiff participated in or was aware of such an ECOA violation. Additionally, we deny Defendant's Motion to Open Judgment on the issue of attorneys' fees owed to Sovereign Bank, as courts have upheld 10% of the debt as reasonable. An appropriate order follows.
ORDER
AND NOW, this 15th day of April, 2004, upon consideration of Defendant's Motion to Strike or Open Judgment with Answer, Counterclaim, and Affirmative Defenses, filed on February 20, 2004, and accompanying Memorandum of Points and Authorities in Support of Ana Catterton's Motion to Strike or Open Judgment with Answer, Counterclaim, and Affirmative Defenses, filed on February 20, 2004; and Plaintiff's Answer in Opposition to Defendant's Motion to Strike or Open Confessed Judgment, filed on April 2, 2004, it is hereby ORDERED that:1) Defendant's Motion to Strike or Open Judgment is DENIED.
2) This case is closed.