Opinion
CV-00-1089-ST.
November 23, 2001
OPINION AND ORDER
INTRODUCTION
On August 7, 2000, plaintiffs, Ronald E. Taylor ("Taylor"), both individually and as Trustee under the Declaration of Trust dated May 10, 1993, Edwina Wasson ("Wasson") (Taylor's wife), and Renaissance Group LLC, filed this action against Albina Community Bank ("Albina") arising from Albina's refusal to fund a loan. Plaintiffs allege claims against Albina for breach of contract (First Claim for Relief), Misrepresentation (Second Claim for Relief), and violation of the Equal Credit Opportunity Act ("ECOA") (Third Claim for Relief). Plaintiffs also seek injunctive relief (Fourth Claim for Relief) to prevent a foreclosure sale of their property.
Another main player is James Taylor. To distinguish between the two Taylors, all references to Ronald Taylor will be to "Taylor" and all references to James Taylor will be to "James Taylor."
Another defendant, Richard T. Anderson, Jr. was dismissed by plaintiffs pursuant to FRCP 41 on September 11, 2000 (docket #7).
On August 9, 2000, plaintiffs sent a letter advising the court that the foreclosure sale of their property had been canceled and that they were withdrawing their request for a temporary restraining order.
Albina has filed an Answer, Counterclaim, and Third-Party Complaint ("Albina's Answer") alleging a counterclaim for foreclosure against plaintiffs' property and an identical cross-claim against Royal Tobacco, LLC, Stellar Coffee, LLC, the City of Portland, Oregon, acting by and through the Portland Development Commission ("PDC"). PDC's Answer and Affirmative Defenses ("PDC's Answer") alleges that Albina should not be entitled to foreclose its interest against PDC's interest in plaintiffs' property based on promissory estoppel and a failure of consideration.
This court has jurisdiction over plaintiffs' ECOA claim under 28 U.S.C. § 1331 and 15 U.S.C. § 1691e(f) and supplemental jurisdiction over plaintiffs' state law claims under 28 U.S.C. § 1367(a). All parties have consented to allow a Magistrate Judge to enter final orders and judgment in this case in accordance with FRCP 73 and 28 U.S.C. § 636(c).
Albina has filed a Motion for Summary Judgment (docket #45) against all of plaintiffs' claims. Plaintiffs have filed a Cross-Motion for Summary Judgment (docket #55) on its claim for breach of contract and on Albina's counterclaim for foreclosure. For the reasons that follow, Albina's motion is granted in part and denied in part and plaintiffs' motion is denied.
ANALYSIS
I. Legal Standard
FRCP 56(c) authorizes summary judgment if no genuine issue exists regarding any material fact and the moving party is entitled to judgment as a matter of law. The moving party must show an absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party shows the absence of an issue of material fact, the non-moving party must go beyond the pleadings and designate specific facts showing a genuine issue for trial. Id at 324. A scintilla of evidence, or evidence that is merely colorable or not significantly probative, does not present a genuine issue of material fact. United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir), cert denied, 493 U.S. 809 (1989).
The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir 1987). The court must view the inferences drawn from the facts in the light most favorable to the non-moving party. Thus, reasonable doubts about the existence of a factual issue should be resolved against the moving party. Id at 630-31. However, when the non-moving party's claims are factually implausible, that party must come forward with more persuasive evidence than would otherwise be required. California Architectural Bldg. Prods., Inc. v. Franciscan Ceramics Inc., 818 F.2d 1466, 1468 (9th Cir 1987), cert denied, 484 U.S. 1006 (1988), citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). The Ninth Circuit has stated, "No longer can it be argued that any disagreement about a material issue of fact precludes the use of summary judgment." Id.
II. Undisputed Material Facts
The facts viewed in the light most favorable to plaintiffs and PDC are as follows:
Taylor and his wife, Wasson, are both members of Renaissance Group, LLC ("Renaissance"). Albina's Motion, Ex G. Taylor and Wasson are also members of two other LLCs, namely Royal Tobacco, LLC ("Royal Tobacco") and Stellar Coffee, LLC ("Stellar Coffee"). Taylor Depo, p. 13.
The parties have attached exhibits to several documents, including Albina's Answer, PDC's Answer, Albina's Memorandum in Support of Motion for Summary Judgment Pursuant to Fed.R.Civ.P. 56 ("Albina's Motion"), Albina's Concise Statement of Material Facts in Support of Motion for Summary Judgment ("Albina's Facts"), Third-Party Defendant Portland Development Commission's Memorandum of Points and Authorities in Opposition to Motion for Summary Judgment ("PDC's Response"), and various affidavits and declarations. References to exhibits are simply to the exhibit letter and the document to which they are attached.
References to deposition testimony are to the last name of the deponent and to the page(s) indicated of the deposition transcript.
On July 3, 1997, Taylor executed a promissory note in the amount of $30,000, due July 1, 1998, for a line of credit with Albina. The line of credit was increased to $46,500 in March 1998, and to $50,000 in September 1998, when the due date for repayment was extended to March 1, 1999. Id at 241-43; Albina's Facts, Ex A.
Also in 1997, Taylor requested Albina to loan funds to expand an existing building owned by Taylor's living trust in Northeast Portland ("Property"). The borrower was to be Renaissance, which would acquire the Property and then lease it to Royal Tobacco and Stellar Coffee. Taylor Depo, pp. 12-13, 15, 33, 117. At some point, Renaissance purchased the Property from Taylor, the trustee of a living trust. Id at 15.
During late 1997 and early 1998, Taylor met with officers of Albina, including James Taylor. Through its officers, Albina assured Taylor that it would finance his project, including providing working capital to get the businesses off the ground. Taylor Dec, ¶ 3.
References to affidavits and declarations are to the last name of the affiant or declarant and to the paragraph(s) indicated of the affidavit or declaration.
On March 18, 1998, Albina sent a commitment letter to Taylor offering a construction loan of $225,000 payable in six months and to be converted to a seven year term loan, and outlining the terms of the offer. Taylor Dec, ¶ 4 Ex 1. On June 22, 1998, Taylor accepted this loan commitment for a loan amount that had increased to $292,500. Taylor Dec, ¶ 8 and Ex 2.
James Taylor prepared an internal Loan Approval Form dated September 1, 1998. PDC's Response, Ex B. The September 1, 1998 Loan Approval Form contemplates a construction loan due March 1, 1999, followed by a term loan payable in seven years in the amount of $340,000 (including $40,000 to be applied to pay off Taylor's line of credit), with a $75,000 guaranty from PDC which would reduce Albina's total exposure to $265,000. Id. This new loan amount was apparently based on a new appraisal.
Unbeknownst to plaintiffs, James Taylor prepared another internal Loan Approval Form dated September 30, 1998, with different loan terms. Albina's Facts, Ex B. The September 30, 1998 Loan Approval Form, which was finalized by a signature dated January 9, 1999, provides for a construction loan in the amount of $296,250 due March 1, 1999, to (a) pay for construction on the Property out of which Royal Tobacco and Stellar Coffee would operate and (b) reduce Taylor's line of credit balance from $50,000 to $30,000. Id. On March 1, 1999, Albina would then issue a term loan to Renaissance in the sum of $296,250 due in 18 months to pay off the construction loan. Id.
On October 5, 1998, plaintiffs signed the construction loan documents, including a Promissory Note for $296,250 (Albina's Facts, Ex C), Construction Loan Agreement (id, Ex D), Deed of Trust (id, Ex E), personal guarantees of Taylor, his living trust, and Wasson (id, Exs F, G, H), and Notice of Final Agreement (id, Ex I) (collectively referred to as the "Construction Loan"). Taylor Depo, p. 93. On October 30, 1998, the parties signed a Change in Terms Agreement which modified Taylor's line of credit as follows:"Description in Change in Terms. (1) Decrease line of credit to $30,000. (2) Extend maturity date to 3/1/99." Albina's Facts, Ex A.
Albina was not responsible for construction costs in excess of the budgeted amounts. Taylor Depo, p. 257. Apparently because Renaissance's construction costs exceeded its budget (Taylor Dec, ¶ 11), it applied to PDC in February 1999 for a "storefront" grant of $15,000 and a loan of $77,500. Albina's Facts, Ex K. According to PDC's Loan Application Report, PDC was aware that "[Albina] feels that they are at their limit at this time" and had a copy of Albina's Loan Approval Form. Id. On February 2, 1999, James Taylor sent a fax to Walter Zwingli ("Zwingli") at PDC stating:
Attached is the most recent approval for Ron Taylor showing the reduction in the loan from $340,000 to $296,250. The term of our term loan will be amended from the 18 mos. to 7 years, subject to your approval. The new maturity date will be March 1, 2006.
Zwingli Dec, Ex F (emphasis in original).
On or about March 1, 1999, the construction phase on the Property was substantially completed. Taylor Dec, ¶ 11. Plaintiffs were almost ready to open their tobacco and coffee shops but did not have sufficient working capital. Id. Albina's loan officers assured Taylor that he would receive working capital from his credit line or a new term loan. Id.
PDC approved the $77,500 loan secured by a second deed of trust on the Property and $15,000 grant, and closed the loan transaction on March 8, 1999. Albina's Facts, ¶ 8. At closing, $30,320.55 was used to pay off the line of credit balance due Albina on March 1, 1999. Albina's Facts, Ex L; Taylor Depo, pp. 261-62. Taylor did not know until after closing that Albina canceled his line of credit. Taylor Dec, ¶ 10. James Taylor had told Taylor that he could have the proceeds of the PDC loan for working capital and that his line of credit and construction loan would be rolled into the term loan after a reappraisal. Id. Had Taylor known that Albina would cancel his line of credit, he would have applied for a larger loan from PDC. Id.
Taylor then talked to Zwingli at PDC about needing more working capital. Zwingli told him that had Taylor known that $30,000 was going to be paid off at closing, he should have asked PDC for $30,000 more initially because it is difficult to go back and ask for more money later. Taylor Depo, p. 174.
Taylor also approached James Taylor about the working capital shortfall. James Taylor told him that plaintiffs qualified for the Fresh Start program and gave Taylor the impression that he had submitted documentation to begin the process of getting approval in that program. Id at 169; Taylor Dec, ¶ 10.
From March through September, Taylor and Albina had ongoing discussions and correspondence centering around the need for additional financing to pay off the construction loan and to provide working capital for Royal Tobacco and Stellar Coffee. Taylor Dec, Ex 3; Albina's Facts, Exs. M, N. However, on September 24, 1999, Albina sent Taylor and Wasson a letter stating that it was through trying to "restructure" the existing loan and provide working capital. Taylor Dec, Ex 4. Instead, Albina required an "alternative course of action" no later than October 31, 1999, and stated that Albina's position was "not subject to negotiation or reconsideration." Id. Until that time, Albina had always reassured Taylor that it would make a term loan. Taylor Dec, ¶ 20. From March through November 1999, Albina did not ask Renaissance, Wasson, or Taylor to make any payments on the construction loan. Taylor Dec, ¶ 12.
Royal Tobacco went out of business in December 1999 due to a lack of working capital. Taylor Depo, p. 13.
On January 20, 2000, Albina gave notice of its intent to foreclose (Albina's Facts, Ex P) due to nonpayment of the construction loan. Albina then initiated foreclosure proceedings and this action followed.
III. Albina's Motion for Summary Judgment Against Plaintiffs' Claims
A. ECOA (Third Claim)
The ECOA prohibits creditors from discriminating against an applicant in a credit transaction "on the basis of race, color, religion, national origin, sex or marital status, or age." 15 U.S.C. § 1691(a). Albina is a creditor subject to the ECOA. Plaintiffs allege that Albina violated the ECOA by: (1) requiring Wasson to sign as a guarantor on the construction loan and all proposed additional extensions of credit; (2) denying the term loan based on Wasson's credit or lack of documents; and (3) refusing to extend credit to plaintiffs on the basis of their race. Complaint, ¶¶ 28-29.
Plaintiffs repeatedly assert that the loans were to be based on Taylor's income and the business history of Royal Tobacco, rather than on the income or creditworthiness of Wasson. Plaintiffs also assert that Albina denied Taylor a loan based on Wasson's failure to provide tax information. However, it is undisputed that the borrower in the transactions involved in this case was Renaissance, not Taylor individually. It is also undisputed that Wasson is a member of Renaissance, a limited liability company. These undisputed facts are fatal to plaintiffs' first two alleged violations of the ECOA. Because Wasson was a member of Renaissance, the borrower, Albina had a legitimate reason for seeking Wasson's guarantee and requesting other financial documents from her.
With regard to the third alleged violation of the ECOA that Albina refused to extend credit based on the race of Taylor and Wasson, plaintiffs have failed to point to any supporting evidence. Taylor testified that he simply did not know one way or the other whether Albina's individual bank officers (at least some of whom were African-American themselves) were prejudiced or based their decisions on race. Taylor Depo, pp. 374-76. At best, plaintiffs assert some sort of institutionalized discrimination based on Taylor's observations that some time in March or April 1999, several African-American bank officers, including James Taylor, were forced to leave the bank or had their positions eliminated. Taylor Dec, ¶ 21. Plaintiffs have not discussed this third alleged violation in their Response and the record reveals nothing even hinting that the failure of Albina to fund the term loan was based on the race of Taylor or Wasson. Thus, Albina's motion for summary judgment against plaintiffs' Third Claim is granted.
Plaintiffs also assert that Wasson's failure to provide tax returns was used as the "deal killer" when Albina decided not to fund the term loan. Even though Albina is entitled to summary judgment against plaintiffs' ECOA claims, plaintiffs are not precluded from arguing in connection with their remaining claims (discussed in more detail below) that Albina's asserted need for Wasson's tax information was merely an excuse used by Albina to justify its failure to fund the term loan.
Based on dismissal of the ECOA claims, no federal claim remains upon which jurisdiction may be premised. When "the district court has dismissed all claims over which it has original jurisdiction," it has discretion to "decline to exercise" supplemental jurisdiction. 28 U.S.C. § 1367(c)(3); Brady v. Brown, 51 F.3d 810, 815 (9th Cir 1994). The court should remand the case unless retention of the case is justified by judicial economy, convenience, and fairness to the litigants. Executive Software N. Am., Inc v. U.S. Dist. Court for Cent. Dist. of California, 24 F.3d 1545, 1564 (9th Cir 1994). This case is set to go to trial in less than two months and all of the above factors clearly favor retention of the case. Therefore, this court will exercise its discretion in favor of retaining jurisdiction over the remaining state law claims in this case.
B. Breach of Contract (First Claim)
Plaintiffs allege that Albina breached its contract to provide them with permanent financing in four ways, namely by: (1) failing to have the Property appraised upon the completion of construction; (2) failing and refusing to extend the terms of the loan into a seven year loan; (3) canceling Taylor's line of credit after Taylor had paid the balance and initiating a foreclosure when it knew the loan(s) were not in default; and (4) breaching its implied covenant of good faith and fair dealing. Complaint, ¶ 16. Albina is entitled to summary judgment on the first and fourth of these allegations.
1. Failure to Reappraise the Property
First, plaintiffs allege that Albina breached its contract by failing to reappraise the Property at the close of construction, which would have permitted Albina to increase the amount of the term loan up to 75% of the reappraised value. This allegation is based on the March 18, 1998 commitment letter offering a loan amount of $225,000 which states: "In no event shall the loan exceed 75% of the Appraised Value." Taylor Dec, Ex 1. The commitment letter also states that:
[Albina] requires that an updated appraisal be obtained to substantiate values. The appraisal must be ordered by the bank. As stated earlier, the loan may not exceed 75% of the appraised value. The appraisal will be ordered by the bank, upon receipt of the final plans and specifications for the project.
Id, p. 2.
Albina did not reappraise the Property upon completion of construction and receipt of the final plans and specifications. Taylor Dec, ¶ 16. However, this failure has caused no damage to plaintiffs because Albina did not obligate itself to lend more than $296,250.
Taylor claims that Albina was to provide him a term loan "in the amount of 75% of the appraised fair market value (FMV)" upon completion of construction. Taylor Dec, ¶ 4. However, he provides no factual basis for his conclusion other than that this term was "contained in [Albina's] March 18, 1998 letter." Id. He is wrong to the extent that he claims the March 18, 1998 commitment letter required Albina to increase the amount of the term loan over and above the amount of the construction loan. The commitment letter does not say that Albina shall increase the term loan up to that amount. Instead, it simply states that as a condition of making a $225,000 loan, Albina requires an updated appraisal to "substantiate values." Pursuant to the commitment letter, Albina had the discretion, but not the obligation, to lend up to 75% of the appraised value.
Plaintiffs point out that by June 22, 1998, the amount of the construction loan increased to $292,500 (Taylor Dec, Ex 2) and that by September 30, 1998, the amount increased again to $296,250 (Albina's Facts, Ex B), which is the amount in the Notice of Final Agreement (Albina's Facts, Ex I). This $296,250 figure represents 75% of $395,000, which apparently is the value of the Property pursuant to an appraisal completed in April 1998. Albina's Facts, Ex K, p. 2. Since the construction loan amount increased as the appraised value increased, plaintiffs argue that the term loan amount also should have increased. Despite the logic of plaintiffs' argument, no contract required Albina to do so. Therefore, Albina is entitled to summary judgment against this allegation for breach of contract.
2. Refusing Loan, Cancelling Credit Line and Initiating Foreclosure
Next, plaintiffs allege that Albina failed and refused to extend the terms of the construction loan into a seven year term loan. Plaintiffs also allege that Albina canceled Taylor's line of credit after he had paid the balance and initiated a foreclosure when Albina knew the loan(s) were not in default. Because these allegations are related and both survive summary judgment, they will be discussed together.
The gist of these allegations is that Albina repeatedly promised Taylor that it would loan sufficient funds to Renaissance both to complete the construction of the proposed building and to provide sufficient working capital to carry Royal Tobacco and Stellar Coffee through their first few months of operation. Taylor Dec, ¶ 3. According to plaintiffs, the need for working capital was always included in Taylor's discussions with Albina. In fact, Albina's Loan Memorandum dated September 1, 1998, states that "project financing will also incorporate working capital for [Royal Tobacco and Stellar Coffee], equipment and required tenant improvements" and allows "an additional 90 days [after completion of construction] for stabilization of business activity." Zwingli Dec, Ex C, p. 2. That same document also notes that the square foot cost of the loan was somewhat higher than typical because it was being built by owner/occupants and therefore would include "costs such as equipment, working capital and additional tenant improvements." Id, p. 4.
Initially, Taylor and James Taylor discussed getting working capital from PDC or through an extension of Taylor's credit line. Taylor Dec, ¶ 10. In reliance on Albina's assurances, Taylor limited his request for funds from PDC to $77,000. Taylor Depo, p. 174. After the PDC loan closed and Taylor realized that part of those funds had been applied to pay off his line of credit (id at 245, 262) and that Albina had subsequently closed his line of credit, he contacted Zwingli at PDC, who told him that it was very difficult to go back to PDC a second time and get more money. Id at 174, 329. Taylor also discussed the issue with James Taylor who told him that PDC had required the line of credit to be closed, and reassured him that Albina could get him additional working capital through a loan program offered by Albina called the Fresh Start Program. Taylor Dec, ¶¶ 10, 20. Taylor does not remember James Taylor specifically stating that the line of credit would remain active (Taylor Depo, p. 144), but recalls that James Taylor assured him that the line of credit and construction loan would be rolled into the term loan after the reappraisal. Taylor Dec, ¶ 10.
Albina insists that it never agreed to loan any more than $296,250 and that it remained ready, willing, and able to loan that amount, but that plaintiffs never wanted a term loan in that amount. As it must on summary judgment, Albina relies heavily on Taylor's deposition testimony that Albina "never said [it] would not make the term loan" (Taylor Depo, p. 191) and that the "key issue" (id, p. 190) was Taylor's request for additional working capital. However, Albina reads too much into this testimony. The point of Taylor's testimony is that although Albina never expressly refused to fund the loan, it never offered to fund and in fact never did fund the term loan on the original terms offered before declaring a default on the construction loan.
If necessary, Taylor would have accepted the original term loan of $296,250 (id at 191; Taylor Dec, ¶ 15), but continued to discuss with Albina his need for the extension of the line of credit or a larger term loan in order to have working capital for the businesses. Taylor Depo, pp. 191-94. Plaintiffs needed additional funds for working capital, but at least the original term loan would have prevented a default on the construction loan. Id at 190. Even without additional funds, plaintiffs "may very well have been able to make the first few payments [on the term loan], but it would have been a struggle that [they] felt was not necessary." Id at 190-91. Albina never gave plaintiffs that option because it never funded or offered to fund the original $296,250 term loan. Instead, it made an offer for a new, larger loan (Albina's Motion, Ex E), apparently on terms unacceptable to plaintiffs, then later refused to take any "further action concerning restructure and new funds" (Taylor Dec, Ex 3) and eventually declared a default unless plaintiffs accepted new terms (Albina's Facts, Ex P).
Albina disputes plaintiffs' version of events. In fact, a letter from Albina's attorney dated December 6, 1999 (Plaintiff's Ex 15) does state that Albina "would consider rewriting the existing construction loan into permanent financing with no new advances at the committed rate but would not give a preferred rate." Therefore, Albina may have evidence to prove that it did offer to fund the term loan on the original terms. However, at this point, plaintiffs have created a genuine issue of material fact sufficient to avoid summary judgment.
3. Breach of the Implied Covenant of Good Faith and Fair Dealing
The Complaint does not specify the exact nature of plaintiffs' claim for breach of the implied covenant of good faith and fair dealing. However, the en banc opinion of the Oregon Supreme Court in Uptown Heights Associates Ltd. Partnership v. SeaFirst Corp., 320 Or. 638, 644-50, 891 P.2d 639, 643-646 (1995) eliminates any such claim by plaintiffs. Thus, Albina is entitled to summary judgment against the breach of contract claim to the extent it is premised on a breach of an implied duty of good faith and fair dealing.
C. Misrepresentation (Second Claim)
The Second Claim alleges that Albina entered into the agreements with plaintiffs but had no intention of completing the construction financing or extending the financing for seven years as promised in the loan commitment. Complaint, ¶ 21. In order to recover on their misrepresentation claim, plaintiffs must establish: (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent that the representation should be acted upon by the listener in the manner reasonably contemplated; (6) the listener's ignorance of the representation's falsity; (7) the listener's reliance on the truth of the representation; (8) the listener's right to rely thereon; and (9) the listener's consequent and proximate injury. Webb v. Clark, 274 Or. 387, 391, 546 P.2d 1078, 1080 (1976) (citations omitted); Johnsen v. Mel-Ken Motors, Inc. 134 Or. App. 81, 89, 894 P.2d 540, 545 (1995). If the misrepresentation is a promise, then the plaintiff must show that the defendant either did not intend to perform when he made the promise or that he made the promise with reckless disregard as to whether he could perform. Sproul v. Fossi, 274 Or. 749, 752, 548 P.2d 970, 972 (1976) (citations omitted). A fraudulent intent not to keep a promise can be inferred if sufficient circumstances are shown to support such an inference. Id at 752-53, 548 P.2d at 972-73 (citation omitted).
Albina asserts that it is entitled to summary judgment against plaintiffs' misrepresentation claim because Albina intended to fund the original term loan as promised. In response, plaintiffs point to Albina's internal Loan Approval Form dated September 30, 1998 (Albina's Motion, Ex A) which shows that Albina only intended to extend a term loan for 18 months, not seven years. Albina counters by pointing to James Taylor's February 2, 1999 confirmation to Zwingli at PDC that the term loan "will be amended from the 18 mos. to 7 years." Zwingli Aff, Ex F. When and why Albina decided not to fund the term loan is disputed, as discussed above. Therefore, for the same reasons summary judgment is not appropriate on the breach of contract claim concerning this issue, it is not appropriate on the misrepresentation claim.
This court notes that the parties have not addressed the exact contours of the misrepresentation claim, nor have they addressed whether plaintiffs may pursue a misrepresentation claim based solely on the allegation that Albina breached its contract to fund the term loan.
D. Injunction (Fourth Claim)
Plaintiffs also seek an injunction prohibiting Albina from foreclosing the Property. After Albina filed its counterclaim for foreclosure, plaintiffs raised unclean hands, promissory estoppel, and failure of consideration as affirmative defenses. Answer of Plaintiffs, Royal Tobacco LLC and Stellar Coffee LLC to Defendants' Counterclaim and Third Party Complaint, ¶¶ 8-19.
Unclean hands is a defense to a foreclosure action. Piatt v. Medford Highlands, LLC, 173 Or. App. 409, 417, 22 P.3d 767, 771 (2001) (citations omitted). However, the defense of promissory estoppel is more properly characterized as a reassertion of plaintiffs' contract claim. Smith v. Hawkins, 84 Or. App. 336, 338, 733 P.2d 929, 930 (1987) ("Because promissory estoppel is a shorthand method of contending that action in reliance on a promise results in the formation of a valid enforceable contract, we treat this counterclaim as one for breach of contract"), citing Schafer v. Fraser, 206 Or. 446, 468, 290 P.2d 190, 200 (1956) and City of Ashland v. Hoffarth, 84 Or. App. 265, 270, 733 P.2d 925, 928 (1987). In the context of this case, plaintiffs' asserted defense of failure of consideration appears to really be a failure of performance defense. See Reporter's Note to the Restatement (Second) of Contracts, § 237 (1981) (Section 237 "abandons as misleading the term `failure of consideration' . . . in favor of `failure of performance.'").
Whether characterized as a claim for breach of contract or misrepresentation, or revamped as a defense of unclean hands, promissory estoppel, or failure of performance in response to Albina's foreclosure claim, the essence of plaintiffs' allegations is identical. Plaintiffs allege that, with no intention of doing so, Albina promised them a term loan and promised to provide sufficient funds to get their businesses off the ground either by incorporating the necessary working capital into the term loan, extending Taylor's line of credit, or obtaining additional funds for the plaintiffs through the Fresh Start program. As discussed above, to the extent that plaintiffs' breach of contract claim is based on their allegations that Albina failed to fund the term loan and refused to extend Taylor's line of credit and initiated foreclosure, the facts are sufficiently in dispute to preclude summary judgment in Albina's favor.
IV. Albina's Motion for Summary Judgment on Cross-Claims Against PDC
Albina also moves for summary judgment on its claim for foreclosure against PDC's affirmative defenses of promissory estoppel and failure of consideration.
PDC alleges that Albina should not be allowed to foreclose PDC's second trust deed against the Property for two reasons. As its promissory estoppel defense, PDC alleges that it relied on PDC's notice that it would make plaintiffs a seven year loan to follow the six month construction loan of $296,250, and, as a result, PDC made a subordinate loan to Renaissance in the amount of $77,500 and a "storefront" grant of $15,000. As its failure of consideration defense, PDC alleges that its loan to Renaissance was conditioned upon Albina's representation that it would make a term loan to Renaissance which it has failed and refused to do, thereby unjustly enriching Albina by PDC's investment.
To the extent that Albina's motion against PDC's affirmative defenses is based upon Albina's contention that it never refused the term loan to plaintiffs, it must be denied for the same reasons discussed above. If plaintiffs refused the term loan, as Albina contends, then PDC's affirmative defenses lack any factual merit. On the other hand, if Albina refused to fund the term loan, as plaintiffs contend, then PDC's defenses have factual support.
But even if plaintiffs prevail on the underlying factual issue, Albina argues that PDC's defenses fail as a matter of law. First, Albina argues that a junior lienholder cannot prevent foreclosure based on promissory estoppel because it has a contractual remedy. "[P]romissory estoppel can only become necessary as a remedy for an unperformed promise if no traditional contractual remedy is available for the nonperformance." Neiss v. Ehlers, 135 Or. App. 218, 228, 899 P.2d 700, 706 (1995) (emphasis in original), citing Schafer v. Fraser, 206 Or. 446, 290 P.2d 190, 294 P.2d 609 (1956). Here, PDC has a remedy because its $77,500 loan is fully secured by a second deed of trust on the Property. It may protect its second lien at Albina's foreclosure sale by purchasing the Property for the amount of Albina's first lien. ORS 88.030.
PDC responds that its second trust deed may not be fully secured by the Property because the Property may not have sufficient value upon foreclosure to pay the amounts owing on both Albina's and PDC's loans. However, that is a risk inherent in lending. Had Albina made the term loan, and had plaintiffs later defaulted on that loan, PDC would be in no different position than it is now with respect to the liquidation value of the Property. Therefore, at least with respect to its $77,500 secured loan, PDC's promissory estoppel defense fails. However, PDC also made an unsecured "storefront" grant of $15,000. PDC has no contractual remedy available to recover that amount. Accordingly, PDC may well have a promissory estoppel defense with respect to its $15,000 grant.
Second, Albina argues that PDC's failure of consideration defense fails because there is nothing unjust about foreclosing PDC's second lien. As do plaintiffs, PDC appears to be asserting a failure of performance defense. PDC responds that its loan proceeds paid either for improvements to the Property or Taylor's line of credit owed to Albina. However, as noted above, PDC's $77,500 loan is secured by the Property. If PDC purchases the Property upon foreclosure, then Albina will not be unjustly enriched at PDC's expense. However, the same is not true for PDC's $15,000 grant.
Thus, to the extent that PDC's affirmative defenses seek to prevent foreclosure of its $77,500 second trust deed, Albina's summary judgment motion is granted. To the extent that PDC seeks damages from Albina for the $15,000 grant, Albina's summary judgment motion is denied.
V. Plaintiffs' Cross-Motion for Summary Judgment
Plaintiffs have filed a cross-motion for summary judgment. As discussed above, fact issues preclude summary judgment against plaintiffs' claims for breach of contract and misrepresentation. Those same fact issues preclude summary judgment in favor of plaintiffs on those claims.
ORDER
For the reasons stated above, Albina's Motion for Summary Judgment (docket #45) is GRANTED against plaintiffs' Third Claim under the Equal Credit Opportunity Act, against plaintiffs' First and Second Claims to the extent they are based either on Albina's failure to reappraise the Property after construction or breach of the implied covenant of good faith and fair dealing, and against PDC's affirmative defenses with respect to PDC's $77,500 loan secured by a second trust deed, and DENIED in all other respects. In addition, plaintiffs' Cross-Motion for Summary Judgment (docket #55) is DENIED.