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NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P 65.37
MILLER BOYS PROPERTIES, LLC, :: IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
v. :
:
CONESTOGA BANK, :
:
Appellee : No. 800 EDA 2015
Appeal from the Order February 9, 2015,
Court of Common Pleas, Philadelphia County,
Civil Division at No. April Term, 2013 No. 04218
MILLER BOYS PROPERTIES, LLC, : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
v. :
:
ADVANCED MERCHANT GROUP, INC. :
and CONESTOGA BANK, :
:
Appellee : No. 824 EDA 2015
Appeal from the Order entered February 6, 2015,
Court of Common Pleas, Philadelphia County,
Civil Division at No. April Term, 2013 No. 04858
BEFORE: DONOHUE, MUNDY and FITZGERALD*, JJ.
MEMORANDUM BY DONOHUE, J.: FILED SEPTEMBER 28, 2015
Appellant, Miller Boys Properties, LLC (the “Miller Boys”), appeals from
the trial court’s entry of summary judgment in the two above-captioned
actions. For the reasons that follow, we affirm the trial court’s rulings.
*Former Justice specially assigned to the Superior Court.
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In its written opinion in support of its grant of summary judgment, the
trial court provided the following summary of the factual background
underlying these actions:
[Miller Boys] filed the case captioned above, along
with two other cases against [Appellee Conestoga
Bank (“Conestoga”)] as well as [Advanced Merchant
Group, Inc. (“AMG”)] and Onexcellence, Inc. (case
Nos. 130404858 and 130404863, respectively). In
the present case, the Miller Boys claim that
Conestoga misapplied and/or failed to pay to them
certain rents allegedly received by Conestoga
pursuant to an assignment of rents agreement after
the Miller Boys defaulted under loans extended to
them by Conestoga. Further, the Miller Boys seek
declaratory judgment and allege fraudulent
inducement, breach of contract, intentional
interference with contractual relations, promissory
estoppels, unjust enrichment, conversion, breach of
fiduciary duty based on property damages, and a
violation of the Equal Credit Opportunity Act
(“ECOA”). The Miller Boys is an LLC that was
created for the purpose of purchasing and owning
real estate investments. Jack Miller and Ari Miller,
two members of the Miller Boys, have extensive
experience in the financial sector. Jack Miller
previously worked as a mortgage loan officer at
Federal Savings Bank, and subsequently became the
president of Gelt Financial Corporation, in addition to
working as the chief executive officer of Public
Savings Bank. Ari Miller is a licensed real estate
agent.
In 2006, the Miller Boys applied for several loans
with Conestoga in order to finance the purchase of a
property at 600 Louis Drive, Warminster,
Pennsylvania (the “property”). On February 26,
2006, the Miller Boys signed a commitment letter
that set out the terms of one of the loans. The Miller
Boys understood that one of the conditions of
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Conestoga extending the loan was the right of
Conestoga to collect certain rents, and the fully
integrated agreement held that any oral or written
representations not expressly set forth in the letter
were superseded by the terms of the agreement.
The parties closed on the first loan on May 10, 2006
and Conestoga extended a second loan to the Miller
Boys several weeks later. Both loans were secured
by open-end mortgages on the property. The
maturity dates for the loans were June 1, 2011, and
July 1, 2016, respectively, with an interest rate of
7.250% for each loan. The parties also entered into
several assignment agreements in connection with
these loans, which were created to secure
indebtedness and to ensure the Miller Boys’
performance of their obligations under the loans.
These agreements granted Conestoga several rights
regarding the property, including the right to collect
and receive rents from the tenants, the right to enter
and maintain the property, and the right to lease the
property. However, the agreements explicitly stated
that Conestoga had no requirement to act on any of
its rights with regard to the property.
By May 2010, the property had sustained losses, and
the Miller Boys asked Conestoga to modify the terms
of the loans, specifically to defer principal payments
until the property could be fully leased. On
September 21, 2010, the parties entered into a
modification of the loan agreements, whereby the
maturity dates were extended to October 5, 2011,
the interest rates were reduced 0.9 percentage
points to 6.35%, and the monthly payments were
reduced. However, the Miller Boys were still unable
to make timely payments. Because of the cash flow
loss the property was suffering, the Miller Boys
requested another modification of the terms of the
loan agreements. The parties executed such
modifications on April 5, 2011, whereby the interest
rates of the loans were reduced to 5.75% and the
Miller Boys were required to make interest only
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payments, which is what the Miller Boys requested.
The amounts of the monthly payments were reduced
but the maturity dates remained at October 5, 2011.
The parties agreed that, except for the changes
listed in the agreements, the remaining terms of the
original agreements still governed.
The Miller Boys subsequently defaulted on the loans
by failing to make timely payments and never paying
the total principal that was due on October 5, 2011.
Conestoga did not immediately begin foreclosure
proceedings, but offered the Miller Boys a six month
extension to extend the maturity on both loans to
April 5, 2012. The Miller Boys rejected this offer,
and unilaterally proposed to change the interest rate
and maturity terms, which Conestoga would not
accept. On February 2, 2012, the Miller Boys orally
agreed to the extension that Conestoga originally
offered, yet refused to sign the agreement with the
change in terms. Instead, the Miller Boys asked
Conestoga to release Jack Miller and Ari Miller from
their personal guarantees, which Conestoga agreed
to do. However, Jack and Ari Miller rejected
Conestoga’s proposal to release the personal
guarantees and never made a counterproposal.
Subsequently, the parties could not come to an
agreement on a change in terms and the Miller Boys
never remedied their default.
Conestoga enforced its right to collect rents on
January 10, 2012, and demanded rents from [AMG]
and OPG Systems, Inc. (“OPG”), the tenants of the
property.[1] AMG and OPG never paid any rents to
Conestoga. The Miller Boys allege that AMG
complained about a sump pump that was causing an
odor on the property, yet Conestoga asserts that it
was never made aware of this or any other
maintenance issues by the Miller Boys or AMG.
Aside from demanding rents be paid, Conestoga
never took over management of the property or
made any repairs, and was unable to enter the
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property because the Miller Boys never provided
Conestoga with keys or other access.
The Miller Boys understood that by not agreeing to a
proposed change in terms with Conestoga, the loans
would be in default. The Miller Boys do not dispute
that they have not paid the principal, interest, and
charges due on the loans’ maturity date.
Consequently, Conestoga foreclosed on the property
and sold it on August 9, 2013. Conestoga has now
brought forth the current motion for summary
judgment on all claims against it.
______________
[1]
OPG Systems, Inc. is the predecessor of
Onexcellence, Inc.
Trial Court Opinion, 2/6/2015, at 1-4.
The Miller Boys filed three lawsuits, one against Conestoga (case
number 130404218), a second against AMG and Conestoga (case number
case Nos. 130404858), and a third against Onexcellence, Inc. and
Conestoga (case number 130404863). On or about February 6, 2015, the
trial court granted Conestoga’s motions for summary judgment in all three
cases. The Miller Boys appealed these rulings, and two of these three
appeals are presently before this Court (case numbers 130404218 and
130404858). The Miller Boys assert the same two issues for our review and
determination in both appeals:
1. Whether the [t]rial [c]ourt erroneously entered
summary judgment in favor of [Conestoga] and
against Miller Boys when it failed to address
obligations that arose after the Bank asserts its right
to collect rent.
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2. Whether genuine issues of material fact exist to
preclude the entry of judgment as a matter of law,
including whether genuine issues of material fact
exist with regard to Miller Boys’ damages.
Miller Boys’ Brief at 3.
Our standard of review of a trial court's grant of summary judgment is
well settled:
A reviewing court may disturb the order of the trial
court only where it is established that the court
committed an error of law or abused its discretion.
As with all questions of law, our review is plenary.
In evaluating the trial court's decision to enter
summary judgment, we focus on the legal standard
articulated in the summary judgment rule. Pa.R.C.P.
1035.2. The rule states that where there is no
genuine issue of material fact and the moving party
is entitled to relief as a matter of law, summary
judgment may be entered. Where the non-moving
party bears the burden of proof on an issue, he may
not merely rely on his pleadings or answers in order
to survive summary judgment. Failure of a non-
moving party to adduce sufficient evidence on an
issue essential to his case and on which it bears the
burden of proof establishes the entitlement of the
moving party to judgment as a matter of law.
Lastly, we will view the record in the light most
favorable to the non-moving party, and all doubts as
to the existence of a genuine issue of material fact
must be resolved against the moving party.
Thompson v. Ginkel, 95 A.3d 900, 904 (Pa. Super. 2014) (citations
omitted).
For their first issue on appeal, the Miller Boys contend that the trial
court erred when it ruled that Conestoga had no obligation to collect rent
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from the two tenants (AMG and Onexcellence, Inc.) after Conestoga notified
these tenants that it was exercising its right to collect rents. According to
the Miller Boys, once Conestoga exercised its right to receive rental
payments, it then had a contractual duty to take further (unspecified)
actions to collect the rent due, and that the rent collected (or due) after
Conestoga sent the notices should have been applied to the Miller Boys’
outstanding balance due on the loans. Miller Boys’ Brief at 10. Rather than
collect rent, the Miller Boys argue that Conestoga took no action and instead
merely increased the outstanding balance due and charged additional
interest, late fees, and penalties. Id.
The Miller Boys do not refer this Court to any particular provision of
the loan documents that obligated Conestoga to make additional efforts to
collect rent from the tenants. Rather, the Miller Boys assert that the
obligation springs from the implied duty of good faith and fair dealing. Id.
at 11. This Court has said that “[e]very contract imposes upon each party a
duty of good faith and fair dealing in its performance and its enforcement,”
Kaplan v. Cablevision of PA, Inc., 671 A.2d 716, 722 (Pa. Super. 1996)
(quoting Restatement (Second) of Contracts, § 205); John B. Conomos,
Inc. v. Sun Co. (R&M), 831 A.2d 696, 706-07 (Pa. Super. 2003). But a
review of Pennsylvania appellate decisions reflects that we have recognized
this implied duty only in limited situations. As we explained in Creeger
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Brick & Bldg. Supply Inc. v. Mid-State Bank & Trust Co., 560 A.2d 151
(Pa. Super. 1989), although a duty of good faith has been recognized in
commercial contracts as well as in contracts between franchisors and their
franchisees and between insurers and their insureds, no such duty is
generally implied in contracts between lenders and borrowers. Id. at 153-
54 (citing Atlantic Richfield Co. v. Razumic, 390 A.2d 736 (Pa. 1978),
Loos & Dilworth v. Quaker State Oil Refining Corp., 500 A.2d 1155
(Pa. Super. 1985), Gray v. Nationwide Mutual Ins. Co., 223 A.2d 8
(Pa. 1966), Gedeon v. State Farm Ins. Co., 188 A.2d 320 (Pa. 1963), and
Heights v. Citizens National Bank, 342 A.2d 738 (Pa. 1975)); see also
13 Pa.C.S.A. § 1304; Cable & Associates Ins. Agency, Inc. v.
Commercial Nat. Bank of Pennsylvania, 875 A.2d 361, 364 (Pa. Super.
2005).
The Miller Boys refer us to a decision of the United States District
Court for the Eastern District of Pennsylvania, in which that court predicted
the Supreme Court of Pennsylvania would conclude that an implied duty of
good faith exists in all contracts in Pennsylvania, including those between
borrowers and lenders. Bedrock Stone and Stuff, Inc. v. Manufacturers
and Traders Trust Co., 2005 WL 1279148 at *8 (E.D. Pa., May 25, 2005).
In Bedrock, the federal district court noted that our Supreme Court adopted
section 205 of the Restatement (Second) of Contracts in Bethlehem Steel
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Corp. v. Litton Industries, Inc., 488 A.2d 581, 600 (Pa. 1985), and thus
reasoned:
We find it inconsistent and unworkable to state that
there is such a duty in every contract, but then to
attempt to limit the application of the implied
covenant in certain instances but not others. The
covenant is either implied in every contract or it is
not. There cannot be any other reasonable
interpretation of the adoption by the Supreme Court
of Pennsylvania of Section 205 of the Restatement
than to apply it equally to every contract. To do
otherwise would strain the use and meaning of the
word “every” to mean something other than “all”.
Bedrock, 2005 WL 1279148 at *7.
The Bedrock decision is not binding upon this Court. In this regard, it
is instructive that the federal court in that case did not rely upon prior
precedent from this Court, but rather focused on two decisions of the
Philadelphia County Court of Common Pleas. In particular, the federal
district court did not cite to this Court’s 2002 decision in Heritage
Surveyors & Engineers, Inc. v. Nat'l Penn Bank, 801 A.2d 1248 (Pa.
Super. 2002), in which we reaffirmed our ruling in Creeger Brick that the
duty of good faith and fair dealing has been recognized only in “limited
situations.” Id. at 1253. We also reaffirmed Creeger Brick’s admonition
that the duty of good faith and fair dealing “does not compel a lender to
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surrender rights which it has been given by statute or by the terms of its
contract.”1 Id. (quoting Creeger Brick, 560 A.2d at 154).
We need not resolve this issue here, since even if the duty of good
faith and fair dealing applies to the present loan documents, it is beyond
cavil that the implied duty can never trump the express language of the
written contract. The duty of good faith and fair dealing does not license a
court to interpose contractual terms to which the parties never assented, as
this would violate the long-standing axiom that a court may “not imply a
different contract than that which the parties have expressly adopted.”
Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 388 (Pa. 1986); Greek
v. Wylie, 109 A. 529, 530 (Pa. 1920) (“there can be no implied covenants
as to any matter specifically covered by the written terms of the contract
itself.”). When it applies, the duty of good faith and fair dealing does not
command complete loyalty to the other contracting party, but rather only
ensures that the parties are faithful to the spirit and terms of the contract
1
The Miller Boys note that this Court recognized an exception to the
Creeger Brick rule in Corestates Bank, N.A. v. Cutillo, 723 A.2d 1053
(Pa. Super. 1999), in which we indicated that while a lending institution
generally does not violate the duty of good faith by adhering to its
agreements with a borrower, additional “good faith” obligations may be
imposed where the parties have a “longstanding relationship.” Id. at 1059.
In Corestates, however, we recognized that the “longstanding relationship”
there involved a 19-year history between the parties during which the bank
had exclusively served the lender’s financial needs. Id. The Miller Boys
have not directed us to any evidence to demonstrate that any similar
“longstanding relationship” exists with Conestoga.
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the parties signed, requiring that discretion, when granted, is exercised
reasonably. As the Delaware Court of Chancery put it, the implied duty
“seeks to enforce the parties’ contractual bargain by implying only those
terms that the parties would have agreed to during their original
negotiations if they had thought to address them.” ASB Allegiance Real
Estate Fund v. Scion Breckenridge Managing Member, LLC, 50 A.3d
434, 440 (Del. Ch. 2012), aff’d in part, rev’d in part on other grounds, 68
A.3d 685 (Del. 2013).
In the present case, there is no need to imply terms the parties would
have agreed to “if they had thought to address them,” since here the parties
directly addressed the precise scenario about which the Miller Boys now
complain -- namely what actions (if any) Conestoga must take after
exercising its right to collect rents from tenants. The assignment of rents
agreement provides that Conestoga may, among other things, “send notices
to any tenants of the Property advising them of this Assignment and
directing all Rents to be paid directly to [Conestoga] or [Conestoga’s]
agent.” Second Amended Complaint, 10/15/2013, ¶ 5 Exhibit B.
Immediately thereafter, the agreement (in a section entitled “No
Requirement to Act”) then states that “the fact that Conestoga shall have
performed one or more of the foregoing acts or things shall not require
[Conestoga] to do any other specific act or thing.” Id. As such, the express
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language of the loan documents explicitly absolves Conestoga from any
obligation to perform the acts that the Miller Boys now claim were required
here (i.e., additional efforts to collect rents). Hence, even if the implied duty
of good faith and fair dealing applies generally under the facts presented
here, it cannot be construed to impose upon Conestoga the obligations the
Miller Boys insist that it does.
Finally, the Miller Boys insist that a contrary decision would authorize
financial institutions like Conestoga “to act in a predatory manner.” Miller
Boys’ Brief at 15. The Miller Boys claim that Conestoga exercised its right to
collect rents with no intention of actually collecting the rents, and that it
instead did so solely to collect additional fees, interest, and penalties. Id.
Whether or not Conestoga’s actions can properly be described as
“predatory,” however, Conestoga acted in all respects in accordance with its
rights under the terms of the loan documents signed by the Miller Boys. As
this Court has made clear in prior lender-borrower cases, “it cannot be said
that a lender has violated a duty of good faith merely because it negotiated
terms of a loan which are favorable to itself.” Heritage Surveyors, 801
A.2d at 1253 (quoting Creeger Brick, 560 A.2d at 154).
Moreover, while the Miller Boys claim that Conestoga had no intention
of collecting rents from the property’s tenants, it offered no evidence in
support of this contention in response to Conestoga’s motion for summary
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judgment. As explained hereinabove, where the non-moving party to a
motion for summary judgment bears the burden of proof on an issue, it may
not merely rely on unsubstantiated allegations to survive summary
judgment, and instead must adduce sufficient evidence on the issue to
create a genuine issue of material fact. Thompson, 95 A.3d at 904. Based
upon our review of the certified record on appeal, the Miller Boys have not
done so in this case.
For their second issue on appeal, the Miller Boys argue that the trial
court erred in granting summary judgment because genuine issues of
material fact remain for consideration regarding the amount of damages
suffered as a result of Conestoga’s actions. The trial court ruled that the
Miller Boys failed to present any evidence of its alleged damages, including
no report from a damages expert and no attempt to quantify the amount of
any damages suffered. Trial Court Opinion, 2/6/2015, at 7.
Because we agree with the trial court’s determination that the Miller
Boys did not state a cognizable claim against Conestoga under the terms of
the loan documents, the issue of damages would appear to be moot. In any
event, we concur with the trial court’s analysis. In their Second Amended
Complaint (case number 130404218), the Miller Boys claimed unspecified
damages against Conestoga, asserting that its actions had “snowballed into
financial losses to Miller Boys in excess of two hundred thousand dollars,”
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including reputational harm and “jeopardy to its assets.” Second Amended
Complaint, 10/15/2013, ¶¶ 25, 52. In response to Conestoga’s motion for
summary judgment, however, the Miller Boys offered no evidence to support
these contentions. Even in an affidavit by Jack Miller filed in response to the
motion for summary judgment, he merely repeats the contention in the
Second Amended Complaint that financial losses have “snowballed” because
of Conestoga’s actions. Affidavit of Jack Miller in Support of Plaintiff’s
Response to Motion of Defendant Conestoga Bank for Summary Judgment,
12/22/2014, ¶ 29. In their appellate brief, the Miller Boys likewise have not
referred this Court to any supporting evidence, instead merely stating that
the “amount of damages Miller Boys suffered as a result of [Conestoga’s]
failure to collect rent is a genuine issue of material fact.” Miller Boys’ Brief
at 17. Because the Miller Boys have proffered no evidence in support of its
damages claims and instead merely rely upon the allegations in their
pleadings, the trial court did not err in its ruling on this issue.
Orders affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/28/2015
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