APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA D.C. Civil No. 75-3602.
Adams, Rosenn, and Weis, Circuit Judges.
Girard Trust Bank ("Bank"), a banking corporation organized under the laws of the Commonwealth of Pennsylvania, entered a judgment by confession on December 15, 1975, in the United States District Court for the Eastern District of Pennsylvania against William H. Martin and F. Louise Martin, his wife, appellants ("Martins"), in the sum of $3,156,940.37 arising out of appellants' alleged default on four promissory notes. The amount confessed consisted of $2,450,000 in unpaid principal, $225,377.20 in purported due interest, since waived, and collection-counsel fees of $481,567.17 on the outstanding claimed principal and the waived interest included with the judgment.
Promptly after learning of the entry of the confessed judgment, appellants filed a petition to open and reduce the judgment alleging, inter alia, (1) that the component of the judgment attributable to collection fees was unconscionably high, and (2) that appellants were entitled to a setoff of $364,610.92 in light of other litigation between the parties. The petition also included allegations that the Bank had entered into a fraudulent conspiracy with Stanton Halverson, Maurice B. Turner, and Ernest Garfield, co-obligors on the notes, to defraud and injure appellants to the benefit of the conspirators. The petition further alleged that Halverson, Turner, Garfield, and the Bank had conspired fraudulently to induce appellants to execute the four promissory notes on which judgment was confessed, which notes were also signed by Messrs. Turner, Garfield, Halverson, and their wives as co-obligors. In addition, appellants' petition claimed that Girard breached its fiduciary duty to the Martins in connection with their execution of the four notes.
The Bank did not answer the petition but filed a motion to dismiss asserting that the petition was insufficient on its face and as a matter of law to support the request to open judgment. The district court without written opinion dismissed the petition and at the same time denied appellants' motion for a stay of all proceedings pending an appeal to this court. The court orally stated the basis of its order:
I view this matter in this action as a straight-forward commercial transaction among business people, a transaction in which the defendant husband [Martin] voluntarily entered into as a businessman and, because this is the nature of the transaction, I am not swayed by the argument made by the defendants that there is any breach of fiduciary duty on the part of the plaintiff.
Appellants promptly appealed to this court and at the same time filed a petition with this court for a stay of all proceedings pending appeal. We granted the stay on the condition that appellants post a bond with the district court, a condition which appellants have not fulfilled. Having reviewed the contentions of the parties, we conclude that the district court did not err in its order and we affirm.
The primary issue before this court is whether the district court erred in its determination that appellants' "petition" failed to set forth sufficient facts which provided an adequate basis for opening or vacating the judgment at issue.
The backdrop of this proceeding begins with two valuable tracts of land in Burlington County, New Jersey, originally owned by the Martins and leased by them to Medford Nursery, Inc. ("Nursery"). William H. Martin was the sole founder of Nursery and prior to July 25, 1973, its president and sole stockholder; he, his wife, and another person designated as his nominee, were its directors.
According to the petition, William Martin sought a purchaser in the spring and summer of 1973 for all or part of his interest in Nursery. John Franco, a vice president of the Bank, learned of Martin's intention and offered to assist him in securing a purchaser on the payment of a finder's fee of $75,000. Thereafter, Franco introduced Martin to Messrs. Garfield, Halverson, and Turner, with whom the Bank had engaged in prior business transactions. Following negotiations, Garfield, Halverson, and Turner each purchased 25 percent of the issued and outstanding stock of Nursery. Martin received $323,000 in cash plus notes in the principal sum of $157,000. As part of the same transaction, Martin sold the two tracts of land with improvements thereon to Nursery and received $258,000 in cash, a $602,000 note and a purchase money mortgage for the balance of the purchase price.
Subsequent to the consummation of the foregoing transaction, on September 21, 1973, the four principals of Nursery, with Martin serving as president and director, obtained a $2,000,000 loan from the Bank, the proceeds of which were utilized by Nursery for working capital and to repay certain of its outstanding obligations. Each of the principals and their respective wives executed four notes as primary obligors payable to the Bank; Nursery guaranteed the note and gave the Bank a security interest in Nursery's non-realty assets. Each of the notes contained confessions of judgment and each provided that the obligors were jointly and severally liable. The first note became due on September 30, 1974; the remaining three notes were payable on demand. On December 30, 1974, January 8, 1975, and January 20, 1975, the principals of Nursery obtained additional loans from the Bank aggregating $450,000 which were also used in Nursery's operation. On December 15, 1975, upon failure of the Martins and the other obligors to satisfy their obligations, the Bank confessed judgment against the Martins in the sum of $3,156,940.37 on the aforesaid notes.*fn1
Much of the petition to open judgment sets forth averments concerning the procedural background of the judgment and the historical facts underlying the transactions leading to the loans at issue and to this litigation. The allegations of fraud and conspiracy between the Bank and Martins' co-obligors on the promissory notes are general and conclusory. The Martins assert that beginning on or about July of 1973, the Bank entered into a conspiracy with inter alia, Messrs. Garfield, Halverson, and Turner, William Martin's co-principals in Nursery, "for the purpose of enriching themselves at the expense" of the Martins. In connection with the petition to open judgment, the Martins sought discovery so that they could present a complete record in support of the petition. Although they recognized that the Federal Rules of Civil Procedure do not contain a ...