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MELLON BANK v. AETNA BUS. CREDIT INC.

November 3, 1980

MELLON BANK, N. A., M. G. Buckeye Corp. and Mike Goldgar, Plaintiffs,
v.
AETNA BUSINESS CREDIT INC., Defendant



The opinion of the court was delivered by: WEBER

This case is before the Court on a Motion for Summary Judgment by Defendant Aetna Business Credit, Inc., on the claims asserted by Plaintiffs Buckeye Corporation and Mike Goldgar involving the interpretation of a document known as a "Buy-Sell Agreement." By our prior order of March 30, 1979, we denied Summary Judgment on cross motions of the parties, but we established questions of law to govern any trial under the provisions of Fed.R.Civ.P. 56(d). See: Mellon Bank, N. A. v. Aetna Business Credit, Inc., 468 F. Supp. 656 (W.D.Pa.1979). Aetna's current motion for Summary Judgment is directed solely to the claims of Goldgar and M. G. Buckeye Corp. and is basically in the nature of a motion in limine to either produce a pretrial ruling by the Court governing the admissibility of evidence to support the various claims made by plaintiffs Buckeye and Goldgar or to bar the claims because these plaintiffs can show no evidentiary basis admissible at trial to support the claims.

The parties agreed to and filed the following stipulated facts. In the fall of 1973, Mike Goldgar, a real estate developer, proposed to construct an office building, Buckeye Tower II, in the vicinity of Atlanta, Georgia, at an estimated cost of $ 1,850,000. Goldgar and M. G. Buckeye Corp., a corporation formed by Goldgar, sought to obtain financing of the project in the fall of 1973. Goldgar and Buckeye forwarded a proposal for a permanent loan commitment to Aetna, a New York Corporation whose principal place of business is in East Hartford, Connecticut. On or about October 17, 1973, Aetna responded by forwarding a loan application which set forth the terms and conditions under which Aetna would issue a permanent commitment. Buckeye executed the application for permanent commitment and returned it to Aetna which then issued a permanent commitment to Buckeye on November 9, 1973. The permanent commitment, which was to remain in effect until August 1, 1975, was for an amount of $ 1,850,000, to be repaid over a ten year term with monthly interest payments at the rate of 4.5% above the prime rate.

 Mellon Bank, N. A., a national banking association whose principal place of business is in Pittsburgh, Pennsylvania, agreed to become the interim lender in December 1973, and issued a construction loan which was secured by mortgage on the property and the building under construction and was personally guaranteed by Goldgar. Mellon, Aetna, and Buckeye signed a "Buy-Sell Agreement" in January 1974. The requirements for Aetna's obligation to assume or fund the loan, in effect replacing Mellon as Buckeye's creditor, are principally set out in this document.

 The construction loan agreement provided for a fixed contract cost for the erection of a building of $ 1,350,000 maximum, with the difference between that sum and $ 1,850,000 representing the cost of the land, fees and other expenses as well as the interest on the loan. Interest was pegged to Mellon's prime rate and was deducted monthly from the amount of the loan proceeds remaining to be disbursed. By the late fall of 1974, Mellon officials realized that the remaining undisbursed funds would not suffice to complete the building and in December, 1974, suspended payments to Buckeye's contractor. Because the contractor was not paid, construction stopped and the contractor and others filed liens against the premises. Default in the payment of interest also occurred. On February 5, 1975, Mellon notified Buckeye that it was declaring the construction loan in default and demanding payment in full of both principal and interest from both Buckeye and Goldgar, guarantors of the note.

 After communications between Aetna and Mellon concerning the "Buy-Sell Agreement", Aetna informed Mellon that the loan would not be funded because the terms and conditions of the agreement could not be met by August 1, 1975. On July 25, 1975, Mellon forwarded certain documents to Aetna and proposed to transfer the loan to Aetna on August 1, 1975. Aetna rejected tender by letter dated July 30, 1975. On September 2, 1975, Mellon sold the property at a foreclosure sale to a wholly-owned subsidiary for $ 940,000 as approved by a Georgia court order, McGanney Affidavit, Exhibit T.

 After denying cross motions for Summary Judgment in the opinion of March 30, 1979, this Court issued a pretrial order dated August 2, 1979. Pursuant thereto on August 16, 1979, Buckeye and Goldgar advised this Court that they intended to strike from their witness list, Johns-Manville Corp., Andrew McColgun Company and Richard Lawrence. On September 19, 1979, Buckeye and Goldgar filed their supplemental pretrial statement of Classification of Amount of Damages as ordered. No expert witness report concerning the value of Buckeye Tower II has been filed by Buckeye and Goldgar.

 On October 19, 1979, Aetna moved for summary judgment against Buckeye and Goldgar asserting: (1) Pennsylvania law is applicable; (2) Buckeye and Goldgar are barred by Local Rules of this Court from introducing expert testimony concerning the value of Buckeye Tower II; (3) Buckeye and Goldgar cannot as a matter of law recover any of the damages specified; and (4) there is no genuine issue of material fact and Aetna is entitled to judgment as a matter of law against Buckeye and Goldgar.

 I.

 PENNSYLVANIA CONFLICT OF LAWS RULES DEMAND THE APPLICATION OF PENNSYLVANIA LAW IN DECIDING THIS CASE.

 Ordinarily the Court does not consider the question of choice of law in a diversity case unless a contention is raised that the law of some other jurisdiction which may be applicable to the case before it differs from the substantive law of the forum state. No such presentation has been made here except that Aetna contends that the substantive law of Pennsylvania shall govern and Buckeye and Goldgar argue that "common law of English speaking jurisdictions in general" should apply. We do not readily understand this statement so we will approach the matter under the choice of law rules of the forum state in which this District Court sits. Klaxon v. Stentor Manufacturing Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941).

 The conflict of laws rules of Pennsylvania reveal that the "modern approach" as set forth in the RESTATEMENT (Second) of Conflict of Laws was applied in a tort liability case. Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964). This "center of gravity" approach was also utilized in a contractual setting in Neville Chemical Co. v. Union Carbide Corp., 422 F.2d 1205 (3d Cir. 1970), where an analysis of all factors surrounding the controversy were considered and the court ruled that Pennsylvania had the greatest interest in applying its law.

 Restatement (Second) of Conflict of Laws §§ 186-188 provide a guideline for determining which state's "local laws" apply in considering diversity jurisdiction suits. Because there appears to be no consensus by the parties as to which state's laws to apply, § 188 is helpful in weighing the contacts to determine applicable law in accordance with Pennsylvania procedure. Five factors are suggested in the determination of applicable law: (1) place of contracting; (2) place of negotiation; (3) place of performance; (4) location of subject matter; and (5) residence or place of incorporation or the place of business of the parties.

 The contract in controversy is a "Buy-Sell Agreement" concerning a piece of property located in the state of Georgia. Because that piece of property was sold to satisfy the construction loan contract, and because the sale was judicially condoned by a DeKalb County Court, that property is no longer within the control of any of the parties to this controversy. Georgia's interests, as derived from the location of the subject matter, have been removed.

 Because we are dealing with three corporations located in three different states, none of those three interested states derive a greater interest than the others based solely on the major place of business.

 Three factors remain, however, which favor application of Pennsylvania law. The major place of negotiation and the place of contracting of the "Buy-Sell Agreement" appears to have been in the office of Mellon in Pittsburgh, Pennsylvania, and the unperformed part of the agreement is the purchase of the first mortgage by Aetna. *fn1" An application of the Pennsylvania conflict of laws rules indicates that the interests of Pennsylvania local law is greater than any other state involved in this controversy and, consequently, Pennsylvania law should be applied.

 II.

 LOCAL RULE 5(II)D.2.(b) PRECLUDES TESTIMONY BY ANY EXPERT WITNESS FOR WHOM REPORTS WERE NOT FILED IN ACCORDANCE WITH THIS COURT'S ORDER OF AUGUST 2, 1979.

 The Pretrial Narrative Statement of Plaintiffs Buckeye and Goldgar listed prospective witnesses including Johns-Manville Corporation, Andrew McColgan Company, and Richard Lawrence. Defendant Aetna objected to Johns-Manville and Andrew McColgan Company because individual witnesses from these companies were not specified. Aetna further objected to testimony by Richard Lawrence because he was not identified and, if he were a proposed expert witness, no expert witness report had been filed. Fed.R.Civ.P. 26 permits limiting the scope of discovery by court order. Rule 26(b)(4)(A)(i) states:

 
A party may through interrogatories require any other party to identify each person whom the other party expects to call as an expert witness at trial, to state the subject matter on which the expert is expected to testify, and to state the substance of the facts and opinions to which the expert is expected to testify and a summary for the grounds for each opinion.

 Consequently, this Court's pretrial order of August 2, 1979 directed the plaintiffs to identify proposed witnesses and to file supplemental pretrial reports of any expert witness whose testimony will be offered at trial. Proposed witnesses Johns-Manville Corporation, Andrew McColgan Company, and Richard Lawrence were stricken by plaintiffs Buckeye and Goldgar by letter dated August 16, 1979, and no expert witness report has been filed. Local Rule 5(II)D.2.(b) states:

 
If timely production of any such report is not made, the testimony of such expert shall be excluded at the trial, except upon consent of the other party or parties, or order of court.

 Although Local Rule 5(II)D.2.(b) provides exceptions to disclosure of testimony, no grounds for exception have been submitted to this Court. Consequently, expert testimony not submitted as ordered by this Court on August ...


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