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U.S. ON BEHALF OF SMALL BUS. v. EDWARDS

May 21, 1991

UNITED STATES OF AMERICA, ON BEHALF OF ITS AGENCY, THE SMALL BUSINESS ADMINISTRATION, PLAINTIFF,
v.
DELORES EDWARDS, ET AL., DEFENDANTS, COUNTERCLAIM PLAINTIFFS AND THIRD PARTY PLAINTIFFS, V. UNITED STATES OF AMERICA, COUNTERCLAIM DEFENDANT. PIONEER NATIONAL BANK F/N/A/ FIRST NATIONAL BANK OF CARBONDALE, THIRD PARTY DEFENDANT AND COUNTERCLAIM PLAINTIFF, V. DELORES EDWARDS, ET AL., COUNTERCLAIM DEFENDANTS.



The opinion of the court was delivered by: McCLURE, District Judge.

MEMORANDUM

I. BACKGROUND

This action arises out of a Note, mortgage and personal guaranties related to a loan made in February 1973 by the Small Business Administration ("SBA") and the First National Bank of Carbondale to R & D Investments Inc. d/b/a Edwards Brothers Packing Co. ("Edwards Brothers") in the amount of six hundred and fifty thousand dollars. On February 23, 1990 the United States initiated an action on behalf of the SBA for mortgage foreclosures and money judgment against defendant guarantors of the loan*fn1. Defendants Delores and John Edwards filed, on March 26, 1990, an answer asserting a counterclaim against the SBA alleging, inter alia, that the SBA violated its fiduciary duty and its duty of good faith owed to the defendants by failing to: 1) properly maintain and attempt to sell mortgaged real estate which Edwards Brothers advanced as security for the note and 2) apply the proceeds of the life insurance policy of Richard M. Edwards, Jr. to the amount owing on the note.*fn2 On April 4, 1990, Delores and John Edwards filed a third party complaint against the Pioneer American Bank, f/k/a First National Bank of Carbondale, ("Pioneer Bank") advancing the same claims as those asserted against the SBA. On May 15, 1990, Pioneer Bank filed an answer to the third party complaint asserting a counterclaim against Delores and John Edwards for losses caused by their default on the loan central to the instant action and for default on additional loans made by Pioneer Bank to Edwards Brothers and John Edwards.*fn3 On December 20, 1990, both the SBA and Pioneer Bank filed motions for summary judgment, with exhibits attached, against Delores and John Edwards.*fn4 Significantly, neither Pioneer Bank nor the defendants address Pioneer Bank's claims concerning the additional loans. Therefore, the issue of the additional loans made by Pioneer Bank to Edwards Brothers and John Edwards will not be addressed in this memorandum.

II. RELEVANT FACTS

In February of 1973 a direct participation loan was made by the SBA and Pioneer Bank to Edwards Brothers in the amount of six hundred and fifty thousand dollars ($650,000.00). This loan was secured by a first mortgage on a property in Lackawanna County, Pennsylvania, upon which a slaughterhouse was to be constructed with the loan proceeds.*fn5 The loan was further secured by the personal guaranties of several members of the Edwards family. Significantly, some of these guarantees were secured by real estate. Delores Edwards and her husband Richard M. Edwards, Sr., now deceased, granted a mortgage to Pioneer Bank on three parcels of real estate located in Benton and Nicholson Townships, Pennsylvania as collateral for their personal guarantee.*fn6 Jerilynn Edwards and her husband Richard M. Edwards, Jr., now deceased, granted a mortgage to Pioneer Bank on two parcels of real estate located in Benton Township, Pennsylvania as collateral for their personal guarantee. In addition, paragraph 3(c) of the loan agreement required that Richard M. Edwards, Jr. and John Edwards each obtain life insurance in the amount of three hundred thousand dollars ($300,000.00).

On March 10, 1974, Richard M. Edwards, Jr. died. At the time of his death, Richard M. Edwards, Jr. maintained insurance on his life in the amount of approximately five hundred thousand dollars ($500,000.00). As a result of the loan, three hundred thousand dollars ($300,000.00) of this was assigned to Pioneer Bank. The balance of the life insurance proceeds was the property of the beneficiary, John Edwards. At the request of John Edwards, Pioneer Bank and the SBA agreed to release the life insurance proceeds for use as working capital for Edwards Brothers.*fn7

In November of 1977, Edwards Brothers declared bankruptcy and consequently defaulted on the loan.*fn8 On August 3, 1983, the servicing of the loan and all of the rights, responsibilities and obligation of Pioneer Bank were assigned to the SBA. Subsequently, the SBA made a written demand upon all of the defendants informing them that the Note was in default and that as guarantors they were liable for the principal and interest due on the Note in accordance with the terms of the guaranties they had executed. Despite the SBA's repeated demands, the defendants continued to refuse to pay the amount owing on the Note.

While the defendants admit to the essential averments in the complaint, i.e. that Edwards Brothers has defaulted on the loan and that a mortgage and personal guaranties were given as security for said loan, they deny liability on the grounds that the SBA breached its fiduciary and good faith duty to them in connection with the maintenance and use of the collateral. Specifically, the defendants maintain that the SBA violated its duty owed to them by failing to 1) maintain properly and attempt to sell the slaughterhouse property which was mortgaged as security for the loan and 2) apply the proceeds from the life insurance policy of Richard Edwards, Jr. to the amounts owing on the loan.

The relevant sections of the personal guaranties executed by the defendants John and Delores Edwards state as follows:

    The Undersigned hereby grants to Lender full
  power, in its uncontrolled discretion and without
  notice to the undersigned, but subject to the
  provisions of any agreement the debtor or any
  other party and lender at the time in force, to
  deal in any manner with the Liabilities and the
  collateral, including, but without limiting the
  generality of the foregoing, the following powers:
    (d) To consent to the substitution, exchange or
  release of all or any part of the collateral,
  whether or not the collateral, if any, received by
  Lender upon any such substitution, exchange or
  release shall be of the same or of a different
  character or value than the collateral surrendered
  by Lender.

The guaranty further states:

  The obligations of the Undersigned hereunder and
  the rights of the Lender in the collateral shall
  not be released, discharged or in any way
  affected, nor shall the Undersigned have any
  rights against Lender . . . by reason of the fact
  that the value of any of the collateral, or the
  financial condition of the Debtor or of any
  obligor under or guarantor of any of the
  collateral, may not have been correctly estimated
  or may have changed or may hereafter change; nor
  by reason of any deterioration, waste or loss by
  fire, theft, or otherwise of any of the
  collateral, unless such deterioration, waste or
  loss be caused by the willful act or willful
  failure to act of Lender.
III.  STANDARD OF REVIEW

Summary judgment is appropriate only when there is no genuine issue of material fact to be resolved. Fed.R.Civ.P. 56. All doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. The entire record must be examined in a light most favorable to the non-moving party. Continental Insurance v. Bodie, 682 F.2d 436, 438 (3d Cir. 1982). If there is no genuine issue of material fact, summary judgment may be granted to the party entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

Since a motion for summary judgment is designed to go beyond the pleadings, factual specificity is required of a party who opposes such a motion. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265, 273 (1986). Accordingly, in order to defeat a properly supported motion for summary judgment, a party may not merely restate the allegations of his complaint. Farmer v. Carlson, 685 F. Supp. 1335, 1339 (M.D.Pa. 1988). Nor can a party rely on self-serving conclusions, unsupported by specific facts in the record. Celotex Corp. v. Catrett, supra, 477 U.S. at 322-23, 106 S.Ct. at 2552-53, 91 L.Ed.2d at 273. A non-moving party must point to concrete evidence in the record which supports each essential element of his case. Id. If the party fails to provide such evidence, then he is not entitled to a trial and the moving-party is entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56(e).

As set forth above, it is undisputed that Delores and John Edwards executed personal guaranties in conjunction with the SBA loan made to Edwards Brothers by Pioneer Bank. It is also undisputed that Edwards Brothers has defaulted on this loan. Therefore, the only legal issue before this Court is whether the claims asserted by Delores and John Edwards in ...


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