United States District Court, Eastern District of Pennsylvania
December 6, 1999
STORNAWAYE PROPERTIES, INC., PLAINTIFF,
JACK D. MOSES, JR., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Katz, Senior District Judge.
MEMORANDUM & ORDER
The defendants have submitted a motion to dismiss, a
motion for partial summary judgment, and a motion for a stay of
remaining proceedings. The plaintiff, in turn, requests summary
judgment in its favor.
Plaintiff Stornawaye Properties, Inc., brought two
complaints stemming from defendants' obligations under a guaranty
agreement. The first complaint attempted to collect the interest
owing on a promissory note that defendants Jack and Louise Moses
guaranteed in the event that the primary obligors, Andrew and
Deborah Kerstein, did not pay.*fn1 At the time the guaranty
was executed, Robert Allen Fox, the third named defendant, was
serving as trustee for property located at 1472 Hunter Road in
Rydal, Pennsylvania. In that capacity, Mr. Fox executed a
collateral first mortgage on the property to secure the guaranty.
The second complaint thus seeks to foreclose on the mortgaged
Before the court now are three motions submitted by the
defendants and one submitted by the plaintiff. Defendants first
seek to dismiss Robert Allen Fox from this lawsuit, as he was sued
only in his capacity as trustee, an office that he no longer
holds. Defendants also request the entry of partial summary
judgment with respect to the interpretation of the guaranty
documents. Finally, defendants move to stay the proceedings in
this case pending the outcome of litigation against the primary
debtors. Plaintiff, in turn, requests summary judgment on all
substantive issues pertaining to the guaranty documents, the
counterclaims and affirmative defenses, and the right to foreclose
on the mortgage.
II. The Motion to Dismiss Fox
Mr. Fox became trustee of the Hunter road property
pursuant to a deed of trust executed on December 19, 1990. See
Def. Mot. Ex. 6. Although he terminated this trust and conveyed
the property back to Jack and Louise Moses, see Def. Mot. Ex. 7,
the defendants have not met their burden of showing that there is
"no set of facts that would entitle [plaintiff] to relief" against
Mr. Fox. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996).
III. The Motions for Partial Summary Judgment and Summary
Judgment on the Guaranty Documents
The defendants seek a declaratory judgment to resolve
the extent to which Jack and Louise Moses must pay interest prior
to plaintiff's exhaustion of remedies against the Kersteins, the
appropriate rate of interest, and the maximum limit of defendants'
liability. Plaintiff's motion challenges the defendants'
interpretation and requests summary judgment in favor of its own
reading of the contract.
A. The Agreements
The present conflict begins with a promissory note for
$350,000, dated September 25, 1992, issued to Andrew and Deborah
Kerstein but guaranteed by Jack and Louise Moses. See Def. Mot.
Ex. 4. This note provides for an initial interest rate of 7.5
percent with subsequent rates subject to change based on the Wall
Street Journal Index.*fn3
The interest rate to be applied to the unpaid principal
balance of this Note will be at a rate of 1.000
percentage point over the Index, subject however to the
following minimum and maximum rates, resulting in an
initial rate of 7.500% per annum. Notwithstanding the
foregoing, the variable interest rate or rates provided
for in this Note will be subject to the following
minimum and maximum rates. NOTICE: Under no
circumstances will the interest rate on this Note be
less than 7.500% per annum or more than (except for any
higher default rate shown below) the lesser of 11.500%
per annum or the maximum rate allowed by applicable law.
Id. The default interest rate is 24 percent. See id.
The guaranty agreement states that Jack and Louise Moses
guaranteed loans of $350,000 (Loan A) and $100,000 (Loan B) made
to the Kersteins. See Def. Mot. Ex. 1 (Guaranty Agmt.). As
Stornawaye did not purchase Loan B, only Loan A is at issue in
this case. The guaranty is explicitly limited by Exhibit A to the
agreement, hereinafter referred to as the letter agreement. See
Def. Mot. Ex. 1 art. 1 ¶ 1.01 (stating that guaranty is limited by
Exhibit A). That letter agreement explains that the Moses
defendants' liability is capped at $292,500, rather than the full
$450,000 borrowed by the Kersteins. See Def. Mot. Ex. 2 ¶ 1
(Letter Agmt.). The most relevant provisions of the letter
4. Should any interest payment for Loan A or Loan B
become sixty (60) days past due, you agree to keep
interest payments current on both Loan A and Loan B
unless and until [Kerstein] resumes payment of
5. If Loan A or Loan B is in default, Metrobank*fn4
will first exercise and exhaust all of its rights and
remedies under the loan documents against Andrew M.
Kerstein, Deborah J. Kerstein and Andy K's Dairy and
Deli, Inc. and against the collateral provided by
them which secures Loan A and Loan B, before
a) requires payment from you, except as to the
interest payments due Metrobank in Paragraph 4
above, under each of your Guarantees for Loan A
and Loan B;
b) or exercises any of Metrobank's rights which
Metrobank has pertaining to any collateral from
you, except as to the interest payments due
Metrobank in Paragraph 4 above, which secures Loan
A, Loan B or any of your Guarantees that you have
granted to Metrobank or which may be obtained by
Metrobank under your Guaranty or other mortgage
and loan documents.
Id. ¶¶ 4-5.
The document mortgaging the property in Rydal,
Pennsylvania also explains that the maximum amount guaranteed was
$292,500 and that the guaranty and letter
agreement limit recovery. See Def. Mot. Ex. 5. The mortgage document
[I]f at any time default shall be made in the payment of
interest as aforesaid, for the space of sixty (60) days
after notice from Mortgagee that any such payment hereof
has fallen due, then, and in such case the whole unpaid
principal debt aforesaid shall, at the option of the
said Mortgagee its Successors or Assigns and subject to
the limitations of Exhibits "A" and "B"*fn5, become
due and payable immediately; and payment of said
principal debt, and all interest thereon, may be
enforced and recovered at once, subject to the
limitations of Exhibits "A" and "B".
Def. Mot. Ex. 5 at 1.
The Kersteins defaulted on the promissory note on March
30, 1996, and the loan matured on September 25, 1997. At that
time, the outstanding principal was $260,139.48. See Pl. Mot. Ex.
B. Plaintiff thus seeks from the Moses defendants unpaid interest
on the loan from March 30, 1996, to the September 25, 1997,
maturity date at the Index rate plus one percent; after September
25, 1997, plaintiff seeks interest at the default rate. See Pl.
Mem. of Law at 8.
1. The Extent of the Guaranty
Defendants argue that the plain language of paragraph
four of the letter agreement means that Jack and Louise Moses
"cannot be obligated to pay any past due interest or other charges
beyond `current' monthly interest on Loan A and Loan B" until
Stornawaye exhausts remedies against the Kersteins. Pl. Mot. for
Summ. J. at 9. That is, defendants argue that by stating in
paragraph four that the obligation was to "keep interest current"
rather than to "pay all interest due" or some other similar
formulation, the letter agreement obligates them only to begin
making monthly incremental interest payments on the remaining
principal balance without reference to any amount of interest that
is past due.*fn7
The promissory note and the guaranty agreement are
governed by Pennsylvania law. See Def. Mot. Ex. 4; Def. Mot. Ex. 1
¶ 3.11. For purposes of interpretation, a guaranty agreement is
treated in the same manner as any other contract. See Hyster
Credit Corp. v. O'Neill, 582 F. Supp. 414, 416 (E.D.Pa. 1983);
Meeting House Lane, Ltd. v. Melso, 628 A.2d 854, 857 (Pa. Super.
Ct. 1993). "A court's purpose in examining a contract is to
interpret the intent of the contracting parties, as objectively
manifested by them." Hullett v. Towers, Perrin, Forster & Crosby,
Inc., 38 F.3d 107, 111 (3d Cir. 1994). The court must initially
determine whether the contractual language
is ambiguous, which
means that "it is susceptible of two reasonable alternative
interpretations." Id.; see also Duquesne Light Co. v.
Westinghouse Elec. Corp., 66 F.3d 604, 614 (3d Cir. 1995)
(focusing on whether language may be interpreted in different
ways). However, if the language is not ambiguous and can
therefore be read in only one way, the court interprets the
contract as a matter of law. See Hullett, 38 F.3d at 111.
Pennsylvania law presumes that "the intent of the parties to an
instrument is embodied in the writing itself, and when the words
are clear and unambiguous the intent is to be discovered only from
the express language of the agreement." Id. (citations, internal
punctuation omitted). In the end, the court must "consider the
words of the contract, the alternative meaning suggested by
counsel, and the nature of the objective evidence to be offered in
support of that meaning." Id. (citations, internal punctuation
The contractual language in this case is not ambiguous,
and there is no basis for finding that it gave defendants the
right to calculate interest payments without reference to past due
debts.*fn8 The language of the promissory note, the letter
agreement, and the mortgage agreement supports this conclusion.
First, the promissory note to which the guaranty is attached
explicitly precludes defendants' interpretation because its method
of structuring payments for interest calculates them with
reference to past due amounts: "Borrower will pay regular monthly
payments of all accrued interest due as of each payment date."
Def. Mot. Ex. 4. That is, the interest payment referred to in the
letter agreement incorporates past due amounts, so to refer to
some hypothetical interest payment that does not include these
sums is inconsistent with the terms of the contract. Second, the
letter agreement that limits the Moses defendants' liability
states that there is a sixty day grace period following default on
the loan and that after that time, the lender may seek interest
from the defendants. See Def. Mot. Ex. 2 ¶¶ 4-5. Although the
agreement states that the holder of the loan must exhaust remedies
against the Kersteins before proceeding against the Moses
defendants, it explicitly and repeatedly excludes the obligation
to keep interest current from that exhaustion requirement. See
id. Finally, although neither party refers to the mortgage
document, it also states that all interest is "due and payable
immediately" following the end of the grace period. Def. Mot. Ex.
5 at 1.
Defendants suggest that the documents' failure to
provide for notice to the Moses defendants in the event that the
Kersteins failed to pay amounts due means that Stornawaye may only
require the Moses defendants to begin making monthly payments
without reference to such past due amounts. However, the guaranty
agreement itself states that the "obligations of Guarantors
hereunder shall remain in full force and effect without regard to,
and shall not be released, discharged or in any way affected
by . . . the failure of Metrobank to keep Guarantors advised of
Borrower's financial condition, regardless of the existence of any
duty to do so." Def. Mot. Ex. 1 ¶ 1.02(e); see also id. ¶ 1.03
("No Notice. Guarantors hereby waive diligence, presentment,
demand, protest and all notices of any kind."). Thus, defendants'
contention is again foreclosed by the terms of the agreement.
In short, the contractual language is not ambiguous, and
Stornawaye's motion for summary judgment on this issue will be
granted. The interest payment to which all of the documents refer
incorporates past due interest, and the documents explicitly waive
2. The Interest Rate
As recounted previously, the promissory note establishes
that the interest rate to be applied to unpaid principal is a variable
interest rate based on an Index in the Wall Street
Journal, although there are certain maximum and minimum rates.
The default rate is 24 percent. See Def. Mot. Ex. 4. The Moses
defendants argue that the interest rate should not be higher than
the initial 7.5 percent because there is nothing in the loan file
or the FDIC documents supplied by Stornawaye that identifies the
Index or establishes a higher rate; that is, defendants attempt to
argue that they were unaware that the "Index" was the prime index
in the Wall Street Journal. This argument is implausible, as the
language of the note itself and supporting documentation provided
by plaintiff strongly suggest that the rate at issue is the prime
rate. See id.; Pl. Mot. Ex. K (listing prime index interest
rates since 1975); Pl. Reply Ex. A (Aff. reiterating that the
"prime" is an index reprinted in the Wall Street Journal); Pl.
Reply Ex. I (loan review documents referring to "prime"). The
court will grant summary judgment as to the application of the
prime rate plus one prior to maturity and the 24 percent default
rate following the loan's maturity. While defendants argue that
the default rate cannot be applied to them because they have no
obligation to pay past due amounts, this interpretation of the
contract is incorrect, and thus the analysis as applied to the
interest rate is equally flawed.
3. The Maximum Aggregate Payment
The defendants also seek judgment on the total aggregate
payment due. Defendants supply an affidavit from Andrew Kerstein
regarding the amount he paid on one of the loans. See Def. Reply
Ex. Ex. 3. The parties may submit calculations, supported by
affidavit, regarding the total amount presently due.
IV. Plaintiff's Motion for Summary Judgment on the
Counterclaims and Defendants' Affirmative Defenses
A. Equal Credit Opportunity Act Claims
Louise Moses has asserted both defenses and
counterclaims relying on the Equal Credit Opportunity Act (ECOA).
The Act prohibits creditors from discriminating against "any
applicant, with respect to any aspect of a credit transaction . . . on
the basis of . . . sex or marital status[.]"
15 U.S.C. § 1691(a)(1). Regulation B promulgated pursuant to that Act states
that "a creditor shall not require the signature of an applicant's
spouse or other person, other than a joint applicant, on any
credit instrument if the applicant qualifies under the creditor's
standards of creditworthiness for the amount and terms of the
credit requested." 12 C.F.R. § 202.7(d). Mrs. Moses argues that
Metrobank forced her to sign the guaranty and mortgage without an
inquiry into whether Mr. Moses qualified on his own for the loan
in question and that Stornawaye therefore cannot collect interest
from her or foreclose on collateral in her name.
In its motion for summary judgment, plaintiff argues
that these defenses and counterclaims are impermissible for
several reasons. Although these arguments have evolved, the court
believes the plaintiff has raised the following points: (1) ECOA
has a two-year statute of limitations that has expired; (2) Mrs.
Moses was a "joint applicant" in the credit transaction at issue
because that loan was part of a series of credit transactions
related to a settlement that included a release of defenses
against three previous lawsuits in which Mrs. Moses was named as a
defendant; and (3) the release signed in the original lawsuits
precludes reference to the ECOA defenses asserted here.
First, plaintiff stresses that ECOA has a two-year
statute of limitations that should be measured from the time the
documents were signed. See 15 U.S.C. § 1691(f); Roseman v.
Premier Fin. Servs., Civ. A. No. 96-4669, 1997 WL 570919 (E.D.Pa.
Sept. 3, 1997). However, Third Circuit case law has repeatedly
held that, notwithstanding the two-year statute
of limitations on
affirmative actions, an ECOA violation may be raised as a defense
after that period. See Algrant v. Evergreen Valley Nurseries Ltd.
Partnership, 126 F.3d 178, 181-82 (3d Cir. 1997); Silverman v.
Eastrich Multiple Investor Fund, L.P., 51 F.3d 28, 31-33 (3d Cir.
1995); see also Nowicki v. Green, Civ. A. No. 98-5100, 1999 WL
305243, at *3 (E.D.Pa. May 12, 1999) (holding that right to use
ECOA as a defense applied to mortgage foreclosure action).
Although the plaintiff appears to concede this point, the court
will deny the plaintiff's motion for summary judgment as to the
affirmative ECOA defenses to the extent it is based on the statute
The court will grant the motion as applied to the
counterclaims, however, which seek damages, and are thus analogous
to affirmative actions that are barred by the statute of
limitations. See Sony Elec., Inc. v. S.J. Putnam, Jr.,
906 F. Supp. 228 (D.N.J. 1995). The defendants attempt to resurrect
their counterclaims by asserting that these claims are brought
only against Stornawaye because of its own failure to ensure that
the original transaction complied with ECOA. See Def. Reply Mem.
at 7 n. 3. Although defendants correctly note that the Third
Circuit reserved the issue of whether the institution of
collection actions might constitute new ECOA violations, see
Silverman, 51 F.3d at 31, the court agrees with the reasoning
articulated in Roseman, 1999 WL 570919, which rejected a similar
claim. In that opinion, Judge Pollak thoroughly examined the
purposes of ECOA and the Third Circuit's rationale for permitting
ECOA defenses to be raised after the statute of limitations had
expired. In particular, he focused on the fact that permitting a
new counterclaim premised on the successor's efforts to collect
would require extensive evaluation of the original credit
transaction. See id. at *4. This would squarely implicate
statute of limitations concerns in a way that a defensive argument
does not. See id. & n. 4. Similarly, in the present case,
permitting a counterclaim premised on the notion that Stornawaye
should have investigated the circumstances of the original loan
and guaranty before attempting to collect would directly
contravene the goal of the two-year statute of limitations. Given
the absence of any material fact suggesting that Stornawaye itself
acted improperly, the court will grant plaintiff's motion for
summary judgment on the counterclaims asserting ECOA violations.
As to the affirmative defenses themselves, plaintiff
also claims that a release signed by both defendants in the
original Metrobank action means that Mrs. Moses cannot now assert
ECOA defenses. Both parties agree that Metrobank had confessed
judgment against Jack and Louise Moses, as well as the Kersteins,
and that the Moses defendants had raised ECOA counterclaims and
defenses against those actions. Those lawsuits were settled by
mutual releases and the extension of additional credit. The
release, signed October 23, 1992, reads:
Jack D. Moses and Louise Moses, Releasors, for and in
consideration of mutual releases and the extension of
additional loans, do hereby remise, release, and forever
discharge Metrobank of Philadelphia, N.A., Releasee, its
heirs, executors, and administrators, of and from all,
and all manner of, actions and causes of action, suits,
debts, dues, accounts, bonds, covenants, contracts,
agreements, judgments, claims and demands, whatsoever in
law or equity, which were or could have been raised in
the actions captioned Metrobank of Philadelphia, N.A. v.
Jack D. Moses, Jr., et al., Court of Common Pleas of
Montgomery County, Nos. 91-02943, 91-03355, and
91-03358, which against the said Releasee, Releasors
ever had, now have, or which their heirs, executors,
administrators, successors or assigns, or any of them,
hereafter can, shall or may have, for, or by reason of
any cause, matter or thing
whatsoever, from the
beginning of the world to the date of these presents.
Pl. Mot. Ex. F.
"The courts of Pennsylvania have traditionally
determined the effect of a release using the ordinary meaning of
its language and interpreted the release as covering only such
matters as can fairly be said to have been within the
contemplation of the partes when the release was given." Vaughn
v. Didizian, 648 A.2d 38, 40 (Pa. Super. Ct. 1994) (citations,
internal punctuation omitted); see also Jordan v. Smithkline
Beecham, Inc., 958 F. Supp. 1012, 1019 (E.D.Pa. 1997) (same).
While Pennsylvania courts strictly construe releases so as not to
bar causes of action that have not yet accrued, see, e.g., Vaughn,
648 A.2d at 40, a party cannot avoid the clear language of a
release by stating that he or she did not intend to release a
particular claim. See Jordan, 958 F. Supp. at 1020. That is, if
the language and intent indicate that even unaccrued or unknown
claims are to be released, that intent will be enforced. See id.
at 1019-20. "Pennsylvania law is clearly that where the parties
manifest an intent to settle all accounts, the release will be
given full effect even as to unknown claims." Three Rivers Motors
Co. v. Ford Motor Co., 522 F.2d 885, 896 (3d Cir. 1975); see also
Total Containment, Inc. v. Environ Prods., Inc., 921 F. Supp. 1355,
1415 (E.D.Pa. 1995) (same).
In this case, the release indicates that the parties
intended to "settle all accounts" with the release. The new
loans that are the subject of this lawsuit were specifically
referred to in the release, and the release was actually signed
after the new loans were issued, thus eliminating any possibility
that Mrs. Moses's claims had not yet accrued. Defendants
essentially argue that even though they had raised ECOA
counterclaims and defenses in the original lawsuits and dismissed
those claims in consideration for new loans and mutual releases,
they should be able to raise new ECOA counterclaims and defenses
with respect to the consideration they received. The court is not
ruling that such a result would be foreclosed in every case, but,
given the relationship between the new credit transactions and the
releases, the parties cannot plausibly claim that the intent of
the signatories was to preserve ECOA defenses and thus challenge
the very credit transaction from which they both
Defendant's reliance on Philadelphia Factors, Inc. v.
Gordon, Civ. A. No. 98-3578, 1999 WL 225866 (E.D.Pa. Apr. 16,
1999), is misplaced. In that case, the court implicitly rejected
the claim that because the wife asserting ECOA violations had
received consideration for the allegedly deficient agreement she
signed, she was foreclosed from asserting the ECOA defenses. See
id. at *8-10. In this case, the court does not rule that because
Mrs. Moses received consideration for settling the original
lawsuit, she cannot raise ECOA defenses; rather, the court rules
that because the release contemplated that the parties were to
settle all aspects of the lawsuits, including ECOA claims, the
ECOA defenses are presently foreclosed to the extent they arise
from transactions that were part of the release. Defendants do
not challenge the validity of the release or argue that it was
coerced; they only argue that its terms do not apply to the
present action.*fn10 As the court disagrees,
motion for summary judgment will be granted on this issue.
B. Transfer of the Property
Mrs. Moses argues that plaintiff cannot foreclose on the
property in Rydal because that property was transferred solely to
her in November 1998. Her arguments on this point appear in large
part to be premised on the alleged ECOA violations. See Answer
98-3246 Aff. Defenses ¶¶ 4-5. To the extent that Mrs. Moses's
defenses are based solely on the ECOA violations, the plaintiff's
motion for summary judgment will be granted on this point as well.
However, as it is not clear from the papers submitted by the parties
if there are other bases to challenge the foreclosure, the motion
seeking foreclosure is denied without prejudice. The point may be
moot if plaintiff issues execution on the judgment which the court
will enter for all interest due to date.
V. The Motion for a Stay
Finally, defendants move for a stay. The court will
deny this motion, as there is no justification for delaying the
resolution of the remaining issues.
In summary, the court makes the following rulings:
First, plaintiff's motion to dismiss Robert Allen is
denied because, as trustee, he could be found liable under some
conceivable set of facts.
Second, plaintiff is correct in its interpretation of
the contractual language. The guaranty and the letter agreement
clearly and unambiguously require the Moses defendants to pay all
interest that is past due after the sixty day grace period has
expired. The interest rate to be applied from the time of default
to the time of maturity is the prime rate plus one. Following the
maturity date, Stornawaye Properties is entitled to recover
unpaid interest on the loan at the default rate of 24 percent.
Third, plaintiff is entitled to summary judgment on
Louise Moses's counterclaims and affirmative defenses relying on
ECOA. While the statute of limitations does not bar the defensive
claims, the counterclaims are time-barred, and, in any event, both
the counterclaims and the defenses are precluded by the 1992
Fourth, the defendants' motion for a stay is denied.
As stated previously, the parties may submit
calculations pertaining to the total amount owing on the loans at
issue in this case within ten business days of the date of this
memorandum and order.
An appropriate order follows.
AND NOW, this 6th day of December, 1999, upon
consideration of Defendants' Motion to Dismiss Robert Allen Fox,
Trustee (docket number 23), Defendants' Motion for Partial Summary
Judgment (docket number 23), Defendants' Motion for a Stay (docket
number 23); Plaintiff's Motion for Summary Judgment (docket number
26); and the responses thereto, it is hereby ORDERED as follows:
(1) The Motion to Dismiss Robert Allen Fox is DENIED without
(2) Defendants' Motion for Partial Summary Judgment is
(3) Plaintiff's Motion for Summary Judgment is GRANTED in
part and DENIED in part:
a. Plaintiff's Motion is GRANTED with respect to the
contractual interpretation. The contract
establishes an obligation to keep interest current,
including past due interest, following the sixty
day grace period.
b. Plaintiff's Motion is GRANTED with respect to the
applicability of the 24 percent default interest
rate following the loan's maturity.
c. Plaintiff's Motion is GRANTED with respect to the
applicable rate of interest prior to the loan's
d. Plaintiff's Motion is GRANTED with respect to
defendants' affirmative defenses and counterclaims
pertaining to the Equal Credit Opportunity Act and
to the transfer of the mortgage.
e. Plaintiff's Motion is DENIED without prejudice with
respect to foreclosure.
(4) Defendants' Motion for a Stay is DENIED.
(5) Within ten business days of the date of this order, the
parties may submit calculations, supported by affidavit,
addressing the total amount due by defendants given the
rate of interest and other issues decided in the
foregoing memorandum. In addition, the parties shall
submit suggested forms of judgment in light of the