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KEYBANK NATIONAL ASSOCIATION v. REIDBORD

November 28, 2005.

KEYBANK NATIONAL ASSOCIATION, Plaintiff,
v.
TODD A. REIDBORD, ESQ., and MICHAEL A. GOLDSTEIN, ESQ., CPA, Defendants.



The opinion of the court was delivered by: WILLIAM STANDISH, Senior District Judge

MEMORANDUM

Pending before the Court are a Motion to Dismiss filed by Defendant Michael A. Goldstein, Esq. ("Mot. Dis.," Docket No. 8), a Praecipe for Entry of Non Pros filed by Defendant Todd E. Reidbord, Esq., and an untitled document filed by Mr. Goldstein, directing the Clerk of Courts to enter a judgment of non pros in his favor. (Docket Nos. 12 and 13, respectively.)*fn1 For the reasons discussed below, the Motion to Dismiss is granted in its entirety. The Praecipe for Entry of Non Pros is denied as moot with regard to Mr. Goldstein and denied as to Mr. Reidbord.

I. INTRODUCTION

  A. Factual History*fn2 Walnut Capital Partners ("Walnut Capital"), not a party herein, is a Pittsburgh real estate developer. Mr. Reidbord is president and in-house counsel of Walnut Capital; Mr. Goldstein is an attorney with an unidentified relationship to Walnut Capital other than a shared street address in Pittsburgh, Pennsylvania. In March 2000, Plaintiff KeyBank National Association ("KeyBank") loaned $26.5 million to Walnut Capital ("the Loan.")

  As a condition of the Loan, Walnut Capital was required to enter into an interest rate hedging transaction through any acceptable entity of its choice. KeyBank and Walnut Capital entered into a "ten year forward starting interest rate swap" ("the Swap") in the amount of $13.5 million and a two-year forward period. The Swap was intended to hedge against rising interest rates during the lifetime of the Loan and to be settled for cash when the Loan terminated. The direction of the Swap payment was determined by interest rate movements: if those rates increased, KeyBank would pay Walnut Capital; if interest rates fell, Walnut Capital would pay KeyBank.

  As a further condition of the Loan and the Swap, KeyBank required Walnut Capital to provide a legal opinion letter ("the Opinion Letter"), confirming, inter alia, "the validity and complete legal enforceability of the documents and transactions between the parties." (Complaint, "Compl.," ¶ 9.) On March 23, 2000, in a letter signed by Mr. Goldstein, he stated:
We have made such legal and factual examinations and inquiries as are pertinent or necessary for the purpose of rendering the opinions herein expressed. We have examined and are familiar with the originals or copies, certified or otherwise, identified to our satisfaction, of such documents, records and other instruments as are necessary for the furnishing of this opinion letter.
The Loan Documents executed by the Guarantors*fn3 . . . are legal, valid and binding obligations enforceable with respect to each of the Guarantors in accordance with their terms.
(Compl., ¶ 10; see also Opinion Letter,*fn4 ¶ 7.)

  Plaintiff claims that it did not know when it entered into the Loan and the Swap that the Opinion Letter was written by Mr. Reidbord, not Mr. Goldstein; further, it claims that had it known of Defendants' "malfeasance" in this regard, it would not have entered into the agreements.

  In the two years following execution of the Loan, "interest rates plummeted." (Compl., ¶ 14.) As a result, when Walnut Capital terminated the Swap in November 2002, it was required to pay KeyBank some $3.6 million.

  On February 23, 2003, Walnut Capital sued KeyBank, claiming fraud and negligent misrepresentation in connection with the Loan. See Walnut Capital Partners, et al. v. KeyBank N.A., et al., CA 03-0284 (W.D. Pa. 2003) ("the Swap Litigation.") Plaintiff claims that in opposition to a motion to dismiss the amended complaint in the Swap Litigation, Walnut Capital argued for the first time that the certain statements in the Swap documents were general disclaimers and, as such, not enforceable. KeyBank claims this position directly contradicts the representations made in the Opinion Letter regarding the validity and enforceability of the transactions and the Loan Documents.

  B. Procedural History

  Plaintiff filed suit in this Court on February 8, 2005. In Count I of the Complaint, KeyBank seeks indemnification from Mr. Reidbord and Mr. Goldstein, contending that they are "primarily liable" for the costs, legal fees, and expenses KeyBank has incurred in the Swap Litigation. (Compl., ¶ 30.) In Count II, KeyBank seeks contribution from Defendants, claiming that should it be found liable in the Swap Litigation, any injury to Walnut Capital resulted at least in part from Defendants' malfeasance. (Compl., ¶¶ 34-36.) Plaintiff claims in Count III that Defendants are liable for "direct legal malpractice" in connection with the Opinion Letter. (Id., ¶¶ 38-46.) In Count IV, Plaintiff alleges that in order to induce KeyBank to enter into the Loan and Swap, Defendants fraudulently represented that Mr. Goldstein wrote the Opinion Letter, knowing that KeyBank would not have accepted the letter had it known it was written by Mr. Reidbord. (Id., ¶¶ 48-55.) Finally, in Count V, KeyBank seeks a declaratory judgment that Defendants are jointly and severally liable for all of KeyBank's future costs, legal fees and expenses incurred in the Swap Litigation and for any future adverse judgment entered against KeyBank. (Id., ¶¶ 57-62.)

  Mr. Goldstein filed the pending Motion to Dismiss on March 14, 2005. On April 13, 2005, each Defendant filed a praecipe for entry of judgment of non pros, seeking to dismiss the entire Complaint inasmuch as Plaintiff had failed to timely file a certificate of merit as required by Pa.R.Civ.P. 1042.3. In response to the latter, Plaintiff filed a certificate of merit for each Defendant on April 29, 2005, 80 days after the Complaint was filed. (See Docket Nos. 17 and 18.)

  While the motion to dismiss and praecipes were pending, the Court granted summary judgment in favor of KeyBank on June 14, 2005, in the Swap Litigation, concluding that the parol evidence rule and the existence of an integrated contract barred each of Walnut Capital's claims in that suit. (Swap Litigation, Docket No. 94.) Walnut Capital appealed that decision to the Third Circuit Court of Appeals (id., Docket No. 96) where, as of the date of this Memorandum, it is still pending.

  C. Jurisdiction and Venue

  Jurisdiction is appropriate in this Court pursuant to 28 U.S.C. § 1332 inasmuch as KeyBank is a national banking association with its principal place of business in Cleveland, Ohio, and both Defendants are residents and citizens of Pennsylvania. The Court has jurisdiction over Plaintiff's declaratory judgment claim by virtue of 28 U.S.C. § 2201. Venue is appropriate pursuant to 28 U.S.C. § 1391 because both Defendants are residents of this district and the claim is brought in diversity.

  II. STANDARD OF REVIEW

  In deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6),*fn5 all factual allegations and all reasonable inferences therefrom must be accepted as true and viewed in a light most favorable to the plaintiff. Colburn v. Upper Darby Twp., 838 F.2d. 663, 665-666 (3d Cir. 1988). In ruling on a motion to dismiss, the court must decide whether there are sufficient facts pled to determine that the complaint is not frivolous, and to provide the defendants with adequate notice to frame an answer. Id. at 666. A motion to dismiss will be granted only if it appears that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45 (1957).

  The claims brought by KeyBank are based in Pennsylvania, not federal law, with the exception of the declaratory judgment claim in Count V. As a federal court sitting in diversity, we will apply Pennsylvania substantive law to those claims. See Erie R.R. v. Tompkins, 304 U.S. 64, 78-80 (1938); State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 (3d Cir. 2000). The decisions of the Pennsylvania Supreme Court are the authoritative source of Pennsylvania law, but if that court has not yet decided a specific issue, this Court will be guided by decisions of lower state courts and by federal courts interpreting state law. Coviello, id.

  III. ANALYSIS

  A. Motion to ...


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