IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
January 24, 2013
U.S. BANK, NATIONAL ASSOCIATION, PLAINTIFF/COUNTERCLAIM DEFENDANT,
MAURY ROSENBERG, DEFENDANT/COUNTERCLAIM PLAINTIFF.
The opinion of the court was delivered by: Rufe,j.
Plaintiff U.S. Bank, N.A., filed this action to enforce the terms of an Individual Limited Guaranty ("Guaranty" or "Limited Guaranty") executed by Defendant Maury Rosenberg. Before the Court are Plaintiff's Motion to Dismiss Defendant's Counterclaims and its Motion to Strike Defendant's Affirmative Defenses. Plaintiff argues that by the express language of the Guaranty, Defendant waived his right to assert any claims, counterclaims, or affirmative defense in this litigation, and therefore that the Court should dismiss his counterclaims and strike his affirmative defenses in their entirety. While the Court recognizes the express language in the Guaranty by which Defendant waives his right to assert certain claims, the Court does not find that the provision applies to all claims and defenses asserted here. Accordingly, the Motions will be granted in part and denied in part.
Since the Court writes primarily for the parties who are well familiar with the complex factual and procedural background in this matter, the Court provides only the facts and procedure necessary to provide context for its decision.
A. Facts Relevant to Plaintiff's Claims as Alleged in the Complaint
On August 12, 2005, Mr. Rosenberg, on behalf of companies with which he was affiliated (referred to in the Complaint as "NMI Parties"), entered into a Settlement Agreement with Lyon Financial Services, U.S. Bank's predecessor in interest.*fn1 Pursuant to the Settlement Agreement, the parties modified the terms of existing commercial equipment leases, and reduced and restructured the payment obligations of the NMI Parties under the existing leases. Mr. Rosenberg guaranteed a portion ($7,661,945) of the NMI Parties' obligations in the Guaranty.*fn2
While the NMI Parties made 21 payments in accordance with the Settlement Agreement, they stopped payments beginning in February 2008. At the time of the NMI Parties' default under the Settlement Agreement, the guaranteed amount had been reduced to $4,980,264.32. As of January 12, 2012, this amount remained outstanding. U.S. Bank, as the present payee of the obligations under the Guaranty, sent a written notice to Mr. Rosenberg stating that the NMI Parties were in default under the Settlement Agreement, and demanding that Mr. Rosenberg pay the outstanding amount due under the Guaranty. Mr. Rosenberg did not pay the amount demanded and U.S. Bank filed this suit for breach of the Guaranty.
B. Facts Relevant to Defendant's Counterclaims and Defenses as Alleged in Defendant's Counterclaim
On July 31, 2008, Lyon, acting as an agent for U.S. Bank, filed a Complaint in confession of Judgment in the Bucks County Court of Common Pleas ("Bucks County Action") seeking the guaranteed amount that remained outstanding.*fn3 Mr. Rosenberg alleges that while the complaint stated that Lyon was entitled to judgment against him in the amount of $4,724,866.16, a judgment of $43,481,820.71 was erroneously entered against all defendants in that case. According to Mr. Rosenberg, Lyon had knowledge of this error, but did not correct it. On August 22, 2008, Mr. Rosenberg filed a petition to strike or open the confessed judgment and requested a stay of execution of such judgment. This petition notwithstanding, Lyon transferred the nearly $43 million judgment to the Philadelphia Court of Common Pleas on October 10, 2008.
During the pendency of Mr. Rosenberg's petition to strike/reopen, U.S.
Bank "orchestrated the commencement and prosecution of an involuntary
bankruptcy case against Rosenberg" in the Bankruptcy Court for the
Eastern District of Pennsylvania on November 7, 2008.*fn4
The bankruptcy case was later transferred to the Bankruptcy
Court for the Southern District of Florida, where Mr. Rosenberg
resides. On August 21, 2009, the Bankruptcy Court dismissed the
involuntary bankruptcy case. Mr. Rosenberg alleges that this dismissal
shows that U.S. Bank with or through Lyon "orchestrated the improper
'sham' bankruptcy case without justification or excuse, knowing that
the filing of an involuntary bankruptcy case would cause the demise of
the [NMI parties] and put Rosenberg in financial ruin."*fn5
After the dismissal of the involuntary bankruptcy case, U.S. Bank moved for a determination on the motion to strike/reopen, which had remained pending in the Bucks County Court of Common Pleas. On November 22, 2011, the Bucks County Court entered an order striking the confessed judgment entered against Mr. Rosenberg and opening the confessed judgment entered against the NMI parties.*fn6
C. Procedural Posture of this Case
Three months later, on February 10, 2012, U.S. Bank filed the Complaint in this case. In response, Mr. Rosenberg filed a Motion to Dismiss arguing that pursuant to the terms of the Settlement Agreement and the Limited Guaranty, Bucks County state court has exclusive jurisdiction over the case. The Court denied the motion, holding that venue was proper in this Court because the forum selection clause provides that venue is proper in the federal district court whose judicial district encompasses Bucks County, and ordered that Mr. Rosenberg file an answer.
Mr. Rosenberg thereafter filed an answer raising 37 affirmative defenses and asserting counterclaims for Wrongful Use of Civil Proceedings (Count I), Abuse of Process (Count II), and Breach of the Covenant of Good Faith and Fair Dealing (Count III). U.S. Bank now moves to dismiss all counterclaims and defenses, asserting that pursuant to the terms of the Limited Guaranty, Mr. Rosenberg waived his right to assert any claims, counterclaims, or defense with respect to the terms of the Guaranty. Alternatively, U.S. Bank argues that the counterclaims are insufficiently alleged and must be dismissed, and that certain defenses are insufficient as a matter of law and must be stricken.
II. LEGAL STANDARD
A. Motion to Dismiss
Pursuant to Federal Rule of Civil Procedure 12(b)(6), dismissal of a
complaint for failure to state a claim upon which relief can be
granted is appropriate where a plaintiff's "plain statement" lacks
enough substance to show that he is entitled to relief.*fn7
In determining whether a motion to dismiss should be granted,
the court must consider only those facts alleged in the
complaint, accepting the allegations as true and drawing all logical
inferences in favor of the non-moving party.*fn8
Courts are not, however, bound to accept as true legal conclusions
couched as factual allegations.*fn9 Something more
than a mere possibility of a claim must be alleged; rather plaintiff
must allege "enough facts to state a claim to relief that is plausible
on its face."*fn10
The complaint must set forth "direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory."*fn11 The court has no duty to "conjure up unpleaded facts that might turn a frivolous . . . action into a substantial one."*fn12
B. Motion to Strike
"In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense[.]"*fn13 Federal Rule of Civil Procedure 12(f) permits a court to "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter."*fn14 The Third Circuit has cautioned, however, that "a court should not grant a motion to strike unless the insufficiency of the defense is clearly apparent" from the face of the pleading.*fn15
Since the sufficiency of the defense is determined by examining the face of the pleadings, a defense cannot be stricken where its success depends on disputed issues of fact or law.*fn16
However, "if the defense asserted could not possibly prevent recovery under any pleaded or inferable set of facts," it may be stricken.*fn17
While the Third Circuit has not applied the pleading standards of Ashcroft v. Iqbal,*fn18 and Bell Atlantic Corp. v. Twombly,*fn19 to the pleading of affirmative defenses, "when an affirmative defense omits a short and plain statement of facts entirely and fails totally to allege the necessary elements of the claim, it has not satisfied the pleading requirements of the Federal Rules[.]"*fn20
Thus, where a defense is insufficiently pled so as to fail to put the opposing party on notice of the nature of defense, the defense may be stricken with leave to amend. *fn21
A. The Waiver Provision
U.S. Bank's primary argument in support of both its Motion to Dismiss and its Motion to Strike is that the express language of the Guaranty's waiver provision bars all of Mr. Rosenberg's claims and defenses here. In contrast, Mr. Rosenberg argues that the existence of the waiver provision does not defeat his counterclaims or his defenses because the enforceability of the waiver provision is at issue in this litigation. According to Mr. Rosenberg, the entire Guaranty fails for lack of consideration. Thus, he asserts that all of the Guaranty's provisions are unenforceable, including the waiver provision.
Alternatively, Mr. Rosenberg submits that the waiver provision does not defeat his claims because the Guaranty's waiver provision conflicts with the waiver provision of the Settlement Agreement, which he asserts controls pursuant to the "conflict clause" in the Settlement Agreement, which states: "In the event of any conflict between the provisions of this Agreement and the provisions of any other Transaction Documents, the provisions of this Agreement will prevail."*fn22
The Limited Guaranty provides:
Without limiting the generality of any other provisions of the Limited Guaranty, Guarantor [Mr. Rosenberg] hereby expressly waives: . . . (e) any defense, right of set-off, claim or counterclaim whatsoever and any and all other rights benefits, protections and other defenses available to the Guarantor now or at any time hereafter.*fn23
It further states:
Guarantor waives all rights and defenses arising out of an election of remedies by [U.S. Bank], even though that the election of remedies has destroyed the Guarantor's rights of contribution, subrogation and reimbursement against the Lessees  or other guarantors by the operation of any applicable law or otherwise."*fn24
The Settlement Agreement also contains a waiver provision by which "[e]ach NMI party . . . waive[d] any defenses, offsets or counterclaims to the enforcement of the Modified Leases, the Security Agreements, the Guarantees or the Confession of Judgment."*fn25
As the Court stated in ruling on Mr. Rosenberg's Motion to Dismiss:
"The fundamental rule in contract interpretation is to ascertain the
intent of the contracting parties."*fn26 In
ascertaining the intent of the parties, "all provisions
in the agreement will be construed together and each will be given
effect. [The Pennsylvania Supreme Court] will not interpret one
provision of a contract in a manner which results in another portion
being annulled."*fn27 Thus, to the extent possible, a
contract should be interpreted in a manner which prevents provisions
from becoming meaningless, superfluous, or contradictory.*fn28
Furthermore, where, as here "two or more writings are
executed at the same time and involve the same transaction, they
should be construed as a whole."*fn29 The Court will
not read the Settlement Agreement in a manner which creates . . . a
conflict between the Settlement Agreement and the
Moreover, U.S. Bank attempts too broad a reading of the Guaranty's waiver clause to encompass claims unrelated to the agreement between the parties. This interpretation is contrary to the intent of the parties as stated in the Settlement Agreement and the Guaranty.
While the Court recognizes that contracting parties may waive their right to assert certain claims, counterclaims and defenses having to do with execution, performance and enforcement of the underlying agreement,*fn31 there is no authority to support the enforceability of a waiver provision with the scope U.S. Bank urges the Court to give the provision at issue here. Thus, even if the Settlement Agreement and the Guaranty evidenced the parties' intent to create a waiver of this sort, which the Court has held it did not, it is questionable that this provision would be enforceable as a matter of law.
Consequently, the Court finds that the waiver provision at issue here does not bar the assertion of all counterclaims and defenses raised by Mr. Rosenberg. To the extent that the provision limits the assertion of specific counterclaims and defenses, the Court will discuss these limitations below.
1. Counterclaim Count III
Counterclaim Count III alleges that "U.S. Bank . . . breached its contract with Rosenberg by failing to act in good faith and deal fairly with Rosenberg with respect to the Rosenberg Guaranty, causing Rosenberg to suffer damages."*fn32 Unlike the other counterclaims which are not within the scope of the waiver provision contained in the Guaranty, a fair reading of the Guaranty leads to the conclusion that this counterclaim is within the scope of the waiver provision and therefore, barred by it.
As stated above, a party may contractually waive its right to assert claims, counterclaims and defenses having to do execution, performance and enforcement of the underlying agreement.*fn33 In contrast to the tort claims of wrongful use of civil proceedings and abuse of process as alleged in Counterclaim Counts I and II, breach of contract claims depend upon the terms, execution, and performance of the contract. It is the type of claim contemplated by the Guaranty and would be waived under the Settlement Agreement or the Guaranty. Therefore, the Court finds that Counterclaim Count III is within the scope of the waiver provision and has been waived thereunder. Counterclaim Count III will be dismissed with prejudice.
2. Affirmative Defenses
Like Mr. Rosenberg's breach of contract counterclaim, several of his affirmative defenses, those concerning the terms, execution, and performance of the contract, are waived by virtue of the Guaranty's waiver provision for the reasons stated above with respect to Mr. Rosenberg's breach of contract counterclaim. These defenses are Mr. Rosenberg's Third,*fn34
Fifth, *fn35 Sixth,*fn36 Seventh,*fn37 Eighth,*fn38 Ninth,*fn39 Tenth,*fn40 Eleventh,*fn41 Fourteenth,*fn42 Seventeenth,*fn43 Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second, Twenty-Third, Twenty-Fourth, Thirtieth,*fn44 and Thirty-First.*fn45
B. Sufficiency of the Remaining Claims
1. Counterclaim Counts I and II
U.S. Bank moves to dismiss Mr. Rosenberg's counterclaims for wrongful use of civil proceedings (Count I) and abuse of process (Count II), arguing that Mr. Rosenberg has failed to allege that U.S. Bank brought the underlying confession of judgment proceedings in Bucks County primarily for an improper purpose, an element of both wrongful use of civil proceedings and abuse of process claims.*fn46 Mr. Rosenberg does not dispute that he must show that the "primary purpose" of the underlying proceedings was improper to succeed on either claim; he asserts however, that the facts as alleged in his Counterclaim are sufficient. The Court agrees.
While Mr. Rosenberg's counterclaim does not contain a conclusory statement that the primary purpose of the Bucks County confession of judgment proceedings was improper, the factual allegations are sufficient to support this inference. For example, Mr. Rosenberg alleges "U.S. Bank, by and through its agent, Lyon, . . . instituted a scorched earth campaign against Rosenberg in an effort to destroy him and his business, and to extract money or a settlement from Rosenberg and others," by filing "a single Complaint in Confession of Judgment in the Court of Common Pleas of Bucks County," and "causing a single judgment in the total amount of $43,481820.71 to be entered on the docket," despite U.S. Bank's knowledge that Rosenberg's liability was limited to $4,724,866.16.*fn47 Taken as a whole, the facts as alleged in the Counterclaim support an inference that the primary purpose of the underlying proceedings was improper and Counterclaim counts I and II are sufficient to withstand U.S. Bank's Motion to Dismiss.
2. Affirmative Defenses
In addition to its wholesale challenge to Mr. Rosenberg's affirmative defenses as waived, U.S. Bank challenges specific defenses as insufficiently pled. The Court now addresses those which have not been waived.
a. Fifteenth Affirmative Defense The Fifteenth Affirmative Defense states:
By Order and Memorandum Opinion dated August 21, 2009, the U.S. Bankruptcy Court for the Southern District of Florida found that any amounts required to be paid by [Mr.] Rosenberg under the Rosenberg Guaranty to Lyon was limited to the fees and expenses of Lyon, which finding was not disturbed by the District Court for the Southern District of Florida on appeal.*fn48
U.S. Bank argues that this statement mischaracterizes the Bankruptcy Court's August 21, 2009 Order and must be stricken. The Court agrees.*fn49
The Bankruptcy Court did not hold that the amount of Mr. Rosenberg's liability under the Guaranty was limited to Lyon's fees and expenses as the affirmative defense as stated suggests. In fact, the Bankruptcy Court was not concerned with the extent of Mr. Rosenberg's obligations under the Limited Guaranty. Rather, the court considered whether the "petitioning creditors" (those who filed the involuntary bankruptcy petition against Mr. Rosenberg) were "creditors" under the Limited Guaranty giving them standing to file the involuntary petition. The Bankruptcy Court found that the petitioning creditors were not "creditors," because Mr. Rosenberg's obligations under the Guaranty run solely in favor of Lyon.*fn50 The Bankruptcy Court wrote:
"Rosenberg executed an individual limited guaranty (the "Limited Guaranty") in the maximum about of $7,6661,945.00, which was to be reduced each month by the sum of $127,699.08 for each monthly payment made on account of the Master Lease as set forth in the Settlement Agreement. . . . The Limited Guaranty contains several other provisions, which obligations thereunder run solely to and in favor of Lyon. Specifically, upon an event of default under the Limited Guaranty, only Lyon can demand payment of the obligations thereunder and only the fees and expenses of Lyon [as opposed to the fees and expenses of another entity] are required to be paid by Rosenberg."*fn51
Mr. Rosenberg conflates several important findings of the Bankruptcy Court and the result is misleading. For this reason, the Fifteenth Affirmative Defense is stricken. Mr. Rosenberg is granted leave to amend this defense to clarify the holding of the Bankruptcy Court and its import to his defense to the extent he is able to do so.
b. Twenty-Fifth Affirmative Defense
In his Twenty-Fifth Affirmative Defense, Mr. Rosenberg states that "U.S. Bank's claims are barred by its unclean hands and inequitable conduct . . . ."*fn52 U.S. Bank asserts that this defense must be stricken because U.S. Bank seeks only money damages in its complaint and the equitable defense of unclean hands is only available where a plaintiff seeks equitable relief. Mr. Rosenberg argues that "[a]n affirmative defense need not be plausible to survive; it must merely provide fair notice of the issue involved."*fn53
While the Court recognizes that Third Circuit has not applied the pleading standards of Iqbal and Twombly to the pleading of affirmative defenses, Rule 12(f) nevertheless allows a court to strike an affirmative defense where "the insufficiency of the defense is clearly apparent" from the face of the pleading.*fn54 Because the doctrine of unclean hands is not applicable where a party does not seek equitable relief, the insufficiency of this defense is clearly apparent from the face of the pleading and will be stricken.*fn55
c. Thirty-Second and Thirty-Third Affirmative Defenses
U.S. Bank argues that the Court should strike these defenses because they are merely restatements of Mr. Rosenberg's Counterclaims, which U.S. Bank asserts Mr. Rosenberg is barred from asserting pursuant to the waiver provision of the Guaranty. Since the Court has found that Mr. Rosenberg is not barred from asserting these claims, it will not strike these defenses on this basis.
For the foregoing reasons, U.S. Bank's Motion to Dismiss Mr. Rosenberg's Counterclaims and Motion to Strike his Affirmative Defenses will be granted in part and denied in part. Counterclaim Count III will be dismissed and the following affirmative defenses will be stricken: Third, Fifth through Eleventh, Fourteenth, Fifteenth, Seventeenth through Twenty-Fifth, Thirtieth, and Thirty-First. Mr. Rosenberg will be granted leave to amend his Fifteenth Affirmative Defense.
An appropriate Order follows.