United States District Court, W.D. Pennsylvania
FIRSTMERIT BANK, N.A. an Ohio corporation, Plaintiff,
GEORGE L. MYRTER, ELEANOR MYRTER Pennsylvania residents and JL PROPERTIES, LLC Pennsylvania limited liability company Defendants.
MEMORANDUM OPINION AND ORDER OF COURT
TERRENCE F. McVERRY, Senior District Judge.
Now pending before the Court are the PETITION FOR APPOINTMENT OF RECEIVER (ECF No. 8) filed by Plaintiff FirstMerit Bank, N.A. ("FirstMerit" or "the Bank") and the MOTION TO DISMISS (ECF No. 21) filed by two of the three named Defendants, George and Eleanor Myrter. Both motions have been thoroughly briefed and the parties have submitted numerous exhibits (ECF Nos. 1, 9, 16, 17, 19, 22, 23, 24). The motions are ripe for disposition without the necessity of an evidentiary hearing.
Factual and Procedural Background
This complex case arises out of the efforts of FirstMerit to foreclose on its security interests for various business loans, against a backdrop of bankruptcy. The borrower on several of the loans at issue is Castle Cheese, Inc. ("Castle Cheese"), which is a private corporation controlled by Defendant George Myrter. On May 30, 2014, Castle Cheese filed a bankruptcy petition under Chapter 11 (reorganization). On May 12, 2015, upon the motion of FirstMerit, Chief Bankruptcy Judge Jeffrey A. Deller entered an Order which converted the Castle Cheese case to a liquidation matter pursuant to Chapter 7 of the Bankruptcy Code. Charles O. Zebley, Jr. was appointed as the Interim Trustee for Castle Cheese.
A. The Real Property At Issue
In this action, the Bank seeks to foreclose and effectuate the sale of various parcels of real property. The Bank has attempted to define the "2850 Premises" to encompass all real property with a mailing address of 2850 Perry Highway, Slippery Rock, PA 16057. The Bank's proposed definition blurs an important distinction. The underlying documents establish that the real property is divided into two separate parcels. Parcel No. 1 (Parcel ID # XX-XXXXXX) is owned by Defendants George and Eleanor Myrter, husband and wife, as tenants by the entireties. See Deed to Parcel No. 1 (ECF No. 34 Exh. 1). Parcel No. 2 (Parcel ID # XX-XXXXXX) is owned by JL Properties. See Deed to Parcel No. 2 (ECF No. 17 Exh. 2). The Mortgage and Assignment of Rents documents, dated April 20, 2007, expressly state that they are being executed by George and Eleanor Myrter, husband and wife, as to Parcel No. 1 and by JL Properties as to Parcel No. 2. See Complaint Exhibits H, I.
In addition to Parcel No. 2, JL Properties also owns the real property located at 2862 Perry Highway (the "2862 Premises") and at 1167 Stoughton Road, Slippery Rock, PA (the "Stoughton Premises"). Castle Cheese and Universal Cheese & Drying, Inc. ("Universal Cheese") are tenants of Defendants. A factory is located on Parcel No. 1. An office building and a warehouse are physically located on Parcel No. 2; however, the mailing address of the warehouse appears to correspond to the Stoughton Premises. An office building is located on the 2862 Premises.
B. The Key Documents and Disputes
Commencing on January 22, 2003 FirstMerit extended a line of credit to Castle Cheese (Loan No. 55209). The line of credit was amended numerous times through December 2011. On June 24, 2008, FirstMerit extended a line of credit to Universal Cheese, which was subsequently amended several times (Loan No. 54919). On May 10, 2010, First Merit loaned $500, 000 to Universal Cheese (Loan No. 10068). On December 8, 2011 FirstMerit loaned Castle Cheese $1, 385, 000.00 (Loan No. 9343). Also on December 8, 2011 FirstMerit loaned $850, 000 to Universal Cheese (Loan No. 7654).
As security for the various loans, Defendants executed five duly recorded mortgages to FirstMerit. In addition, FirstMerit obtained Assignment of Rents agreements from Defendants. The Bank alleges that Castle Cheese and Universal Cheese have neglected and failed to make contractually-obligated rent payments to the Bank. On February 18, 2015, FirstMerit demanded that the rent be paid directly to the Bank, pursuant to the terms of the Assignment of Rents agreements. Defendants contend that Castle Cheese and Universal Cheese did not fail to make required rent payments because such rental payments had been waived by Defendants in their capacity as landlords since some time in 2013. The Bank asserts that it was not aware of any rent-waiver arrangement by these related parties.
The mortgage and Assignment of Rents documents define various events of default. Relevant to this litigation, in addition to the alleged non-payment of rents by Castle Cheese and Universal Cheese, FirstMerit alleges an "Over-Advance Default" for Castle Cheese having failed to remit payments to cure the difference between the outstanding principal balance of the Advances and the Borrowing Base, despite the Bank's demands in February and April 2014; and a "Material Adverse Change" default which resulted from Castle Cheese having filed for bankruptcy in May 2014. Complaint ¶¶ 38-44. The applicable documents also contain "cross default" and "cross collateralization" provisions, such that an event of default under any one agreement constitutes a default on all of the other agreements. Because Loan No. 55209 to Castle Cheese was guaranteed by Universal Cheese, the Bank contends that the alleged event(s) of default by Castle Cheese constitute cross-defaults of the Universal Cheese loans. Because George Myrter and JL Properties guaranteed the loans of Castle Cheese and Universal Cheese, the Bank asserts its ability to pursue its contractual rights against them.
The security documents afford numerous rights and remedies to FirstMerit. Of particular relevance to the pending motions, the mortgages and Assignment of Rents documents provide for the appointment of a receiver. Upon any Event of Default, the Bank "shall have the right to have a receiver appointed to take possession of all or any part of the Property, to operate the Property preceding foreclosure or sale, and to collect the Rents from the Property and apply the proceeds, over and above the cost of the receivership, against the Indebtedness.... Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Property exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver."
Also relevant and of importance to the pending motions, on December 8, 2011 FirstMerit executed a Release of the commercial guarantees of Eleanor Myrter (the "Release"). The Release stated, in relevant part, that: "The Unconditional and Unlimited Guarantees by and between Eleanor and FirstMerit Bank, N.A. ("FirstMerit") concerning the following indebtedness to FirstMerit is hereby terminated in its entirety." The release recited various matters related to Castle Cheese, Universal Cheese, JL Properties and George Myrter, although it did not specifically reference Loan Nos. 7654 or 9343.
C. The Legal Claims of the Bank
On March 10, 2015, FirstMerit filed a four-count Complaint in Mortgage Foreclosure. Count I seeks judgment in foreclosure on Mortgages I, II, III and IV, which relate to security interests in that which the Bank has defined as the "2850 Mortgaged Premises." Count II seeks judgment in foreclosure on Mortgage V, which relates to the 2862 Mortgaged Premises and the Stoughton Mortgaged Premises, both of which are owned by JL Properties. Count III seeks judgment in foreclosure under the "cross default" provisions of loans made by FirstMerit to Universal Cheese. Count IV of the Complaint ...