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Federal Deposit Insurance Corp. v. Musser

United States District Court, E.D. Pennsylvania

March 6, 2017

FEDERAL DEPOSIT INSURANCE CORP. as RECEIVER for NOVA BANK, Plaintiff,
v.
HILARY G. MUSSER, Defendant.

          MEMORANDUM

          ANITA B. BRODY, J.

         Ordinarily, it is understood that a person who borrows money must eventually return that money, with interest, to the lender. This case falls well outside that ordinary lender-borrower paradigm. Defendant Hilary Musser borrowed $3 million from Nova Bank. All parties agree that Musser remains in possession of the $3 million and that she has not paid interest since August 2010. The Plaintiffs in this case-originally Nova Bank and then, following Nova Bank's failure, the Federal Deposit Insurance Corporation (FDIC) as receiver-seek the return of the $3 million, plus interest. The FDIC's Second Amended Complaint asserts four counts against Musser, each of which is brought in the alternative. ECF No. 71. Counts I and II each allege breaches of different express contracts. Count III alleges breach of an implied in fact contract. Count IV alleges unjust enrichment, assuming the absence of a contract.

         Musser believes she is entitled to keep the $3 million and that she owes the FDIC nothing. She argues that the $3 million is merely a fractional offset to the millions of dollars that Nova Bank and its executives fraudulently procured from her. In her Answer, Musser has asserted the following nine affirmative defenses: (1) breach of fiduciary duty; (2) fraud; (3) violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”); (4) setoff; (5) unclean hands; (6) lack of subject matter jurisdiction over Counts I-III; (7) non-execution of the negotiable instrument(s); (8) recoupment; and (9) failure of consideration. ECF No. 72.

         The FDIC moved for summary judgment on Count I, which, if granted, would have disposed of the case. Pl.'s Mot. Summ. J., ECF No. 73. The FDIC also moved to strike or, in the alternative, for summary judgment on each of Musser's affirmative defenses. Pl.'s Mot. to Strike, ECF No. 74. For the reasons explained below, I denied Plaintiff's Motion for Summary Judgment, without prejudice to raise the motion again after the close of discovery. I granted in part and denied in part Plaintiff's Motion to Strike or, in the Alternative, for Summary Judgment on Each of Defendant's Affirmative Defenses.

         I. FACTUAL BACKGROUND

         In October of 2005, Musser's lender-borrower relationship with Nova Bank began, when she signed a promissory note and opened a $3 million line of credit with the bank (the “2005 Line”). The 2005 Line was assigned Loan Number 53800028. Musser subsequently borrowed money using the 2005 Line and paid interest and principal. By early 2007, Musser had completely paid down the 2005 Line to a balance of zero. In March of 2007, Nova Bank closed the 2005 Line and re-documented Musser's $3 million line of credit with a new Promissory Note and other loan documents (the “2007 Line”). Musser contends that she did not actually sign any of these documents. The 2007 Line was assigned Loan Number 53800314. After the creation of the 2007 Line, Musser knew that she continued to have a $3 million line of credit with Nova Bank, and she drew down on and made payments on her line of credit after March 2007.

         Beginning in mid-2009, Musser and Nova Bank began discussing a renewal of Musser's line of credit. On November 16, 2009, Musser directed her investment advisory firm, Ballamor Capital Management (“Ballamor”), to transfer the remaining balance of the 2007 Line, $1.97 million, to her personal account at Nantucket Bank. Ballamor then transferred the $1.97 million into Musser's Nantucket account. At that point, Musser had withdrawn the full amount from Nova Bank. Two days later, Musser received a letter from Thomas Patterson, a loan officer at Nova Bank, informing her that Nova Bank had approved a renewal of the 2007 Line, with modifications to the interest rate and maturity date (the “2009 Line”). The letter also stated, in relevant part, “If you do not agree to the terms as outlined in this letteror [sic] to remit the applicable fee, please contact [Thomas Patterson] immediately . . . to receive a loan payoff statement and make arrangements to pay your balance in full . . . .” ECF No. 76-1 at 68. Musser never objected to the terms of the letter. From January 2010 to August 2010 Musser made interest payments at the new interest rate, as stated in the 2009 Line renewal letter. Since August 2010, Musser has made no payments on the 2009 Line, and she remains in possession of the $3 million.

         Musser concedes to all of the facts as stated above. She contends, however, that she never signed any of the 2007 Line documents, and that the signatures on those documents are forgeries. She argues that these forgeries constitute fraud in the factum as to the 2007 Line and the 2009 Line, which was a renewal of the 2007 Line. Musser also alleges that there was fraud in the factum as to the 2005 Line, because Nova Bank executives entered into an illegal kickback arrangement to conceal the loan's true interest rate. Ultimately, Musser faults Barry Bekkedam-an individual who served as chairman of Nova Bank and, separately, as Musser's investment advisor with Ballamor-for defrauding her in order to prop up the failing Nova Bank.[1]

         II. JURISDICTION

         I have subject matter jurisdiction over this matter pursuant to 12 U.S.C. § 1819(b)(2)(A), which, with limited exception, provides for federal court jurisdiction over matters to which the FDIC is a party, and pursuant to 28 U.S.C. § 1331.[2] I have personal jurisdiction because, at the time this Action was first filed, Musser resided in Pennsylvania, and the lawsuit arises out of Musser's purposeful contacts with Pennsylvania. Venue is proper because, at the time this Action was first filed, Musser resided in the Eastern District of Pennsylvania, and a substantial part of the events giving rise to the claims in this Action occurred in the Eastern District of Pennsylvania.

         III. MOTION FOR SUMMARY JUDGMENT ON COUNT I

         A. Legal Standard

         Summary judgment shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it “might affect the outcome of the suit under the governing law . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is “genuine” if the evidence would permit a reasonable jury to return a verdict for the nonmoving party. Id. In ruling on a motion for summary judgment, the court must draw all inferences from the facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

         The moving party “always bears the initial responsibility of informing the district court of the basis for its motion.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). After the moving party has met its initial burden, the nonmoving party must then “make a showing sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial.” Id. at 322. Both parties must support their factual positions by: “(A) citing to particular parts of materials in the record . . .; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c)(1). The materials in the record that parties may rely on include “depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials.” Fed.R.Civ.P. 56(c)(1)(A). In opposing a motion for summary judgment, the nonmoving party may not “rely merely upon bare assertions, conclusory allegations or suspicions.” Fireman's Ins. Co. of Newark, N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982).

         In essence, the inquiry at summary judgment is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson, 477 U.S. at 251-52.

         B. Discussion

         The FDIC sought summary judgment on Count I, which alleges a breach of the 2009 Line. The FDIC argued that the November 18, 2009 letter constituted an offer to enter into a new contract, which Musser accepted by retaining the $3 million and paying interest from January 2010 through August 2010. Musser argued that the 2009 Line was a renewal of the 2007 Line, rather than a new contract, and was therefore subject to any defenses that may have been asserted against the 2007 Line. See Hitchner Wall Paper & Paint Co. v. Shoemaker, 75 Pa. Super. 520, 523 (1921) (“[A] renewal note is open to all defenses which might have been made against the original note.”). Musser further asserted that the 2007 Line is void, due to, among other reasons, fraud in the factum resulting from a forged signature. Resolving this dispute over renewal is a necessary first step to resolving the FDIC's summary judgment motion.

         “The question whether a renewal note operates as a discharge of the original note depends on the intention of the parties.” Peterson v. Crown Fin. Corp., 661 F.2d 287, 291 (3d Cir. 1981). The issue of intent is a factual determination to be made by the factfinder. See id. at 291 n.6 (citing Brown v. Scott, 51 Pa. 357, 363 (1865)). Musser identified a number of facts that show the factfinder could reasonably conclude that the Parties intended the 2009 Line to be a renewal of the 2007 Line rather than a separate new contract. Among other things, the 2009 Line bore the same loan number as the 2007 Line, the 2009 Line expressly incorporated all of the terms of the 2007 Line, but with a modified interest rate and maturity date, and the Parties used the term “renewal” in discussing the 2009 Line. The question of the Parties' intent to effect a renewal is a disputed issue of material fact. I thus denied the FDIC's motion for summary judgment on Count I.

         IV. MOTION TO STRIKE DEFENDANT'S AFFIRMATIVE DEFENSES

         A. Le ...


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