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Front Street Development Associates, L.P. v. Conestoga Bank

Superior Court of Pennsylvania

April 26, 2017

FRONT STREET DEVELOPMENT ASSOCIATES, L.P. AND JOSEPH PACITTI Appellants
v.
CONESTOGA BANK, DAVID BUTTE, RICHARD ELKO, 130 FRONT STREET L.P. 123 EAST LLC, PHILLIP MCFILLIN, NATIONAL REALTY INVESTMENT ADVISORS LLC, THE LOCAL DEVELOPMENT COMPANY, LLC AND GRACE LUTERO Appellees

         Appeal from the Order Entered January 26, 2016 In the Court of Common Pleas of Philadelphia County Civil Division at No(s): August Term, 2014 Case No. 03867

          BEFORE: BOWES, OTT AND SOLANO, JJ.

          OPINION

          BOWES, J.

         Front Street Development Associates, L.P. ("Front Street" or "Borrower") and Joseph Pacitti ("Pacitti" or "Guarantor") (collectively "Plaintiffs" or "Borrowers") appeal and challenge the trial court's grant of judgment on the pleadings in favor of Conestoga Bank, David Butte, Richard Elko ("Bank Defendants" or "Lender") and the Local Development Company, LLC ("LDC"). Additionally, they challenge the order striking their demand for a jury trial.[1] After thorough review, we affirm the grant of judgment on the pleadings to the Bank Defendants and LDC, thus rendering moot the propriety of the order striking the jury trial demand.

         This action arises from a loan transaction between sophisticated commercial parties. Front Street owned several parcels of property located at Front and Sansom Streets in Philadelphia. The property identified as 130 S. Front Street ("the Property") is at the center of this controversy. Defendant Conestoga Bank held a note and a mortgage on the Property securing a $5.5 million loan made on April 26, 2006, to Front Street. The loan was to mature on June 1, 2007.

         Despite several allonges to the note that extended the maturity date, Front Street was in default on the loan in 2010. On April 13, 2010, Plaintiffs and Bank Defendants entered into a Loan Modification and Forbearance Agreement ("the Forbearance Agreement"), by which Plaintiffs acknowledged default, but the Bank agreed to forbear and extend the maturity date on the loan until March 30, 2012. That Forbearance Agreement was amended in writing on March 30, 2012, and again on July 8, 2013, ultimately extending forbearance and the maturity date to March 5, 2014. The Forbearance Agreement contained a release ("the Release") that is the focus of judgment on the pleadings.

         On June 4, 2014, three months after the apparent lapse of the second amendment to the Forbearance Agreement, Mr. Pacitti brought the Mazolla brothers, who were local investors, to a meeting with the Bank Defendants. According to Plaintiffs, the Bank Defendants represented that the purpose of the meeting was to discuss how the Mazolla brothers could buy and develop the Property. A purchase price of $5.8 million was mentioned. Discussion purportedly focused on the Bank taking title to the property through a "friendly foreclosure, " and the investors and Mr. Pacitti would develop sixteen residential homes on the property.

         At that meeting, defendant David Butte, Executive Vice-President of Conestoga Bank, presented a Deed in Lieu of Foreclosure ("Deed") dated June 4, 2014, to Mr. Pacitti. According to Mr. Pacitti, the Bank Defendants secured his signature on the Deed by representing it was the same document he had signed earlier and that the Bank just wanted to update its documents. The Bank Defendants allegedly reassured Mr. Pacitti that the Bank was not going to take any adverse action against Plaintiffs, and Plaintiffs believed that the Deed was intended to facilitate the deal with the Mazolla brothers. Based upon those assurances, Mr. Pacitti signed the Deed, although he averred that he did not realize the name of the grantee in the Deed was blank.

         According to Plaintiffs, the meeting was a ruse to trick Mr. Pacitti into signing the Deed to facilitate the Bank's conveyance of the Property to another buyer. Unbeknownst to Plaintiffs, the Bank Defendants had already agreed to sell the loan documents ("Loan Documents") to LDC, an agent for 123 East, an entity affiliated with Phillip McFillin. Plaintiffs were already embroiled in a lawsuit with Mr. McFillin and his associated entities involving the Property.[2] Plaintiffs' second amended complaint added Phillip McFillin and 123 East as defendants. They pled claims for declaratory judgment, fraud, slander of title, negligent misrepresentation, and civil conspiracy against those defendants. The substance of the claim was that McFillin, acting on behalf of Avantissimo and 123 East, tricked Plaintiffs into executing an Agreement for Sale of the Property and subsequently conspired with the Bank Defendants to divest Plaintiffs of the Property. Plaintiffs alleged that LDC was prepared to cancel the loan purchase agreement, but decided to move forward after conferring with Mr. McFillin on May 22, 2014. McFillin purportedly took steps to remove the lis pendens on the property that the lawsuit filed by 123 East created so that LDC could purchase the loan and the property. According to Plaintiffs, the Bank Defendants pretended to work with them on the deal with the Mazollas while proceeding to sell the loan to LDC for the benefit of LDC, McFillin, and 123 East. On August 14, 2014, the Bank assigned and transferred the mortgage on the Property to defendant 130 Front Street L.P. ("130 Front Street"), and the Deed naming that entity as grantee was recorded on August 19, 2014.

         Plaintiffs commenced this action against the Bank Defendants on August 28, 2014, by praecipe for writ of summons, and subsequently filed a complaint requesting a jury trial. In their fourth amended complaint, Plaintiffs alleged that the maturity date of the loan was extended by course of dealing to March 2015, and the Bank breached the Forbearance Agreement when it treated the loan as being in default and filed the Deed in lieu. Plaintiffs also averred that the Bank breached its contractual duty of good faith and fair dealing when it procured the signed Deed by misrepresenting its purpose and consequences and conspired with the other defendants to divest Plaintiffs of the Property. The complaint contained counts of fraud in fact, fraud in the inducement, tortious interference with prospective contract, invasion of privacy/commercial disparagement, breach of fiduciary duty, misrepresentation, and civil conspiracy. Plaintiffs alleged they were deprived of prospective economic opportunities with the Mazolla brothers when the Bank wrongfully divested them of the Property. Plaintiffs sought both compensatory and punitive damages from the Bank Defendants.

         In a subsequent amended complaint, Plaintiffs added LDC as a defendant. Plaintiffs alleged that the Bank's April 24, 2014 agreement to assign the loan to LDC, which was affiliated with 123 East and McFillin, was in furtherance of the conspiracy among those parties to wrongfully take the Property from Plaintiffs.

         On April 13, 2015, the Bank Defendants moved to strike the jury trial demand, asserting the jury trial waiver contained in the Loan Documents. The court struck the jury trial demand on May 22, 2015, and subsequently extended that ruling to the other parties in the action. Plaintiffs challenge that ruling on appeal.

         Thereafter, the Bank Defendants moved for judgment on the pleadings alleging that Plaintiffs released the claims that they were asserting against the Bank Defendants when they voluntarily and knowingly signed the Forbearance Agreement containing a release on March 13, 2010. The trial court agreed, and entered judgment on the pleadings in favor of the Bank Defendants on all of the aforementioned tort and contract claims. The court reasoned that the release provision in the Forbearance Agreement "explicitly contemplated the precise claims asserted in the complaint, and released the [bank] defendants from liability 'whether statutory, in contract or in tort.'" Order, 8/24/15, at 1. The court ruled in a subsequent order that since the Release was valid, it was also enforceable by the assignee, LDC. Order, 10/29/15, at 1.

         Plaintiffs appealed to this Court.[3] They present five questions for our review:

1. Did the trial court err in granting Defendant-Appellee the Local Development Company LLC's ("LDC") and Defendants-Appellees Conestoga Bank's, David Butte's, and Richard Elko's (collectively, the "Bank Defendants") motions for judgment on the pleadings where there are disputed issues of fact as stated in the pleadings such that neither LDC nor the Bank Defendants were entitled to judgment as a matter of law, including where Plaintiffs made no admissions of fact, but instead, specifically denied the applicability of the release as to the claims alleged in the fourth amended complaint?
2. Did the trial court err by applying the release (executed in 2010) to unaccrued, future claims (including tort claims and a claim for breach of the very contract containing the release) against the Bank Defendants and LDC that did not arise until 2014, where the release contains no such language, and where the law of this Commonwealth is clear that releases are to be strictly construed?
3. Did the trial court err by striking Plaintiffs' jury demand based on jury waiver provisions in the loan documents where Plaintiffs' causes of action against the Bank Defendants (except for breach of contract) arise from the Bank Defendants' tortious conduct, independent of the loan documents, and were not contemplated by the jury waiver?
4. Did the trial court err by striking Plaintiffs' jury demand based on jury waiver provisions in the loan documents where Plaintiffs' causes of action against the Bank Defendants (except for breach of contract) arise from the Bank Defendants' tortious conduct, independent ...

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