Weedling v. PNC Bank (In Re Weedling) , 358 F. App'x 955 ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
11-8-2006
In Re: Weedling
Precedential or Non-Precedential: Non-Precedential
Docket No. 04-4198
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Recommended Citation
"In Re: Weedling " (2006). 2006 Decisions. Paper 228.
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-4198
IN RE: JAMES E. WEEDLING; DONNA M. WEEDLING;
ROBERT E. WEEDLING; LYNNE K. WEEDLING,
Debtors
JAMES E. WEEDLING; DONNA M. WEEDLING;
ROBERT E. WEEDLING; LYNNE K. WEEDLING,
Appellants
v.
PNC BANK
FREDERIC R. BAKER, ESQUIRE,
Trustee
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 03-cv-06721)
District Judge: Honorable John P. Fullam
No. 04-4239
IN RE: JAMES E. WEEDLING; DONNA M. WEEDLING;
ROBERT E. WEEDLING; LYNNE K. WEEDLING,
Debtors
PNC BANK,
Appellant
v.
JAMES E. WEEDLING; DONNA M. WEEDLING;
ROBERT E. WEEDLING; LYNNE K. WEEDLING,
FREDERIC R. BAKER, ESQUIRE,
Trustee
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 03-cv-06722)
District Judge: Honorable John P. Fullam
Submitted Under Third Circuit LAR 34.1(a)
November 6, 2006
Before: SLOVITER, CHAGARES and NYGAARD, Circuit Judges
(Filed: November 8, 2006)
OPINION
SLOVITER, Circuit Judge.
Appellants are Robert E. and Lynne K. Weedling (“Robert and Lynne”) and their
son, James E. Weedling, and his wife, Donna M. Weedling (“James and Donna”),
collectively, the “Weedlings.” They appeal the Order of the District Court affirming the
Bankruptcy Court’s finding that the Weedlings were equally at fault in perpetuating the
impasse over payment to PNC Bank, N.A. (“PNC”) under the Amended Plan of
Bankruptcy (the “Amended Plan”). Additionally, the Court also found that PNC was not
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the proximate cause for any losses that the Weedlings may have suffered on the sale of
their business.1 PNC cross-appeals on the failure to enter judgment for it for attorneys’
fees.
I.
All of the Weedlings live in Lehigh County. In 1992, Robert, Lynne, and Lehigh
Consolidated Industries, Inc. (“LCI”), which Robert owned and founded, filed for
bankruptcy protection pursuant to Chapter 11 of the Bankruptcy Code. James and Donna
were not parties to the bankruptcy proceeding but rather were guarantors of certain
indebtedness owed by LCI. At the time of filing, PNC was the principal secured creditor
of Robert and Lynne with respect to a $2,000,000 Promissory Note and accompanying
Mortgage on Robert and Lynne’s residence, and of James and Donna with respect to a
$300,000 Promissory Note and accompanying Mortgage on James and Donna’s
residence.
In February 1993, PNC filed a motion to convert the case from Chapter 11 to
Chapter 7. The parties reached a resolution, which was then implemented in the form of
an Order of the Bankruptcy Court entered August 11, 1993. The Order reduced Robert
and Lynne’s outstanding liability to PNC from $2,000,000, plus interest, costs and
1
The Weedlings refer to the business as Gateway, see, e.g.,
Appellant’s Br. at 27, whereas PNC refers to it as Gateco, see, e.g.,
Appellee’s Br. at 35. Throughout the Opinion we will refer to the
business as Gateway.
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attorneys’ fees, and James and Donna’s outstanding liability from $288,736.88, plus
interest, costs, and attorneys’ fees to the aggregate principal amount of $130,000.
Robert and Lynne filed an Amended Plan that was confirmed by the Bankruptcy
Court in 1996. The Amended Plan gave PNC secured liens on the two properties limited
to the principal sum of $130,000 to be amortized over a twenty-year period. The liens
were to be secured by two new mortgages with the same existing lien priority. The
problem that is the subject of this appeal arose because none of the parties ever executed
new documents, i.e., new mortgage documents and notes, effectuating the provisions of
the Amended Plan.
In August 1998, Robert and Lynne filed an action in the Court of Common Pleas
of Northampton County, Pennsylvania against PNC to compel PNC to live up to the terms
of the Amended Plan. In May 1999, that court dismissed the Complaint for lack of
jurisdiction. In August 1999, PNC sent notices to the Weedlings informing them of
PNC’s intention to collect the outstanding debt. The Weedlings then filed a motion with
the Bankruptcy Court to reopen the case and commence an adversary proceeding. The
Bankruptcy Court found that “(a) no actions on the part of [PNC] constituted the
proximate cause of any alleged loss to [the Weedlings]; and (b) [the Weedlings] were at
least equally at fault in perpetuating the impasse following entry . . . of [the] Order
confirming . . . [the] Amended Plan on March 26, 1996.” App. at 11a. The parties cross-
appealed to the District Court, which affirmed the order of the Bankruptcy Court. The
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parties then cross-appealed to this court. We have jurisdiction pursuant to 28 U.S.C. §
158(d) (2000).
II.
The Weedlings present four arguments on appeal. First, the Weedlings claim that
the District Court erred by finding that they were at least equally at fault in failing to
provide the mortgage documents and pay the note under the Amended Plan. Despite the
approval of the Amended Plan in 1996, the parties quickly thereafter reached an impasse
on the issue of who was responsible for providing the necessary documentation. The
Weedlings aver that they made “extensive efforts, both on their own and through their
legal counsel, to obtain the necessary information from the bank in order to make
payments pursuant to the terms of the Amended Plan.” Appellant’s Br. at 18. They point
to the fact that after the confirmation of the Amended Plan, PNC’s lawyer at the time,
Bruce Grohsgal (“Grohsgal”), wrote a letter to Judge Gardner of the Court of Common
Pleas of Lehigh County informing the latter that the foreclosure matter had settled
“subject to execution of mortgage modification documents restructuring the mortgage.”
App. at 96a.
The Weedlings rely on two letters in support of their claim. The first, dated May
20, 1996, from Attorney David Eisenberg (“Eisenberg”), the Weedlings’ representative,
to Grohsgal, stated, “[Y]our client has not provided [Robert] with a billing statement for
the mortgage payment . . . . Accordingly [Robert] is unable to pay the mortgage payment
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because he has no possible way of computing it. Please make certain that regular billings
are made to the Weedlings as interest is adjusted monthly.” App. at 95a. The second,
dated July 9, 1996 from Grohsgal to Michael A. Valerio, Jr., PNC’s representative, states,
“I still need the accrued interest information and the forms of residential note and
mortgage that you desire to utilize for the $130,000 mortgage note secured by [Robert and
Lynne’s] and [James and Donna’s] homes.” App. at 99a.
The Weedlings’ evidence notwithstanding, the District Court properly concluded
that the parties were equally at fault with respect to the failure to come up with the
necessary documentation to effectuate the Amended Plan. The Amended Plan contained
no provision requiring either party to calculate the amount due and owing on the
$130,000 lien secured by PNC. It only stated, “PNC . . . shall have its secured liens in the
[Weedlings’] properties . . . limited to $130,000. . . . This shall replace all secured liens
of PNC . . . against [Robert and Lynne’s] residence and the residence of James and Donna
. . . ; however, that property shall remain as additional collateral for the obligation to PNC
. . . as modified in the Plan.” App. at 77a. PNC’s attorney, Grohsgal, testified that in his
view, it was the Weedlings’ obligation to prepare the necessary documentation. In
addition, Eisenberg admitted that he had the “necessary legal talent” to prepare the
documentation, but stated that he was not asked to do so. App. at 33a. Lastly, the
Weedlings’ claim that they undertook extensive efforts to contact PNC is belied by the
record.
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Second, the Weedlings argue that the District Court should have interpreted the
Amended Plan according to contract principles; PNC agrees. However, treating the
Amended Plan as a contract does not help resolve this dispute – the question is what was
the parties’ objectively-manifested intent with respect to the provision of the necessary
documentation. Because the Amended Plan was silent on that point, treating it as a
contract does not resolve the question of what the parties intended.
In the alternative, the Weedlings argue that PNC prevented their performance
under the Amended Plan because PNC failed to provide them with the information
necessary to make payments. In support of this argument they cite Liddle v. Scholze, 768
A.2d 1183 (Pa. Super. Ct. 2001). Liddle is inapposite. Liddle paid $48,000 to Scholze
for two breeding emus. Id. at 1184. Because the parties recognized the distinct
possibility of infertility, the contract provided that if the emus did not breed, then Scholze
was to buy the emus from Liddle “for the amount paid in emu chicks from [Scholze’s]
own breeders.” Id. Liddle’s emus produced no chicks. Pursuant to the agreement,
Scholze offered Liddle a dozen chicks for $48,000. Liddle declined the offer, hoping that
the emus would breed the next year – they did not. Liddle then sought return of her
money. Scholze refused. The Court held that “once Scholze offered to fulfill her duties
under [the contract], there was no lack of performance. Conduct of one party that
prevents the other from performing is an excuse for nonperformance. By preventing
Scholze’s performance, Liddle excuse[d] it.” Id. at 1185 (internal citations omitted).
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Liddle only stands for the proposition that a party cannot prevail for nonperformance if
she alone is responsible for the nonperformance. The Amended Plan is not clear on that
point; therefore, Liddle is not instructive.
The Weedlings next argue that their nonperformance should be excused due to
frustration of purpose. They cite to Kroblin Refrigerated Xpress, Inc. v. Pitterich, 805
F.2d 96, 102 (3d Cir. 1986) (citing Restatement (Second) of Contracts § 265 (1979)), for
an explanation of frustration of purpose. “Where, after a contract is made, a party’s
principal purpose is substantially frustrated without his fault by the occurrence of an event
the non-occurrence of which was a basic assumption on which the contract was made, his
remaining duties to render performance are discharged, unless the language or the
circumstances indicate the contrary.” Id. Again, the contract in this case, i.e., the
Amended Plan, did not speak to the question of who was responsible for providing the
necessary documentation. As such, the concept of frustration of purpose is not relevant.
In any event, we view the opinions of both the Bankruptcy Court and the District Court as
treating the Amended Plan as a contract.
Third, the Weedlings contend that in light of the District Court’s finding that the
parties were equally at fault, it was error for the District Court to order that the terms of
the Amended Plan be effectuated. Simply put, the Weedlings argue that they should not
have to pay the full amount that they were obligated to pay under the terms of the
Amended Plan. They cite to Turner v. Mellon Mortgage Co. (In re Turner), 221 B.R. 920
8
(Bankr. M.D. Fl. 1998). Like their other cited cases, Turner provides no support for their
argument. The Turner court held that because the defendant caused the mortgage
payment deficiency, the plaintiff was entitled to recover damages in the amount necessary
to make the account current. Id. at 925-26. In the instant matter, the underlying issue is
which party is responsible for the mortgage payment deficiency. Because the Weedlings
cannot demonstrate that PNC was the responsible party, Turner offers them no help.
Fourth, the Weedlings challenge the District Court’s finding that no action on the
part of PNC was the proximate cause of loss to the Weedlings. The Weedlings’ claim is
that their business, Gateway, was undercapitalized, and thus undervalued, because the
substantial real estate liens on their respective homes prevented them from obtaining
financing. The Weedlings eventually sold the business to Lawrence McEnroe, who
testified at trial that the company would have been worth an additional $400,000 to
$600,000 had it not been undercapitalized. However, as PNC points out, although the
mortgage documents stated that there was a $2,000,000 lien on Robert and Lynne’s
residence and a $300,000 lien on James and Donna’s residence, the Amended Plan clearly
reduced those amounts to $130,000 total. The Amended Plan trumped the face amount of
the mortgages and any creditor would know that the Weedlings’ obligation to PNC was
only $130,000. Finally, when one financial institution, Ambassador Bank, was willing to
make a loan to the Weedlings for Gateway, Lynne refused to sign a new mortgage on the
joint residence. Therefore, the District Court properly found that any damages that the
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Weedlings suffered on the sale of Gateway were not proximately caused by inactivity, if
there was any, on PNC’s part. We see no error in the District Court’s decision.
III.
PNC argues that it is entitled to its attorneys’ fees pursuant to §506(b) of the
Bankruptcy Code, which provides that:
To the extent that an allowed secured claim is secured by
property the value of which, after any recovery under
subsection (c) of this section, is greater than the amount of
such claim, there shall be allowed to the holder of such claim,
interest on such claim, and any reasonable fees, costs, or
charges provided for under the agreement or State statute
under which such claim arose.
11 U.S.C.A. § 506(b) (West 2006). Bankruptcy courts in the Eastern District of
Pennsylvania applying this section have noted that to fall within this section, the secured
creditor must be (1) oversecured 2 and the charges must be (2) provided for in the
agreement under which such claim arose (here the mortgage documents), (3) reasonable,
and (4) permitted under law. See In re Nunez, 317 B.R. 666, 668 (Bankr. E.D. Pa. 2004).
However, § 506(b) does not apply to fees arising post-confirmation. In Rake v. Wade,
508 U.S. 464, 468 (1993), the Supreme Court stated that § 506(b) “applies only from the
date of filing [of the bankruptcy petition] through the confirmation date [of the Plan].”
2
“An oversecured creditor is a secured creditor whose
collateral is worth more than the amount of the debt to it.” Orix
Credit Alliance, Inc. v. Delta Resources, Inc. (In re Delta
Resources, Inc.), 54 F.3d 722, 724 n.1 (11th Cir. 1995).
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The attorneys’ fees at issue here arose in the context of the adversary proceeding that
forms the basis of these appeals. Attorneys’ fees arising post-confirmation are not
governed by §506(b), but rather by the mortgage document itself.
Nevertheless, whether § 506(b) applies is immaterial because the language in the
mortgage documents states that, “[i]n the event that Mortgagee retains an attorney to
institute an action on the said Note/Guarantee or to foreclose on this Mortgage,” then the
Weedlings are required to pay attorneys’ fees. App. at 37a-38a. The mortgagee, PNC,
did not institute this action, nor did it foreclose on the mortgage. The Weedlings
commenced this adversary proceeding. Therefore, regardless of the application of §
506(b), PNC’s claim would fail under the second element of the § 506(b) calculus
because the mortgage document itself prevents collection of attorneys’ fees.
Finally, PNC argues that it is entitled to attorneys’ fees pursuant to the Stipulation
Agreement which the parties entered into in August 2003, after the trial, but before the
Bankruptcy Court issued its decision. The Stipulation Agreement stated, “[b]oth parties
reserve the right to petition for legal fees at the conclusion of this case.” Appellee’s App.
at 2b, ¶ 3. PNC argues that the Bankruptcy Court was required to enforce the terms of the
Stipulation Agreement; according to PNC this means that the Bankruptcy Court was
required to award attorneys’ fees to it. However, PNC never filed a petition for
attorneys’ fees in the Bankruptcy Court and the decision to grant or deny the petition was
solely in the province of that Court. Therefore, the Bankruptcy Court’s November 6,
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2003 Order, finding that “each party shall bear their/its own costs and counsel fees
herein,” App. at 11, was entirely appropriate.
For these reasons the District Court’s judgment will be affirmed.
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