Presidential Bank, Fsb v. 1733 27th Street Se LLC

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
PRESIDENTIAL BANK, FSB, :
:
Plaintiff & Counter-Defendant, : Civil Action No.: 16-2412 (RC)
:
v. : Re Document No.: 66
:
1733 27TH STREET SE LLC, et al., :
:
Defendants & Counter-Claimants. :
MEMORANDUM OPINION
GRANTING PLAINTIFF & COUNTER-DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
Plaintiff Presidential Bank, FSB and Defendants Kevin Green and six LLCs he owns
(“Defendants”) have been involved in a lending dispute now spanning over a decade. Between
2006 and 2010, Presidential Bank made several loans to Defendants secured by D.C. real
property owned by Defendants. After Defendants repeatedly defaulted on those loans, the
parties entered into, inter alia, a loan modification agreement in 2014 and then a forbearance
agreement in 2015. The forbearance agreement contained several financial conditions in
exchange for Presidential Bank forbearing on collection of the debt, including a lockbox
provision requiring that rental revenue from the collateral properties be deposited in an account
under Presidential Bank’s control, to be disbursed by the bank according to a specific order of
priorities. The agreement also contained a confession of judgment clause.
After Defendants defaulted on the forbearance agreement, Presidential Bank accelerated
the debt and sued Defendants in Maryland state court, relying on the confession of judgment
clause. Presidential Bank also sued Defendants for conversion in D.C. Superior Court, alleging
that they had failed to comply with the lockbox agreement and had retained rental proceeds for
themselves. Defendants aggressively contested the D.C. Superior Court suit, first removing it to
this Court and then raising no less than twelve affirmative defenses and bringing nine
counterclaims. The Court dismissed all but three of the counterclaims, and, after Presidential
Bank fully and finally prevailed in the Maryland state court case, granted Presidential Bank
summary judgment on all but one of Defendants’ affirmative defenses.
Presidential Bank now moves for summary judgment on Defendants’ three remaining
counterclaims, for retaliation in violation of the Equal Credit Opportunity Act (“ECOA”), 15
U.S.C. §§ 1691–1691f, breach of contract, and tortious interference with contract. Presidential
Bank argues that two of the claims are barred by res judicata and that all three claims separately
fail as a matter of law. While appearing to concede much of Presidential Bank’s arguments,
Defendants oppose the motion, contending that it is unclear whether they were truly in default
when the bank sued to enforce the forbearance agreement. The Court finds that argument
meritless and is satisfied that Presidential Bank has shown its entitlement to summary judgment.
The Court therefore grants the motion for summary judgment in its entirety.
II. BACKGROUND
The Court has already set out the underlying facts of this case in detail in its prior
opinions. See Presidential Bank, FSB v. 1733 27th Street SE LLC (“Presidential Bank II”), 318
F. Supp. 3d 61, 67–69 (D.D.C. 2018); Presidential Bank, FSB v. 1733 27th Street SE LLC
(“Presidential Bank I”), 271 F. Supp. 3d 163, 165–66 (D.D.C. 2017). It assumes familiarity with
those prior opinions and only summarizes the facts most relevant to the present motion.
A. The Initial Loans and 2015 Forbearance Agreement
Between 2006 and 2010, Presidential Bank entered into seven loan agreements with the
six LLCs controlled by Green named as defendants in this case. See Presidential Bank II, 318 F.
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Supp. 3d at 67; Compl. ¶ 5, ECF No. 1-1; Countercl. ¶¶ 15–22, ECF No. 12. Each agreement
was secured by a deed of trust, with real estate property controlled by the LLCs serving as
collateral on each of the loans. See Presidential Bank II, 318 F. Supp. 3d at 67; Compl. ¶ 5;
Countercl. ¶¶ 15–22. Defendants defaulted on the loans in 2014 and the parties engaged in a
“global loan modification agreement” on October 17, 2014. See Compl. ¶¶ 6–9; Countercl.
¶¶ 28–29. One condition of the loan modification agreement was that Defendants deposit all
rental income from the collateral properties in separate accounts at Presidential Bank, to serve as
additional collateral for the loans. See Compl. ¶ 9; Countercl. ¶ 29. Defendants were allowed to
withdraw from those accounts only “those usual and customary funds necessary to carry out
[their] day-to-day business operations.” Global Loan Modification Agreement 5, Pl.’s Mem.
Supp. Mot. Summ. J. Ex. 2, ECF No. 66-2. The agreement required Defendants to bring all
loans current by January 15, 2015. Id.
But Defendants defaulted on the loan modification agreement as well. See Green Dep.
78:13–79:5, Mar. 30, 2018, Defs.’ Opp’n Mot. Summ. J. Ex. 2, ECF No. 66-1. Rather than
foreclosing on the properties, Presidential Bank agreed to enter into a forbearance agreement
with Defendants. See id. 79:6–14; Forbearance Agreement 1, Pl.’s Mem. Supp. Ex. 3, ECF No.
66-3. The forbearance agreement included a number of conditions in exchange for Presidential
Bank delaying collecting on the debt until April 1, 2017. See Forbearance Agreement 5–10.
Amongst others, the forbearance agreement included an “Account and Lockbox Agreement” (the
“lockbox agreement”), which provided not only that Defendants would continue to deposit rental
income in separate accounts controlled by Presidential Bank, but also that Defendants would not
be able to withdraw such funds from the accounts for any reason. See id. at 5–6. Instead, the
bank itself would disburse money from the accounts according to an order of priority agreed to
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by the parties, with the important caveat that the bank was entitled to use the entire balance of
each account to pay for the loans or to protect its interests in the collateral properties if
Defendants defaulted under the forbearance agreement. See id. at 6. The forbearance agreement
also included a confession of judgment clause, which provided for Defendants’ confession of
judgment in the event of default as to “the amount of the unpaid principal balance . . . together
with any accrued and unpaid interest, late charges and attorneys’ fees and costs incurred by the
lender, together with all other costs and expenses incurred or accrued and unpaid under th[e]
agreement.” Id. at 9. Finally, the forbearance agreement required that Defendants bring each
loan current by December 31, 2015. Id. at 7.
B. Defendants’ Default Under the Forbearance Agreement and the Maryland Litigation
Defendants never brought the loans current. See Green Dep. 89:9–90:1. By May 2016,
the loans were approaching 90 days behind payment. See id. 98:19–99:1. On May 1, 2016,
Green filed a complaint about Presidential Bank with the Department of the Treasury’s Office of
the Comptroller of the Currency (“OCC”). See id. 116:5–7. OCC sent a letter to Green
acknowledging the complaint on May 11, 2016, see id. 116:18–117:6, and the Bank first became
aware of the complaint at some point later in the month, see Giraldi Aff. ¶ 2, Pl.’s Mem. Supp.
Ex. 6, ECF No. 66-6; Green Dep. 117:14–16. At the end of the month, Green began contacting
tenants of the collateral properties to ask them to no longer pay rent in the accounts identified in
the lockbox agreement, and instead to begin making rental payments in accounts he controlled.
See Green Dep. 34:6–35:9; 100:6–16.
The same month, Presidential Bank began preparing to foreclose on the collateral
properties. The bank engaged the services of a law firm on May 4, 2016 “in connection with the
bank’s rights and remedies related to Kevin Green and his affiliated entities.” Miles &
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Stockbridge P.C. Engagement Letter, Pl.’s Mem. Supp. Ex. 7, ECF No. 66-7; see also Giraldi
Aff. ¶ 3. On June 16, 2016, the bank filed a complaint for entry of judgment by confession in the
Circuit Court of Montgomery County, Maryland. See Green v. Presidential Bank, FSB, No.
2092, Sept. Term, 2016, 2018 WL 904445, at *1–2 (Md. Ct. Spec. App. Feb. 14, 2019)
(unreported). The circuit court entered confessed judgment in Presidential Bank’s favor, in the
amount of $3,314,295.63, on June 27, 2016. See id. at *2. On September 19, 2016, Defendants
moved to vacate the judgment, “arguing primarily that judgments by confession are disfavored in
Maryland, and [that] the circuit court lacked personal jurisdiction over them.” Id. The circuit
court denied Defendants’ motion on November 10, 2016, see id., and the Maryland Court of
Special Appeals affirmed in an unpublished opinion on February 14, 2018, see id. at *5.
C. Procedural History
In parallel with the Maryland state action, Presidential Bank began the instant action in
D.C. Superior Court on July 18, 2016. See Compl. Alleging that Defendants had “absconded
with th[e] funds” they were supposed to deposit in Presidential Bank accounts pursuant to the
lockbox agreement, id. ¶ 22, Presidential Bank brought claims for conversion and for the
appointment of a receiver, id. ¶¶ 37–65. Defendants removed the case to this Court, see Defs.’
Notice of Removal, ECF No. 1, and filed an answer and counterclaim on February 3, 2017, see
Countercl. Defendants asserted twelve affirmative defenses and brought nine claims in their
counterclaim, including that Presidential Bank had retaliated against them for contacting the
OCC by initiating foreclosure, in violation of the ECOA; had breached the forbearance
agreement; and had tortiously interfered with Defendants’ contractual rights by terminating
third-party contracts Defendants had been engaged in with multiple vendors. See generally id.
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On September 22, 2017, this Court dismissed all claims in the counterclaim with the
exception of the ECOA retaliation, breach of contract, and tortious interference claims. See
Presidential Bank I, 271 F. Supp. 3d at 164. On July 9, 2018, it granted Presidential Bank
summary judgment on eleven of the twelve affirmative defenses on res judicata grounds, based
on the preclusive effect of the Maryland confessed judgment. See Presidential Bank II, 318 F.
Supp. 3d at 66–67. After the parties engaged in discovery, Presidential Bank moved for
summary judgment on Defendants’ remaining counterclaims on December 13, 2018. See Pl.’s
Mem. Supp. Defendants filed their opposition on January 11, 2019, see Defs.’ Opp’n, and
Presidential Bank filed its reply on January 18, 2019, see Pl.’s Reply Supp. Summ. J., ECF No.
69. On August 13, 2019, Presidential Bank filed a supplemental memorandum in support of its
motion. See Pl.’s Supp. Mem., ECF No. 71. Defendants filed their response on August 27,
2019. See Defs.’ Resp. Supp. Mem., ECF No. 72. The motion is now ripe for consideration.
III. LEGAL STANDARD
Under Federal Rule of Procedure 56, a court may grant summary judgment when “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 “material” fact is one capable of
affecting the substantive outcome of the litigation. See Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). A dispute is “genuine” if there is enough evidence for a reasonable jury to
return a verdict for the non-movant. See Scott v. Harris, 550 U.S. 372, 380 (2007). The movant
bears the initial burden of identifying portions of the record that demonstrate the absence of any
genuine issue of material fact. See Fed. R. Civ. P. 56(c)(1); Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). In response, the non-movant must point to specific facts in the record that
reveal a genuine issue that is suitable for trial. See Celotex, 477 U.S. at 324.
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In considering a motion for summary judgment, a court must “eschew making credibility
determinations or weighing the evidence[,]” Czekalski v. Peters, 475 F.3d 360, 363 (D.C. Cir.
2007), and all underlying facts and inferences must be analyzed in the light most favorable to the
non-movant, see Anderson, 477 U.S. at 255. Conclusory assertions offered without any
evidentiary support do not establish a genuine issue for trial. See Greene v. Dalton, 164 F.3d
671, 675 (D.C. Cir. 1999). In addition, “a motion for summary judgment may not be granted as
conceded.” United States v. Mohammad, 249 F. Supp. 3d 450, 456 (D.D.C. 2017) (citing
Winston & Strawn, LLP v. McLean, 843 F.3d 503, 509 (D.C. Cir. 2016)); United States v.
Alrasheedi, 953 F. Supp. 2d 112, 113 (D.D.C. 2013)). Instead, the court “may assume
uncontested facts as admitted and then ‘enter summary judgment . . . if, after fully considering
the merits of the motion, it finds that it is warranted.” Id. at 456–57 (quoting Winston & Strawn,
843 F.3d at 507–08).
IV. ANALYSIS
Presidential Bank moves for summary judgment on Defendants’ remaining three
counterclaims. The bank contends that Defendants’ retaliation and breach of contract claims are
barred by res judicata, as well as that each claim fails on the law. See Pl.’s Mem. Supp. 8–17. In
their opposition, Defendants do not address the breach of contract claim, and raise a single
argument as to the two other claims, that the loans may not actually have been in default at the
time Presidential Bank exercised its rights under the forbearance agreement. See Defs.’ Opp’n
6–10. The Court addresses each claim in turn. Because it finds Defendants’ argument meritless,
and because Presidential Bank has otherwise shown that it is entitled to summary judgment, the
Court grants the motion as to all three claims.
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A. Presidential Bank Did Not Retaliate Against Defendants Under the ECOA
Presidential Bank moves for summary judgment on Defendants’ ECOA retaliation claim
on two grounds. First, Presidential Bank argues that the claim fails as a matter of law because
the bank started its preparations to foreclose on the collateral properties before becoming aware
of the OCC complaint, and because the bank had a legitimate, non-retaliatory reason for doing
so—Defendants’ default. See Pl.’s Mem. Supp. 8–11. Second, Presidential Bank contends that
the claim is barred by res judicata because it could have been raised in the Maryland state court
litigation. See id. at 11–14. Because the Court agrees as to the first argument, it does not
address the preclusive effect of the Maryland confessed judgment on Defendants’ retaliation
claim. Finding that Presidential Bank has provided a legitimate, non-retaliatory reason for its
actions that Defendants do not meaningfully challenge, the Court grants the motion for summary
judgment as to the ECOA retaliation claim.
As both parties point out in their briefs, courts have typically addressed ECOA
discrimination claims under the framework used in Title VII cases. See, e.g., Williams v.
Vilsack, 620 F. Supp. 2d 40, 47 (D.D.C. 2009); Haynie v. Veneman, 272 F. Supp. 2d 10, 16
(D.D.C. 2003); see also Garcia v. Johanns, 444 F.3d 625, 631–32, 632 n.7 (D.C. Cir. 2006)
(analogizing to Title VII precedent when reviewing ECOA claim and noting that “[o]ther courts
have used Title VII precedent in cases involving ECOA”). Under the familiar McDonnell
Douglas burden-shifting framework used to evaluate Title VII discrimination claims, the plaintiff
bears the initial burden of establishing his prima facie case. See Wiley v. Glassman, 511 F.3d
151, 155 (D.C. Cir. 2007). The burden then “shifts to the defendant to articulate some
legitimate, non[retaliatory] reason for the [action in question].” Id. (quoting Tex. Dep’t of Cmty.
Affairs v. Burdine, 450 U.S. 248, 253 (1981)). And if the defendant is able to articulate such a
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reason, the burden shifts back to the plaintiff to show “that the legitimate reasons offered by the
defendant were not its true reasons, but were a pretext for [retaliation].” Id. (quoting Tex. Dep’t
of Cmty. Affairs, 450 U.S. at 253).
In order to establish a prima facie case of retaliation under the standard set in Title VII
cases, a claimant “must show ‘that (1) [it] engaged in statutorily protected activity; (2) [the
lender] took an adverse . . . action against [it]; and (3) a causal connection exists between the
two.’” Norris v. Wash. Metro. Area Transit Auth., 342 F. Supp. 3d 97, 119 (D.D.C. 2018)
(quoting Carney v. American Univ., 151 F.3d 1090, 1095) (D.C. Cir. 1998)). Once the defendant
has articulated a legitimate, non-retaliatory reason for the adverse action at issue, however, “the
D.C. Circuit has emphasized that the inquiry into the prima facie case becomes ‘an unnecessary
and improper sideshow.’” Id. at 109 (quoting Jones v. Bernanke, 557 F.3d 670, 678 (D.C. Cir.
2009)). Instead, courts “must resolve one central question: Has the [borrower] produced
sufficient evidence for a reasonable jury to find that the [lender]’s asserted non-[retaliatory]
reason was not the actual reason and that the [lender] intentionally [retali]ated against the
[borrower] . . . ?” Id. (quoting Brady v. Office of Sergeant at Arms, 520 F.3d 490, 494 (D.C. Cir.
2008)).
Here, Presidential Bank argues that Defendants have not met their prima facie case
because the Bank made the decision to exercise its remedies under the forbearance agreement
before it became aware of the OCC complaint, as illustrated by the fact that the bank retained a
law firm in connection with its relationship to Defendants on May 4, 2016. See Pl.’s Mem.
Supp. 8–9. Presidential Bank also argues that it is uncontested Defendants were in default at the
time the bank exercised its remedies under the forbearance agreement, which is a legitimate,
nonretaliatory reason that defeats Defendants’ claim. See id. at 9–11. Defendants retort that
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Presidential Bank’s hiring of a law firm could be consistent with the asserted default being a
pretext for retaliation, and that it is possible Defendants were not actually in default in May
2016. See Defs.’ Opp’n 6–9. The Court is unconvinced.
First, the Court finds that Presidential Bank has met its burden of articulating a
legitimate, nonretaliatory reason for the exercise of its remedies under the forbearance
agreement: Defendants were in default under the agreement, which allowed the bank to foreclose
and collect on the debt. As Presidential Bank points out, Green repeatedly admitted during his
deposition that the loans at issue were all in default at the time the Bank began exercising its
remedies in May 2016. See, e.g., Green Dep. 89:9–90:1 (noting that Defendants never brought
the loans current after December 2015); id. at 166:7–9 (noting that the loans had been in default
for around two years as of May 2016). Defendants contend that it is possible they were not truly
in default at the time, based on a single e-mail from 2012 where an employee of Presidential
Bank noted that the bank had established reserve accounts where it deposited $100 monthly from
the rent of each apartment in Defendants’ collateral properties. See Defs.’ Opp’n 3–4, 8–9; May
1, 2012 Hughlett E-mail, Defs.’ Opp’n Ex. 6, ECF No. 68-6.
According to Defendants, it is possible that Presidential Bank kept accumulating $100
per month, per apartment in reserve accounts between 2012 and 2016, and that at the time of the
alleged default in May 2016 those accounts contained enough money to pay off any arrears in the
loans. See id. at 8–9. But Defendants do not provide any evidence to support the argument that
the reserve accounts had a sufficient balance to pay off the loans as of 2016. And not only is
their speculation contradicted by Green’s deposition testimony that the loans had been in default
for around two years as of May 2016, but it is also contradicted by the text of both the loan
modification and the forbearance agreement, in which Defendants admitted that the loans were
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already in default as of, respectively, 2014 and 2015. As Presidential Bank points out,
“unsubstantiated speculation does not create a genuine issue of material fact.” Pl.’s Reply 4
(citing Mokhtar v. Kerry, 83 F. Supp. 3d 49, 61 (D.D.C. 2015)). Defendants had ample time
during discovery to pursue this claim but failed to uncover any evidence supporting this theory.
With Defendants providing no actual evidence to challenge the fact that their loans were in
default as of May 2016, the Court finds that the bank has articulated a legitimate, nonretaliatory
reason for its decision to foreclose and collect on Defendants’ debt.
Next, the Court also finds that Defendants do not sufficiently challenge Presidential
Bank’s asserted legitimate, non-retaliatory reason to survive summary judgment. With
Presidential Bank articulating a legitimate, nonretaliatory reason for exercising its rights under
the forbearance agreement, the Court must resolve the central question of whether Defendants
“produced sufficient evidence for a reasonable jury to find that [Presidential Bank’s] asserted
non-[retali]atory reason was not the actual reason and that the [Bank] intentionally [retaliated]
against [Defendants].” Norris, 342 F. Supp. 3d at 39 (quoting Brady, 520 F.3d at 494).
Defendants summarily contend that the default was a pretext for Presidential Bank to retaliate
against them, see Defs.’ Opp’n 8, but they do not provide any evidence of pretext to support that
argument.
Neither does the temporal proximity between the filing of the OCC complaint and
Presidential Bank’s decision to exercise its remedies under the forbearance agreement, which
appears to be Defendants’ only evidence to support retaliatory intent, create an inference of
retaliation sufficient to defeat summary judgment. In examining a Title VII retaliatory transfer
claim in Clark County School District v. Breeden, the Supreme Court explained that
“[e]mployers need not suspend previously planned transfers upon discovering that a Title VII
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suit has been filed, and their proceeding along lines previously contemplated, though not yet
definitely determined, is no evidence whatsoever of causality.” 532 U.S. 268, 272 (2001).
Presidential Bank was in exactly such a situation here, having undertaken progressively more
stringent measures to protect its rights pursuant to the lending agreements that ultimately led to
the hiring of counsel. The Bank engaged into a loan modification agreement with Defendants
when they defaulted in 2014, which Defendants failed to comply with. It then agreed to a
forbearance agreement, which Defendants defaulted under as well. With the loans in default for
two years and each successive measure to salvage the lending relationship failing, foreclosure
was the next logical step—particularly after Green directed tenants to stop depositing rental
payments in the accounts identified in the forbearance agreement. This chronology, which
establishes that Presidential Bank was “proceeding along lines previously contemplated,”
Breeden, 532 U.S. at 272, neutralizes any temporal proximity inference of retaliation. With
Presidential Bank’s asserted non-retaliatory reason unchallenged, the Court therefore concludes
that the bank has met its burden under the McDonnell Douglas framework and it grants the
motion for summary judgment as to the ECOA retaliation claim.
B. Defendants’ Breach of Contract Claim Is Barred Under Res Judicata
Next, the Court reviews Presidential Bank’s arguments as to Defendants’ breach of
contract claim. Although Defendants altogether fail to address that claim in their opposition, the
Court does not grant the motion as conceded and it instead “fully consider[s] the merits of the
motion” to determine whether summary judgment is warranted. Mohammad, 249 F. Supp. 3d at
456–57 (quoting Winston & Strawn, 843 F.3d at 507–08). Presidential Bank argues that
summary judgment in its favor is warranted because the claim is barred by res judicata,
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Defendants having failed to raise it in the Maryland state litigation. See Pl.’s Mem. Supp. 14–16.
The Court agrees.
The Court extensively discussed the applicability of res judicata in this case in one of its
prior opinions. See Presidential Bank II, 318 F. Supp. 3d at 70–75. Res judicata is “an
affirmative defense barring the same parties from litigating a second lawsuit on the same claim,
or any other claim arising from the same transaction or series of transactions and that could have
been—but was not—raised in the first suit.” Id. at 70 (quoting Lizzi v. Wash. Metro. Area
Transit Auth., 862 A.2d 1017, 1022 (Md. 2004)). “A federal court must give to a state-court
judgment the same preclusive effect as would be given that judgment under the law of the State
in which the judgment was rendered,” id. at 70 n.1 (quoting Migra v. Warren City Sch. Dist. Bd.
of Educ., 465 U.S. 75, 81, (1984)), and, accordingly, “federal courts must accept the res judicata
rules ‘chosen by the State from which the judgment is taken,’” id. (quoting Marrese v. Am. Acad.
Orthopaedic Surgeons, 470 U.S. 373, 380 (1985)). As the Court noted in its prior opinion, under
Maryland law:
[T]he elements of res judicata, or claim preclusion, are: (1) that the parties in the
present litigation are the same or in privity with the parties to the earlier dispute;
(2) that the claim presented in the current action is identical to the one determined
in the prior adjudication; and, (3) that there has been a final judgment on the
merits.
Id. at 70–71 (quoting Anne Arundel Cty. Bd. of Educ. v. Norville, 887 A.2d 1029, 1037
(Md. 2005).
Here, “the parties are clearly the same” in this lawsuit as in the Maryland suit, id. at 71,
because the same plaintiff and defendants are involved in both suits. And, “under Maryland law,
‘a judgment by confession is entitled to the same faith and credit, as any other judgment’ for res
judicata purposes.” Id. (quoting Schlossberg v. Citizens Bank, 672 A.2d 625, 627 (Md. 1996)).
The only issue is therefore whether Defendants’ breach of contract counterclaim “is identical to
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the one determined in the prior adjudication.” Norville, 887 A.2d at 1037. To make such a
determination, “Maryland courts have traditionally applied the so-called ‘same evidence’ test,”
Snell v. Mayor of Havre de Grace, 837 F.2d 173 (4th Cir. 1988) (citing MPC, Inc. v. Kenny 367
A.2d 486, 489 (Md. 1977)), under which “the second suit is barred if the evidence necessary to
support a verdict for the plaintiff in it would have been sufficient to sustain a judgment for him in
the first suit,” id. (citing Klein v. Whitehead, 389 A.2d 374, 384 (Md. Ct. Spec. App. 1978)).
With respect to the applicability of res judicata to counterclaims, Maryland courts have
explained that “if the original defendant’s permissive counterclaim would ‘nullify’ the prior
judgment or impair the rights the prior judgment create, then claim preclusion bars the
subsequent raising of the counterclaim.” Presidential Bank II, 318 F. Supp. 3d at 75; see, e.g.,
Mostofi v. Midland Funding, LLC, 117 A.3d 639, 644–45 (Md. Ct. Spec. App. 2015) (“When a
party is sued, and that party could bring a permissive counterclaim, he or she is not required to
‘raise or waive’ that counterclaim unless successful prosecution of it would nullify the other
party's claim.”); Rowland v. Harrison, 577 A.2d 51, 55 (relying on the Restatement (Second) of
Judgments § 22, which provides for application of res judicata when “successful prosecution of
the second action would nullify the initial judgment or would impair rights established in the
initial action”).
With these principles in mind, the Court has no trouble concluding that Defendants’
breach of contract counterclaim is barred by res judicata. The counterclaim alleges that
Presidential Bank obtained sufficient funds from the collateral properties’ rents collected under
the lockbox agreement to pay for the loans, but chose not to, presumably breaching the lockbox
agreement. See Countercl. ¶¶ 62–63. According to Defendants, this failure to pay the loans with
lockbox account funds means that Presidential Bank breached the forbearance agreement when it
14
placed them in default, because Defendants “could have met the forbearance loan conditions if
Presidential Bank did not control their funds and prevent [them] from meeting the forbearance
loan conditions.” Id. ¶ 65. Such a claim clearly could have been raised as a defense to the
original confessed judgment action, because it relates directly to who bears responsibility for the
breach of contract the action was based on. And Defendants’ success on that claim in this case
would necessarily impair rights established in the Maryland state suit, because it would mean
that the default the confessed judgment was obtained on in that suit was improper. Accordingly,
the Court grants Presidential Bank’s motion for summary judgment as to the breach of contract
claim.
C. Presidential Bank Did Not Tortiously Interfere With Defendants’ Contractual Rights
Finally, the Court reviews the parties’ arguments as to Defendants’ tortious interference
with contractual rights counterclaim. In their counterclaim, Defendants allege that Presidential
Bank intentionally interfered with a property management contract they had with East Coast
Development (“ECD”) by “ordering [Defendants] not to fulfill its property management contract
with [ECD],” id. ¶ 106, as well as interfered with other contracts with third parties by refusing to
pay for those contracts, id. ¶ 103. Presidential Bank argues that all it did was to exercise control
over the funds placed in accounts at the bank under the terms of the lockbox agreement, and that
it was not required to pay for any of Defendants’ third-party agreements under the terms of the
lockbox agreement because Defendants were in default. Pl.’s Mem. Supp. 16–17. The Court
agrees, and it accordingly grants Presidential Bank summary judgment as to the tortious
interference claim. 1
1
As with the ECOA retaliation claim, Defendants make the argument in their opposition
that Presidential Bank’s conduct may have been unlawful because it is possible Defendants were
not in default at the time the bank began exercising its remedies under the forbearance
15
Under D.C. law, “[t]o make out a prima facie case of intentional interference with
contractual or business relations, [the plaintiff] must prove: ‘(1) existence of a valid contractual
or other business relationship; (2) the defendant's knowledge of the relationship; (3) intentional
interference with that relationship by the defendant; and (4) resulting damages.’” Armstrong v.
Thompson, 80 A.3d 177, 190 (D.C. 2013) (quoting Onyeoziri v. Spivok, 44 A.3d 279, 286 (D.C.
2012)). “[A] defendant may avoid liability if [it] can demonstrate that [its] conduct was ‘legally
justified or privileged,’” id. (quoting Onyeoziri, 44 A.3d at 286), but “the burden is on the
defendant to prove that [its] interference was not wrongful, not on the plaintiff to prove that it
was,” id. (citing NCRIC, Inc. v. Columbia Hosp. for Women Med. Ctr., Inc., 957 A.2d 890, 901
(D.C. 2008)). In other words, “when the defendant can establish that [its] conduct was ‘legally
justified or privileged,’ no cause of action exists.” Id. (quoting Murray v. Wells Fargo Home
Mortg., 953 A.2d 308, 326 (D.C. 2008)).
Here, the Court finds that Presidential Bank has conclusively shown that any interference
it created with Defendants’ third-party contracts by failing to pay for those contracts was legally
justified. Presidential Bank argues that, under the lockbox agreement, it did not have to use the
rents deposited in accounts associated with each collateral property to pay for any of the
expenses related to the properties if the loans were in default. Pl.’s Mem. Supp. 16; see also
Forbearance Agreement 6. Instead, in the event of default, the forbearance agreement authorized
Presidential Bank to apply such rents in its discretion towards the balance of the loans “as
necessary to preserve, protect and defend [its] interest in the Collateral Properties.” Forbearance
Agreement 6. As a result, Presidential Bank contends, because Defendants never brought the
agreement. See Defs.’ Opp’n 9–10. For the reasons described above in Part IV.A., the Court
rejects that argument.
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loans current, it never had any obligation to pay expenses associated with the properties, and it
acted lawfully to the extent it failed to do so.
The Court agrees. As discussed above, a tortious interference claim fails when the
defendant can establish that the challenged conduct was justified by law. See Armstrong, 80
A.3d at 190. Here, it is undisputed that Defendants’ loans were continuously in default from
2015 onwards. See Green Dep. 89:9–90:1. The forbearance agreement thus allowed Presidential
Bank to apply the rental payments deposited by Defendants to the balance of the loans, or as
otherwise necessary to protect its interest in the properties. See Forbearance Agreement 6. And
in response to an order from this Court, Presidential Bank provided evidence indicating that it
did just that, supplying the Court with account statements for each of the lockbox agreement
accounts as well as a supplemental affidavit attesting that amounts were withdrawn from those
accounts by the Bank only as it was legally entitled to under the agreement. See Account
Statements, Pl.’s Suppl. Mem. Exs. 12–17, ECF Nos. 71-12 to 1-17; Suppl. Giraldi Aff. ¶ 8, Pl.’s
Suppl. Mem. Ex. 10, ECF No. 71-10 (“[T]he only amounts Presidential Bank ever disbursed to
third parties were for the payment of loans, taxes, insurance or utilities.”).
To say the least, Defendants’ response to Presidential Bank’s supplemental memorandum
is not a model of clarity. See generally Defs.’ Resp. Pl.’s Suppl. Mem. As far as the Court can
gather, Defendants appear to be arguing that Presidential Bank cannot demonstrate that it acted
legally because, even with the additional evidence the Bank presented, there remains a “litany of
factual disputes.” Id. at 13. The Court cannot agree. Defendants represent that Presidential
Bank “has not by way of any sworn affidavit, account statement, or deposition testimony
competently demonstrated compliance with . . . the subject Forbearance Agreement.” Id. at 6.
But that is in fact what Presidential Bank has done, providing a supplemental affidavit and
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account statements to support its argument that it complied with the forbearance agreement. See
generally Account Statements, Suppl. Giraldi Aff. Defendants also point to a number of
expenses for “legal charge[s]” in the lockbox accounts that they argue indicate that Presidential
Bank failed to comply with the forbearance agreement, see id. at 8, but all those expenses
occurred after the Bank decided to exercise its rights under the agreement in June 2016, and they
are therefore not improper. Defendants had a full opportunity to take discovery, yet provide no
evidence that any charge, legal or otherwise, is improper. Defendants’ unadorned speculation
cannot defeat summary judgment.
Defendants repeatedly suggest that something else might be amiss in the Bank’s
accounting—be it that the Bank may have maintained money in reserve accounts, id. at 7, failed
to place insurance proceeds it received into one of the accounts, id., or somehow failed to
comply with the forbearance agreement because it included loan histories dating back to before
the agreement was executed as exhibits to its supplemental memorandum, id. at 3. 2 But these
allegations of impropriety do not warrant denying summary judgment here, when Defendants do
not provide any evidence to support them. Accordingly, because Presidential Bank’s decision
not to make any third-party payments provided under the forbearance agreement was legally
justified under the agreement’s terms, and the Bank otherwise complied with the agreement, the
2
Defendants appear to be confusing the loan transaction histories provided by
Presidential Bank with the account statements the Bank provided for each of the lockbox
accounts. Exhibits 2 through 9 in Presidential Bank’s supplemental brief provide “transaction
histories for each of the loans made to the Defendants that are the subject of the 2015
Forbearance Agreement.” Suppl. Giraldi Aff. ¶ 2. And Exhibit 11 provides the “[e]scrow
balance histories” for the collateralized properties. Id. ¶ 5. Given that the loans were made long
before August 2015, it is not surprising that those histories might go beyond that date as well.
By contrast, Presidential Bank only provides account statements for the lockbox accounts dating
back to January 2016 in Exhibits 12 to 17. Id. ¶ 8.
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tortious interference claim fails. The Court grants Presidential Bank’s motion for summary
judgment as to the interference with contract claim.
V. CONCLUSION
For the foregoing reasons, Plaintiff’s motion for summary judgment (ECF No. 66) is
GRANTED. An order consistent with this Memorandum Opinion is separately and
contemporaneously issued.
Dated: August 30, 2019 RUDOLPH CONTRERAS
United States District Judge
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