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Presidential Bank, FSB v. 1733 27th Street SE LLC

United States District Court, District of Columbia

July 9, 2018

PRESIDENTIAL BANK, FSB, Plaintiff & Counter-Defendant,
v.
1733 27TH STREET SE LLC, et al., Defendants & Counter-Claimants.

          MEMORANDUM OPINION GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT; GRANTING PLAINTIFF'S MOTION TO STRIKE JURY DEMAND

          RUDOLPH CONTRERAS, United States District Judge

         I. INTRODUCTION

         This suit arises from a fraught lending relationship between Plaintiff & Counter-Defendant Presidential Bank, FSB (“Presidential”) and Defendants & Counter-Claimants Kevin Green and six LLC that he owns (“Defendants”). Between 2006 and 2010, Presidential made a series of loans to Defendants secured with real property that Defendants owned. Beginning in 2014, Defendants struggled to make payments in compliance with their agreements with Presidential, and ultimately defaulted on their loans. The parties entered into several modifications to the lending agreements. One such modification was a forbearance agreement, whereby Presidential agreed not to collect the money Defendants owed it until April 2017 in exchange for, among other things, receiving significant control over Defendants' rental income. When Defendants defaulted again, Presidential demanded that Defendants pay all of the money they owed under the Forbearance Agreement.

         Presidential pursued two avenues of relief against Defendants: first, it filed a claim for a confessed judgment in Maryland state court, and second, it filed suit in D.C. Superior Court for conversion of the funds it should have had access to pursuant to a lockbox agreement contained in the Forbearance Agreement. The D.C. suit also sought the appointment of a receiver to operate, manage, and control Defendants' properties. Defendants subsequently removed the case to this Court. Defendants responded to Presidential's claims with twelve affirmative defenses and nine counterclaims against Presidential. Since then, the Circuit Court of Montgomery County, Maryland has entered a confessed judgment against Defendants, and the Maryland Court of Special Appeals has denied Defendants' motion to vacate it for lack of personal jurisdiction. Based on the Court of Special Appeals's ruling, Presidential has moved to strike the jury demand contained in Defendants' Answer and Counterclaim, and for partial summary judgment on eleven of Defendants' twelve affirmative defenses and on its first claim for relief in its counterclaim. For the reasons set forth below, the Court grants both of Presidential's motions.

         II. FACTUAL AND PROCEDURAL BACKGROUND

         Defendants in this suit are six District of Columbia limited liability companies and Kevin Green, the sole management-member of the six LLCs. See Defs.' Affirmative Defenses, Answers & Counter-Claims (“Answer”) at 19-20, ECF No. 12. Between 2006 and 2010, Plaintiff Presidential Bank made several loans to each of the LLCs, secured by deeds of trust and with each Defendant-LLC-owned apartment building serving as collateral on the loans. Compl. ¶¶ 24-34, ECF No. 1-1; see also Compl. ¶ 5. When Defendants defaulted on the loans in 2014, they entered into a “Global Loan Modification Agreement.” Answer at 23; see also Compl. ¶ 9. However, in June 2015, Defendants again defaulted on the Global Loan Modification Agreement when they failed to make each of their loans current by January 15, 2015. Compl. ¶ 11; Answer at 23. To cure this default, Defendants and Presidential entered into a forbearance agreement in August 2015. Defs.' Answer at 25; see also Compl. ¶ 12; Forbearance Agreement, ECF No. 17- 2. Under the terms of the Forbearance Agreement, Presidential agreed to delay collecting the amount due under the loans until April 1, 2017, see Forbearance Agreement at 5, and in exchange, Defendants entered into a contract that contained a confessed judgment provision, a lockbox agreement, and a waiver of the right to a jury trial in any dispute arising out of the Forbearance Agreement or the underlying loans. Answer at 24; Forbearance Agreement at 5, 9. The confessed judgment provision allowed Presidential's attorneys, upon any subsequent default by Defendants, to obtain a judgment in Presidential's favor from the Circuit Court in Montgomery County, Maryland for “the amount of the unpaid principal balance of the notes 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 this agreement.” Forbearance Agreement at 9. Under the lockbox agreement, Defendants agreed to “continue to deposit all deposits in their possession, including but not limited to rents, relating to the Collateral Properties directly into” operating accounts controlled by Presidential. Id. at 5. The lockbox agreement also set the priorities for how those funds would be spent. Id. at 5-6; Answer at 24.

         In May 2016, Defendants defaulted on the Forbearance Agreement. Compl. ¶ 13; Answer at 28-29. Defendants were given until June 6, 2016, to cure their default. Compl. ¶ 14. When Defendants did not cure their default, Presidential declared all of Defendants' debt from the Forbearance Agreement, notes, guaranty, and deeds of trust due. Id. ¶ 15. Around that time, Defendants stopped depositing money into the operating accounts in alleged violation of the lockbox agreement. Compl. ¶ 21.

         Following this deterioration in the lending relationship, Presidential sought the confessed judgment specified in the Forbearance Agreement, and was awarded $3, 314, 295.63 by the Montgomery County Circuit Court on June 27, 2016. See Confessed Judgment, ECF No. 48-3. It also filed suit in D.C. Superior Court on July 18, 2016, seeking damages for conversion of the money it believed Defendants should have still been depositing in the operating account pursuant to the lockbox agreement, as well as the appointment of a receiver. See generally Compl. In December 2016, Defendants removed the case to this Court based on the diversity of citizenship. See Notice of Removal, ECF No. 1. Once the case had been removed, Defendants filed an emergency motion to stay the impending foreclosure sale of its properties or, in the alternative, for a temporary restraining order. See Defs.' Emergency Mot. Stay, ECF No. 8. The Court denied Defendants' motion. See Order, ECF No. 11. Defendants subsequently answered Presidential's complaint with twelve affirmative defenses and nine counterclaims. See generally Answer. Defendants' Answer also requested that the Court “[f]ind the Forbearance Agreement referenced herein unconscionable and void ab initio.” Answer at 47. Defendants informed the Court that following its denial of Defendants' motion to stay, Defendants' properties were sold on January 26, 2017. Id. at 29 These two suits-one in Maryland state court and one in D.C. federal court-proceeded concurrently for more than a year. Following the entry of the confessed judgment, Defendants moved to vacate it, arguing “primarily that judgments by confession are disfavored in Maryland, and [that] the circuit court lacked personal jurisdiction over them because neither Mr. Green nor any of the LLCs had sufficient ties to Montgomery County.” Mot. Strike Ex. 14 (“Md. Op.”) at 3, ECF No. 47-16. The circuit court judge was unpersuaded, given that the confessed judgment provision in the Forbearance Agreement included a forum-selection clause, and declined to vacate the judgment. Id. at 4. He further explained that he “searched in vain for the allegation of a potentially meritorious defense” to the confessed judgment, but “never heard, never read in any of the documents that were submitted, what this meritorious defense to the note might be.” Id.

         Defendants appealed, but the Maryland Court of Special Appeals affirmed the lower court's refusal to vacate the confessed judgment in February 2018. Id. at 10. The Court of Special Appeals highlighted that “absent fraud, duress, or mutual mistake, ‘a party who signs a contract is presumed to have read and understood its terms and . . . the party will be bound by them when that document is executed.'” Id. at 8 (quoting Dashiell v. Meeks, 913 F.2d 10, 20 (Md. 2006)). It explained that “[a]lthough Mr. Green contended, at oral argument, that the forum selection clause was not freely negotiated, he did not make that assertion before the circuit court or in his brief, and he submitted no evidence in support of that claim. Because the contention was not made below, it [wa]s not before [the Court of Special Appeals] for appellate review.” Id. at 8 n.5. All in all, the Court of Special Appeals concluded that “the borrowers are bound [by] the terms of the forbearance agreement, including the clause consenting to personal jurisdiction by the circuit court.” Id. at 10.

         While the Maryland Court of Special Appeals's decision was pending, Defendants' filed a motion to stay these proceedings, which was granted. See Mot. to Stay, ECF No. 36; Minute Order (Aug. 23, 2017). Now that the Court of Special Appeals has affirmed the lower court's ruling and the stay has been lifted, Presidential has moved for summary judgment on eleven of Defendants' twelve affirmative defenses, as well as its first request for relief, on the grounds that these defenses and the request are precluded by the Maryland state court judgment. See Pl.'s Renewed Mot. Partial Summ. J. (“Pl.'s Mot.”), ECF No. 48. It has also moved to strike Defendants' demand for a jury trial in its Answer, arguing that Defendants voluntarily waived that right in the Forbearance Agreement. See Pl.'s Mot. Strike, ECF No. 47. Defendants argue in response that the Maryland court judgment has no preclusive effect on its affirmative defenses or its demand for a jury trial because neither Defendants' arguments in favor of its jury demand nor any of its affirmative defenses “rest on the nexus of unconscionability and ‘confessed judgment.'” Defs.' Mem. Opp'n Pl.'s Renewed Mot. Partial Summ. J. (“Defs.' Opp'n Summ. J.”) at 2, ECF No. 50. Presidential's motions are now ripe for decision.

         III. MOTION FOR PARTIAL SUMMARY JUDGMENT

         Presidential now seeks to avail itself of any preclusive effect its success in obtaining the confessed judgment in Maryland might have on this case. As such, it has filed a motion for summary judgment on eleven of Defendants' twelve affirmative defenses-all but breach of contract-as well as Defendants' request that this Court void the entire Forbearance Agreement, on the theory that Defendants missed their chance to proffer these defenses and this request when they did not raise them in Maryland. For the reasons set forth below, the Court grants Presidential's motion for partial summary judgment.

         A. Legal Standard

         Federal Rule of Civil Procedure 56 provides that a court must 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). “Material” facts are those capable of affecting the substantive outcome of the litigation, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986), and a dispute regarding those facts is “genuine” if there is enough evidence on the record for a reasonable jury to find for the non-movant, Scott v. Harris, 550 U.S. 372, 380 (2007).

         On summary judgment, 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 Fed. R. Civ. P. 56(c)(1); Celotex, 477 U.S. at 324. The purported dispute may not be based on mere allegations-rather, the non-movant must present affirmative evidence demonstrating that there is indeed a genuine dispute. Laningham v. U.S. Navy, 813 F.2d 1236, 1241 (D.C. Cir. 1987). However, all underlying facts and inferences must be analyzed in the light most favorable to the non-movant. See Liberty Lobby, 477 U.S. at 255.

         B. Analysis

         Upon the Maryland Court of Special Appeals's affirmance of the Circuit Court's denial of Defendants' motion to vacate the confessed judgment, Presidential moved for partial summary judgment on eleven of Defendants' twelve affirmative defenses, as well as their first request for relief-that the Court “[f]ind the Forbearance Agreement . . . unconscionable and void ab initio.” Pl.'s Mem. P. & A. Supp. Pl.'s Renewed Mot. Partial Summ. J. (“Pl.'s Mem.”) at 1, ECF No. 48-1. Presidential argues that “Defendants' efforts to challenge the enforceability of the forbearance agreement in this Court ignores the fact that the Montgomery County Circuit Court (the “Circuit Court”) has already held that the forbearance agreement is enforceable, ” thereby precluding Defendants from raising defenses and requests stemming from that contention that could have been raised in the prior proceedings. Id. at 1-2. Defendants respond that “Plaintiff's reasoning is flawed because it ignores the extent to which Defendants' affirmative defenses stand independent of and do not rely on the question of unconscionability as a result of the ‘confessed judgment.'” Defs.' Opp'n Summ. J. at 1. However, Defendants do concede that “should an affirmative defense rest on the nexus of unconscionability and [the] ‘confessed judgment,' that defens[]e should be stricken.” Id. at 2. As explained below, the Court finds that Defendants' first request for relief-that the Forbearance Agreement be found unconscionable and void- is precluded by res judicata. Additionally, the Court finds that all of Defendants' challenged affirmative defenses must also be stricken because they are precluded by the Maryland judgment.

         “The plea of [res judicata] applies, except in special cases, not only to the points upon which the court was required by the parties to form an opinion, and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.” Cromwell v. County of Sac, 94 U.S. 351, 358 (1876). “Res judicata literally means ‘a thing adjudicated,' and generally indicates ‘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.'”[1]Lizzi v. Wash. Metro. Area Transit Auth., 862 A.2d 1017, 1022 (Md. 2004) (quoting Black's Law Dictionary 1336-37 (8th ed. 2004)); see also Alvey v. Alvey, 171 A.2d 92, 94 (Md. 1961) (“The doctrine of res judicata is that a judgment between the same parties and their privies is a final bar to any other suit upon the same cause of action, and is conclusive, not only as to all matters that have been decided in the original suit, but as to all matters which with propriety could have been litigated in the first suit.”); Mackall v. Zayre Corp., 443 A.2d 98, 102 (Md. 1982) (stating that “if a proceeding between parties involves the same cause of action as a previous proceeding between the same parties, the principle of res judicata applies and all matters actually litigated or that could have been litigated are conclusive in the subsequent proceeding”). The doctrine “avoids the expense and vexation attending multiple lawsuits, conserves the judicial ...


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