PNC Bank, National Ass'n v. Orchid Group Investments, LLC
Docket: Case No. 2:13-CV-12-FTM-38CM
Court: District Court, M.D. Florida; August 6, 2014; Federal District Court
Plaintiff PNC Bank filed a Renewed Motion for Final Summary Judgment on June 12, 2014, which the Defendants responded to on various dates, including objections to an affidavit and a request for a separate trial on a crossclaim. The background outlines the original loan agreement from June 21, 2005, between Community Bank of Naples and Defendant Orchid Investments for $3,965,000, secured by a mortgage on two tracts of land. Several guarantors, including Washburn, Arnold, and the Flahartys, signed guarantees for the loan obligations. The original maturity date was extended multiple times, including a significant renewal on August 20, 2007, and subsequent changes in terms following the merger of Community Bank with RBC Bank in April 2008. The loan amount and maturity dates were adjusted through a series of amendments, with the most recent adjustments recorded in 2009.
On October 22, 2010, RBC Bank and Defendant Orchid extended the loan's Maturity Date to December 31, 2010. On January 14, 2011, RBC Bank renewed the loan, and Defendant Orchid executed a Commercial Promissory Note (the “2011 Note”) for $3,730,781.00, which amended and restated the previous 2007 Renewal Note and set a new maturity date of January 31, 2013. Under the 2011 Note, Defendant Orchid was required to make monthly interest payments starting March 1, 2011, with the total amount due at maturity. At the closing, Defendant Orchid paid $250,000 to reduce the principal of the 2007 Note and $200,000 to create an interest reserve.
Additionally, on the same day, Defendant Orchid executed an Amended and Restated Mortgage (the “2011 Mortgage”) recorded on February 24, 2011, which replaced the 2009 Mortgage and changed the mortgaged property to 20 acres in Cape Coral, Florida. To facilitate the 2011 Loan Agreement, each Defendant Guarantor signed separate Single Loan Guaranty Agreements on January 14, 2011. The 2011 Note, Mortgage, and Guaranty Agreements replaced prior loan documents.
RBC Bank merged with Plaintiff on March 2, 2012, with Plaintiff as the surviving entity, thereby acquiring all rights to the 2011 Note, Mortgage, and related documents. Following the merger, Plaintiff took over RBC Bank's records and converted them to a new system.
Defendant Orchid defaulted on the 2011 Note and Mortgage by not making payments due on August 1, 2012. A demand letter was issued on September 20, 2012, but Defendant Orchid failed to rectify the default and has not made payments since July 2012. The Defendant Guarantors also failed to fulfill their obligations under the 2011 Guaranties.
On January 1, 2013, Plaintiff initiated foreclosure proceedings on the 2011 Mortgaged Property. A Verified Amended Complaint for foreclosure and related claims was filed on July 2, 2013, including various counts against all Defendants. Defendants responded timely to the complaint.
On August 15, 2013, the Flaharty Defendants filed cross-claims against Washburn and Arnold for contribution, asserting they would contribute more than their fair share of obligations owed by the borrower, Orchid, to PNC Bank, and that Washburn and Arnold should share in the financial responsibility. Following a motion for summary judgment filed by PNC Bank on December 13, 2013, which the Court denied on February 13, 2014, a pretrial conference led to an extension of discovery and trial timelines. The deadline for this additional discovery has since expired, and PNC Bank has submitted a Renewed Motion for Summary Judgment seeking a foreclosure judgment and damages against all Defendants.
The standard for granting summary judgment requires showing no genuine dispute exists regarding material facts. The moving party must demonstrate the absence of such disputes, after which the burden shifts to the non-moving party to present facts indicating a genuine issue exists. Summary judgment is appropriate if the evidence does not support the non-moving party's claims. To succeed in its foreclosure claim, PNC Bank must establish that it holds and can enforce the 2011 Note and Guaranties, that Defendants are liable on these documents, and the amounts owed. The Court finds no dispute regarding PNC Bank's enforceability of the 2011 Note and Guaranties or the Defendants' liability, concluding that Defendants are liable to PNC Bank on the relevant counts of the complaint.
The principal balance on the 2011 Note remains unpaid, with interest accruing since July 1, 2012. Defendants contest Plaintiff's ability to prove the amounts owed on the 2011 Note, asserting that without admissible evidence, Plaintiff is not entitled to damages in summary judgment. Plaintiff claims that Defendants are jointly and severally liable for $5,010,266.51 related to Defendant Orchid’s loan, supported by the Knaus Affidavit, which includes documents evidencing the loan's payment history from both RBC Bank and Plaintiff. The Flaharty Defendants argue that the Knaus Affidavit does not comply with Rule 56(c)(4) of the Federal Rules of Civil Procedure, which requires affidavits to be based on personal knowledge and contain admissible facts. They also assert that the Knaus Affidavit fails to meet the business records exception under Federal Rule of Evidence 803(6), claiming Knaus lacks the necessary personal knowledge to qualify as a custodian of the records. Hearsay is defined and is generally inadmissible unless it fits an exception, such as business records. For records to be admissible under Rule 803(6), they must meet specific criteria ensuring their reliability, which a trial judge can determine with broad discretion. Although the documents do not require the actual preparer to testify, circumstantial evidence must suggest their trustworthiness.
The admissibility of business records under Federal Rule of Evidence 803(6) does not require the witness to be the recorder or have firsthand knowledge of the creation of those records. A witness must simply authenticate the records and confirm they were made and maintained in the regular course of business. In this case, the Knaus Affidavit is deemed valid as it is based on Knaus’ personal review of the Plaintiffs' business records, satisfying Rule 803(6). The Flaharty Defendants challenge Knaus’ personal knowledge regarding RBC Records since he was never employed by RBC Bank. However, legal precedents from the Eleventh Circuit, including United States v. Parker, support that business records can be authenticated by a witness without direct involvement in their preparation. The Northern District of Alabama has upheld that successor entities can authenticate records from predecessor entities, emphasizing the practical need for such a rule in cases involving mergers or receiverships. Therefore, despite his lack of employment or affiliation with RBC Bank, Knaus is qualified to authenticate the RBC Records under Rule 803(6), as underscored by additional case law affirming the reliability and trustworthiness of the records as the primary concern of the rule.
The Knaus Affidavit indicates that the RBC Records are integral to Plaintiff PNC's loan administration following its merger with RBC, establishing that these records are now part of PNC’s documentation. Knaus, as PNC's vice president, can testify to the RBC Records based on his review since they are included in PNC's records regarding Defendant Orchid’s loan. Citing United States v. Jakobetz, the affidavit's validity is upheld even if the records originated from another entity, as they have been integrated into PNC's business records. The Flaharty Defendants’ cited case, Glarum v. LaSalle Bank N.A., is deemed distinguishable; the affiant there was from an independent servicer and lacked knowledge about the data's accuracy, unlike Knaus, who directly participated in the audit of the RBC records. Knaus confirmed that the records are maintained within PNC’s files and he is familiar with both the data and servicing history. No evidence suggests the RBC Records are untrustworthy, rendering the Flaharty Defendants' objections to the Knaus Affidavit and RBC Records unpersuasive. Furthermore, the Court dismisses the Defendants' challenge to the Plaintiff Records, finding sufficient evidence to support their admissibility under the business records exception to hearsay, as outlined in Federal Rule of Evidence 803(6).
Knaus’ affirmations are based on his personal knowledge and review of Plaintiff Records, including various loan documents executed by Defendants. He indicates that loan administrators report customer payments and transactions into the ACBS system, which automatically tracks account balances and generates servicing history reports that Knaus can access and correct. This establishes Knaus' familiarity with the maintenance of Plaintiff's Records relevant to Defendant Orchid's loan, making them admissible under Federal Rules of Evidence 803(6).
The Flaharty Defendants argue that there are material factual disputes regarding the loan's accuracy, citing Knaus’ deposition where he acknowledged incorrect balances as of January 10, 2014, and noted that a different report was necessary to determine the correct amount due. However, Knaus clarified that the interest rate reflected was the contract rate of 4%, not the default rate of 18%, and he routinely calculates the default interest owed manually after a loan default.
The Defendants do not dispute the unpaid principal and interest owed on the 2011 Note and Guaranties, nor do they claim any payments were misapplied. Thus, Plaintiff is entitled to summary judgment for damages totaling $5,010,266.51, which includes $3,730,780.55 in principal, $1,279,485.96 in interest, prejudgment interest of $1,865.39 per day from June 11, 2014, as well as future costs and fees.
Additionally, the Court clarifies its February 13, 2014 Order, which denied Plaintiff's first motion for summary judgment as premature due to the absence of original promissory notes and necessary certifications. The Court had cited Florida Statute 702.015 in its decision, which applies to cases filed after July 1, 2013; however, Plaintiff initiated this action on January 8, 2013, and submitted an Amended Verified Complaint on July 2, 2013.
The Court determines that Florida Statute 702.015 does not apply to this case, as it was initiated prior to the statute's effective date. The Court acknowledges that 702.015(2) pertains to residential mortgage loans, while the current matter involves commercial loans. It also clarifies that the requirements of 702.015(4) regarding promissory notes are applicable, stating that the plaintiff must certify possession of the original note when filing the foreclosure complaint, including specific details about the note and its verification. This requirement has been longstanding in Florida law, as established in W.H. Downing v. First National Bank of Lake City.
Additionally, the Court addresses the Unopposed Renewed Motion for Separate Trial filed by Plaintiff concerning the Flaharty Defendants' cross-claims against Defendants Washburn and Arnold, which were conceded as premature. The Court concurs that resolution is more suitable for a Florida state court due to the lack of diversity among parties.
In its ruling, the Court grants Plaintiff PNC Bank's Renewed Motion for Summary Judgment, awarding damages of $5,010,266.51 for unpaid principal and interest, alongside prejudgment interest accruing daily from June 11, 2014. The Court orders a foreclosure sale of the property in Cape Coral, Florida, and instructs the parties to file for the appointment of a master for the sale. Additionally, the Clerk is to maintain the three promissory notes submitted by the Plaintiff, and the Flaharty Defendants' Motion to Strike is denied. The motion for a separate trial on the Flaharty Defendants’ cross-claim is deemed moot.
Parties must update the Court on the status of the cross-claims by Defendants Kristen and Patrick Flaharty against Lynne Washburn and John Arnold, Jr. within 30 days following the final judgment. The Flaharty Defendants' Motion in Limine has been denied as moot. The Court adopts the admitted facts from the Amended Joint Final Pretrial Statement, confirming the validity and enforceability of the 2011 Note, Mortgage, and Guaranties, and acknowledging that Plaintiff owns the 2011 Note. Defendant Orchid defaulted on its obligations, resulting in Plaintiff's entitlement to foreclose the 2011 Mortgage. The Guarantors are found to have breached their payment obligations. The Plaintiff has waived any claims for late charges and seeks a post-judgment determination for attorney's fees and costs. The Court finds no material issues of fact that would prevent summary judgment. While Defendants raised concerns about handwritten notes on a bank record, the Plaintiff argues that these are irrelevant since the Defendants agreed to the principal balance when signing the 2011 loan documents. The authenticity of the Knaus Affidavit and accompanying records is not contested by the Flaharty Defendants.
