Because the vast majority of the arguments of the Defendants are 1

identical and deal with identical factual circumstances, we consider these

Motions together in this Memorandum.

On December 1, 2006, and March 14, 2007, the parties were ordered to 2

submit supplemental briefs to provide further clarity to the amount and nature

of Plaintiff William Sherlock’s bankruptcy debts around the time the loan at

issue in this case was considered and secured. 

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

WILLIAM F. SHERLOCK and :

PATRICIA A. SHERLOCK, :

:

Plaintiffs, : CIVIL ACTION

:

v. : No. 04-cv-3438

:

ROBERT HERDELIN and :

44 FINANCIAL CORP., :

:

Defendants. :

MEMORANDUM AND ORDER

Joyner, J. March 17, 2008

Presently before the Court are Defendant Robert Herdelin’s

Motion for Summary Judgment as to Counts I and II of Plaintiff’s

Amended Complaint (Doc. No. 38), Defendant 44 Financial’s Motion

for Summary Judgment as to Count III (Doc. No. 41), and all

responses thereto, as well as all supplemental briefing. For 1 2

the reasons set forth below, the Court GRANTS the Motions for

Partial Summary Judgment of both Defendants.

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 1 of 26
For the sake of efficiency, our summary of the facts in this case 3

focuses only on those that are immediately relevant to the Motions before us. 

Where certain portions of the record deserve greater detail, we provide it in

our legal analysis below.

2

BACKGROUND

On April 20, 2000, Plaintiff William Sherlock filed for

bankruptcy under Chapter 11, for purposes that will be explored

more fully below. At that time, Mr. Sherlock owned assets, 3

individually and jointly with his wife, Plaintiff Patricia

Sherlock, valued at $3,529,220.00. Mr. Sherlock also owed debts

in the amount of $3,193,518.00 at that time. On August 25, 2000,

Judge Raymond Lyons of the U.S. Bankruptcy Court, District of New

Jersey entered an Order sua sponte converting Mr. Sherlock’s

individual Chapter 11 bankruptcy to Chapter 7 under the

supervision of Barry Frost, the Chapter 7 trustee. According to

Mr. Sherlock, at that time he was seeking to liquidate his assets

and completely pay off all of his creditors.

Between August, 2000, and April, 2003, the trustee

distributed already-liquid payments and sold numerous assets to

pay off Mr. Sherlock’s various creditors. Among those assets

sold were Mr. Sherlock’s 100% stock ownership of two companies of

which he was a principal - Bi-Tech, Inc., and B-Tech Industries,

Inc. - and the Sherlocks’ primary residence at that time, in

Medford, New Jersey. Upon the sale of the Sherlocks’ Medford

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 2 of 26
A more detailed breakdown of these debts is examined in the Discussion 4

section below.

3

home in June, 2001, the Sherlocks moved to another previouslyowned residence at 106 119th Street, Stone Harbor, New Jersey.

As of April, 2003, Mr. Sherlock still owed approximately

$1,700,000 in Chapter 7 debts, including the $1,200,000 mortgage 4

on the Stone Harbor property. On April 1, 2003, Judge Lyons

entered an Order permitting the trustee to sell the Sherlock’s

residence in Stone Harbor under a structured timeline, and

reserving to the debtor the right to file a motion to refinance

the property to pay a 100% dividend to all remaining creditors. 

Before the property could be sold, however, on April 28, 2003,

one of Mr. Sherlock’s bankruptcy counsel informed the trustee

that Mr. Sherlock was attempting to obtain refinancing for the

Stone Harbor residence to pay off his bankruptcy creditors and

discharge the bankruptcy.

Around that time, the Sherlocks contacted Defendant 44

Financial to assist in arranging financing to refinance the Stone

Harbor mortgage. Bernard McTamney, a representative of 44

Financial, introduced the Sherlocks to Defendant Robert Herdelin,

a private lender. The Sherlocks secured from Mr. Herdelin a

refinancing commitment for the Stone Harbor property in an amount

up to $1,900,000.00. On July 22, 2003, after receiving

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 3 of 26
4

permission from Judge Lyons to proceed with the refinancing,

Plaintiffs received a Mortgage Note from Herdelin in the amount

of $1,789,570.91, to be secured by a mortgage on the Stone Harbor

property and to be repaid within one year. According to Mr.

Sherlock’s deposition testimony, Plaintiffs also prepaid all

interest on the loan at that time.

Alleging that the finance charges for the loan transaction

exceeded $260,000, and that this was an excessive amount, on June

18, 2004, Plaintiffs’ counsel for this action forwarded a letter

to Mr. Herdelin indicating that they wished to rescind the loan

transaction due to TILA disclosure violations. On June 24, 2004,

Mr. Herdelin responded by contending that the loan was a business

transaction, and that therefore neither TILA nor HOEPA applied. 

Thus, Mr. Herdelin refused to release the mortgage lien or refund

any money to the Sherlocks. 

On July 21, 2004, Plaintiffs filed a Complaint, and on

October 6, 2004, filed an Amended Complaint, in this Court

against Defendants Herdelin and 44 Financial, alleging violations

of the Truth in Lending Act (TILA), Home Ownership and Equity

Protection Act (HOEPA), and Real Estate Settlement Procedures Act

(RESPA), as well as several state law claims, including fraud,

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 4 of 26
Count IV of the Amended Complaint also alleged violations of the New 5

Jersey Consumer Fraud Act, N.J.S.A. § 56:8-2, and the New Jersey Licensed

Lenders Act, N.J.S.A. § 17:11C-20. On December 1, 2004, we granted

Defendants’ Motions to Dismiss that Count under F.R.C.P. 12(b)(6). We denied

those Motions, however, as to Counts I (TILA), II (HOEPA), and III (RESPA).

Plaintiffs further allege that after they filed their original 6

complaint, Defendants fraudulently attempted to show that they complied with

TILA by producing fake disclosure forms with forged signatures. While this

is, to be sure, a serious charge, it is not relevant to the Motions under

consideration here, which deal only with whether TILA, HOEPA, and RESPA even

applied in the first place.

5

civil conspiracy, and unjust enrichment. To briefly summarize 5

those Counts, Plaintiffs allege that when they obtained the loan

from Mr. Herdelin (hereinafter “the loan” or 

“the Herdelin loan”), he did not provide the Truth-in-Lending

Disclosure Statement and/or Notice of Right to Cancel, as

required by TILA. Thus, Plaintiffs claim that they were entitled

under that statute to rescind the loan transaction and seek to

recover both statutory damages and all paid finance charges,

pursuant to TILA, 15 U.S.C. §§ 1640(a)(2)(A)(iii), 1640(a)(3),

and 1640(a)(4), and HOEPA, 15 U.S.C. § 1635(b). Plaintiffs

further claim that 44 Financial charged an excessive fee for its

role in the transaction, and that in sharing that fee with

another party, 44 Financial violated certain provisions of RESPA,

12 U.S.C. §§ 2607(a) and 2607(b).6

Both Defendants now move for Summary Judgment as to Counts

I, II, and III of the Amended Complaint, which comprise all

portions of the Amended Complaint that purport to be based on

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 5 of 26
6

federal law. Specifically, Defendants argue that because the

Herdelin loan was taken for primarily business purposes, the

provisions of TILA, HOEPA, and RESPA - which apply only to

“consumer” transactions - do not apply.

STANDARD OF REVIEW

It is recognized that the underlying purpose of summary

judgment is to avoid a pointless trial in cases where it is

unnecessary and would only cause delay and expense. Goodman v.

Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976). Summary

judgment is proper “if there is no genuine issue as to any

material fact and the moving party is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(c). An issue is genuine only

if there is sufficient evidentiary basis on which a reasonable

jury could find for the non-moving party, and a factual dispute

is material only if it might affect the outcome of the suit under

governing law. Kaucher v. County of Bucks, 456 F.3d 418, 423 (3d

Cir. 2006), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986). If the non-moving party bears the burden of

persuasion at trial, “the moving party may meet its burden on

summary judgment by showing that the nonmoving party’s evidence

is insufficient to carry that burden.” Id., quoting Wetzel v.

Tucker, 139 F.3d 380, 383 n. 2 (3d Cir. 1998). In conducting our

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 6 of 26
Plaintiffs claim under HOEPA are also subject to this exemption, as 7

HOEPA is simply an amendment to TILA that heightens the disclosure

requirements for certain types of loans made at higher interest rates or with

7

review, we view the record in the light most favorable to the

non-moving party and draw all reasonable inferences in that

party’s favor. See Nicini v. Morra, 212 F.3d 798, 806 (3d Cir.

2000). However, there must be more than a “mere scintilla” of

evidence in support of the non-moving party’s position to survive

the summary judgment stage. Anderson, 477 U.S. at 252.

DISCUSSION

I. Do TILA and RESPA Apply to the Loan Transaction in Question?

A. Legal Standard for Applicability of TILA and RESPA

The sole legal question before us on Defendants’ Motions for

Summary Judgment is whether the Herdelin loan falls within the

ambit of TILA and RESPA. The Truth-in-Lending Act (TILA) applies

only to “consumer” credit transactions, which the statute defines

as transactions in which “the money, property, or services which

are the subject of the transaction are primarily for personal,

family, or household purposes.” 15 U.S.C. § 1602(h); 12 C.F.R. §

226.2(a). Concomitantly, TILA explicitly provides that it does

not cover “[c]redit transactions involving extensions of credit

primarily for business, commercial, or agricultural purposes.” 

15 U.S.C. § 1603(1). The Real Estate Settlement Procedures Act 7

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 7 of 26
excessive costs or fees. See 15 U.S.C. 1602(aa)(1); see also In re Community

Bank of N. Va., 418 F.3d 277, 304 (3d Cir. 2005). Accordingly, our analysis

under TILA applies equally to both Counts I and II of Plaintiffs’ Amended

Complaint, which put forth TILA and HOEPA claims, respectively.

In fact, the statute directs that in the promulgation of regulations 8

under RESPA, the exemption for extensions of credit made for business or

commercial purposes is to be interpreted in the same way as its sister

provision in the TILA, 15 U.S.C. 1603(1). See 12 U.S.C. 2606(a)(2). As these

provisions of RESPA and TILA are identical, we will treat them together for

purposes of disposing of each Defendant’s Motion for Summary Judgment.

8

(RESPA) has an identical provision, and thus also does not apply

to extensions of credit made “primarily for business” purposes. 

12 U.S.C. 2606(a)(1). Defendants argue that the mortgage given 8

by Herdelin to the Plaintiffs was primarily to pay off Mr.

Sherlock’s business debts, and thus that extension of credit does

not fall within the scope of either TILA or RESPA. As a result,

Defendants contend, they were not required to make the

disclosures mandated by those statutes. 

The plaintiff invoking TILA’s protections bears the burden

of showing that a disputed transaction is “a consumer credit

transaction, not a business transaction.” Katz v. Carte Blanche

Corp., 496 F.2d 747, 751 (3d Cir. 1974); Gombosi v. Carteret

Mortgage Corp., 894 F. Supp. 176, 180 (E.D. Pa. 1995). To

determine whether the purpose for the extension of credit was

consumer- or business-related, and thus whether TILA applies to

it, we examine the transaction as a whole and take into account

“the entire surrounding factual circumstances.” Id. at 180

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 8 of 26
9

(citing Tower v. Moss, 625 F.2d 1161, 1166 (5th Cir. 1980)); see

also Quinn v. A.I. Credit Corp., 615 F. Supp. 151, 154 (E.D. Pa.

1985). If the credit was extended for both personal and business

reasons, that does not automatically bring the transaction within

TILA’s purview. Gombosi, 894 F. Supp. at 180; Quinn, 615 F.

Supp. at 153. Rather, we must determine whether the transaction

was made primarily for “personal, family or household purposes.” 

Id. 

Plaintiffs first argue that the loan given by Herdelin was

taken primarily for personal or family reasons because it was

simply a refinancing of the mortgage on their personal residence. 

However, courts faced with similar arrangements have been

virtually unanimous in finding that the mere fact that the loan

was secured by the family home does not itself bring the

transaction under TILA. See, e.g., Sherrill v. Verde Capital

Corp., 719 F.2d 364, 367 (5th Cir. 1983)(TILA inapplicable to

loan, secured by plaintiff’s home, intended to raise working

capital for individual’s business raising horses); Poe v. First

Nat’l Bank of DeKalb County, 597 F.2d 895, 896 (5th Cir.

1979)(TILA inapplicable to business loan secured by husband and

wife’s personal property); Gombosi, 894 F. Supp. at 180

(refinanced mortgage not subject to TILA because proceeds went

primarily to individually-owned business); Bokros v. Associates

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 9 of 26
10

Finance, Inc., 607 F. Supp. 869 (N.D. Ill. 1984)(loan secured by

junior mortgage on house not within scope of TILA where slightly

more than half of proceeds were used to buy tractor for debtor’s

business); In re DiPietro, 135 B.R. 773 (Bankr. E.D. Pa. 1992)

(TILA inapplicable to loan that was secured by personal home but

used to finance tailor shop). Rather, the purpose for which the

credit was obtained - not the nature of the collateral used to

get it - is the focus of the TILA exemption inquiry. See

Sherrill, 719 F.2d at 367 (“[T]he purpose of the transaction or

extension of credit is controlling, and not the property on which

a security interest is retained.”). Plaintiffs attempt to get

around this point by arguing plainly that the “purpose” of the

loan transaction was “to refinance Debtor’s residence as well as

some additional personal debts of Plaintiffs.” The mere fact

that the mortgage on the home was refinanced, however, does not

shed light on the actual purpose for which the particular loan at

issue here was obtained from Defendant Herdelin.

Indeed, Plaintiffs’ situation is similar to the one this

Court addressed in Gombosi v. Carteret Mortgage Corp., 894 F.

Supp. at 181. In Gombosi, the plaintiffs had refinanced an

existing residential mortgage with a different lender by

obtaining a loan from the defendant in order to (1) pay off

existing debts and (2) come away with additional proceeds beyond

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 10 of 26
Defendants contend that the property in question was purely a rental 9

property because Plaintiffs had rented it out during the summer months for

several years. However, it appears from the record that Plaintiffs had moved

into the house full-time and it had become established as their permanent

residence well before the loan in question was made. Furthermore, the merely

occasional rentals, while for a substantial amount of money, occurred too

infrequently to transform the property from a second home into a “rental

property.” Nevertheless, whether the residence was purely a “rental property”

11

the value of those debts and the mortgage. Id. Because the

plaintiffs were not asserting that the new loan presented more

favorable terms than the existing mortgage, and because

satisfaction of the existing mortgage was a precondition for the

new loan, the Court focused on how the remaining proceeds of the

new loan were to be used after the pre-existing mortgage was

repaid. Id. In finding that the new loan was primarily for

business purposes, and thus that TILA did not apply, the Court in

Gombosi noted that while a few thousand dollars ultimately went

to the personal expense of school tuition, the rest of the

proceeds went to paying an existing business-related debts and

for future business expenses. Id.

B. Primary Purpose of the Herdelin Loan

Plaintiffs’ situation here is very similar to the one

addressed in Gombosi; the Plaintiffs essentially replaced their

existing mortgage with one from Defendant Herdelin that provided

extra proceeds for paying off existing debts and gave further

cash for other expenses. And, as in Gombosi, Plaintiffs here do 9

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 11 of 26
or a home for personal use does not matter for our purposes, as Gombosi makes

clear that a loan secured by personal property can still be “primarily for

business purposes” under TILA.

 Plaintiffs appear to agree with this approach, as they acknowledged 10

in their first supplemental brief that the satisfaction of the ESB mortgage

should be deducted from our investigation of the Plaintiffs’ debts. (P. Supp.

I, p. 1).

12

not assert that they took the loan in question to improve the

terms of their loan on their house; indeed, Mr. Sherlock’s own

attorney advised against undergoing the transaction because of

the substantial risks involved. So, like the Court in Gombosi,

we find that the Sherlocks refinanced their old mortgage not

primarily for their own personal purposes, but to use the

proceeds for paying off existing debts. Thus, we too “find that

the disposition of those remaining proceeds must weigh heavily in

determining the primary purpose” of the loan, id. at 181, and

thus we must examine how those proceeds of the loan were intended

to be used.10

There is no dispute that the majority of the remaining

proceeds were to be used to pay off Mr. Sherlock’s remaining

Chapter 7 debts; indeed, this was an express condition of the

loan from Mr. Herdelin, presumably to ensure that he would have a

priority claim to the property that provided security for the

loan. Indeed, Mr. Sherlock acknowledged that paying off

bankruptcy creditors was his primary reason for seeking to

refinance his mortgage with the Herdelin loan, and his bankruptcy

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 12 of 26
13

attorney, Allen Etish, noted that the “refinance transaction” was

a “method of resolving this bankruptcy.” Thus, to determine the

primary purpose of obtaining the Herdelin loan, we must examine

the nature of the debts which were to be paid off. See Gombosi,

894 F. Supp. at 181.

Specifically, in April, 2003, when Plaintiffs first

approached the Defendants about the loan in question, $570,879.40

was still owed in bankruptcy debts, after the deduction of the

ESB mortgage. These debts can be separated into three

categories: (1)pre-bankruptcy debts incurred as a result of Mr.

Sherlock’s business activities; (2) pre-bankruptcy debts incurred

as a result of personal expenditures; and (3) costs and fees

related to the administration and disposition of the bankruptcy

itself. Since we must examine the totality of the circumstances

surrounding the loan, see id. at 180; Quinn, 615 F. Supp. at 154,

we also consider Mr. Sherlock’s stated purposes for obtaining

this particular loan from Herdelin, rather than from another

lender. After examining the nature of each remaining bankruptcy

debt at the time of the Herdelin loan and the other surrounding

factual circumstances, we find that the Herdelin loan had a

primarily business purpose.

1. Debts related to, or arising out of, Mr. Sherlock’s

business dealings

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 13 of 26
14

Plaintiffs acknowledge that several of the bankruptcy claims

filed against Mr. Sherlock are appropriately characterized as

business debts. First, among the other bankruptcy debts still

outstanding in April, 2003, Mr. Sherlock owed $120,142.03 to the

Internal Revenue Service (Bankruptcy claim number 19) and

$13,233.00 to the State of New Jersey Division of Taxation (claim

nos. 20-22) in taxes and civil penalties on his businesses, BiTech, Inc. and Bi-Tech Industries, Inc. Plaintiffs admit that

these taxes and penalties, which were filed as claims against Mr.

Sherlock personally but levied on his businesses, are “business

debts” for TILA purposes. Second, Plaintiffs also admit that a

bankruptcy claim submitted by Harriet’s Oil Service for $1000.00

is properly characterized as a “business debt.” This debt stems

from work done by Harriet’s Oil Service for Mr. Sherlock’s

business, Bi-Tech, Inc. Third, attorney Mark Kancher - whom Mr.

Sherlock explained in his deposition was his “business attorney”

- filed a claim in the amount of $23,908.75 (claim no. 3). Mr.

Kancher’s affidavit indicates - and Plaintiffs do not dispute -

that of this claim, approximately one-third was related to work

done for Mr. and Mrs. Sherlock’s personal assets, and two-thirds

stemmed from work done for Mr. Sherlock’s business assets and

efforts to purchase a machine shop for his businesses. Thus,

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 14 of 26
15

$15,939.17 of Mr. Kancher’s claim (two-thirds of the total) is

properly characterized as a business debt; the remainder,

$7,969.58, is more appropriately characterized as a personal

debt, and will be placed in that category.

The parties disagree, however, about whether two other

bankruptcy claims filed against Mr. Sherlock should be classified

as business debts. Specifically, at the time he sought the loan

from Mr. Herdelin, Mr. Sherlock still had two judgment liens

against him that resulted from lawsuits by Charles Grady (claim

no. 8) and Bridgeton Meat Corporation (claim no. 9). The Grady

claim originally stemmed from an agreement between Mr. Sherlock

and Mr. Grady, a former business partner of Sherlock’s, to sell

all of Grady’s ownership interests in Bi-Tech Manufacturing, Inc.

to Sherlock. When Mr. Sherlock refused to pay Grady after

learning that Grady may have defrauded the company during his

time there, Grady filed a breach of contract suit to force

performance of the agreement. Judgment was entered in favor of

Grady against Mr. Sherlock personally for $75,000.00 plus

interest, and Grady eventually filed his bankruptcy claim in the

amount of $80,235.45. The Bridgeton claim stemmed from a

$250,000.00 loan given to Mr. Sherlock personally that was

secured by a second mortgage on an investment property owned by

the Sherlocks in Mount Laurel, New Jersey. When Mr. Sherlock

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 15 of 26
16

filed for bankruptcy, Bridgeton filed a complaint in the Superior

Court of New Jersey against the Sherlocks, Bi-Tech Corporation,

and Bi-Tech, Inc., and secured a default judgment against Mrs.

Sherlock for $302,412.34. After various actions in bankruptcy

including a reduction in the amount owed and an offset by the

sale of the property, at the time the Sherlocks were considering

the Herdelin loan, Bridgeton was still owed $53,671.44.

Plaintiffs argue that because the judgments were entered

against Mr. and Mrs. Sherlock personally, the bankruptcy debts

based on those judgments should be classified as primarily

“personal.” Plaintiffs further contend that the proceeds of the

Bridgeton Meat loan were deposited in Mr. Sherlock’s personal

account and some of the proceeds used for personal expenditures,

and that this also supports classifying that debt as “personal”

in nature. We disagree with all of these arguments. As we have

already noted, the courts that have considered the threshold

question of whether a loan has a “primarily business purpose”

have looked not at the status of the debtor, creditor, or

collateral used, but rather at the ultimate purpose for which the

funds were used. Whether a judgment is obtained against an

individual personally or against the corporation of which he is a

100% owner makes no difference in this inquiry. Instead, we must

examine how the funds were used or intended to be used, and the

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 16 of 26
17

circumstances surrounding the transaction in question, to

determine whether its purpose was primarily business or primarily

personal. With this in mind, we find that the Grady claim is

unquestionably business-related. The judgment in question came

from an action between two parties in their roles as

businesspeople who had a dispute over a sale of stock of a

corporation. Plaintiffs do not even suggest how such a

transaction could have a “personal, family, or household”

purpose. Furthermore, Mr. Sherlock explicitly stated in his

deposition that the Grady claim was business-related:

Q: Charles Grady, was that related to your business?

A: Yeah, sure it was.

(W. Sherlock Dep., Mar. 28, 2005, at 36). As the Grady loan was

clearly business-related, it is appropriate characterized as a

business debt, and thus had a business purpose under TILA.

Similarly, Mr. Sherlock also stated in his deposition that,

although the loan proceeds were given to him personally, the

Bridgeton Meat loan was business-related:

Q: Bridgeton Meats, is that related to your business,

Bi-Tech?

A: Yeah, it was.

Q: So they were a commercial creditor?

A: Well, he lent my business $250,000.00 and I signed

personally but he lent the business $250,000.00.

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 17 of 26
18

( Id.). This testimony is consistent with Bridgeton Meat’s state

court complaint, in which it described its action against the

Sherlocks and the Bi-Tech companies as one “for collection of

debt and breach of commercial loan and stock/profit sharing.” 

(Def. Herdelin Supp. Brief I, Ex. 2). In the face of this clear

testimony, Plaintiffs’ vague assertion that the funds were used

for personal expenses is not sufficient to bestow “personal”

status on this debt. The vast majority of the checks written

from the account containing these funds, as they appear in the

record, are made out to businesses and individuals whose

identities the Plaintiffs do not explain. We also note that

Plaintiffs have not explained why, if these funds were to be used

primarily for “personal” purposes, several of the checks were

made out to Bi-Tech and Bi-Tech Corporation. Even under the

favorable summary judgment standard, Plaintiffs have not met

their burden in showing the Bridgeton Meat loan to have a

“primarily personal, family, or household” purpose, and thus we

must characterize it as a business debt.

In sum, the bankruptcy debts clearly falling under the

category of business debts total $284,221.09.

2. Debts related to personal, family, or household

expenditures of Mr. and Mrs. Sherlock

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 18 of 26
It does not appear from the record that the Borough of Stone Harbor 11

submitted a bankruptcy claim for the unpaid real estate taxes. However, as

there is sufficient evidence to show that this debt had in fact been accrued

before the Herdelin loan was made, we place under the umbrella of all of

Plaintiffs’ debts.

19

Of the remaining unpaid bankruptcy claims at the time of the

Herdelin loan, we can characterize two as “personal.” First, the

accounting firm Alloy, Silverstein, Shapiro, Adams, Mulford & Co.

had filed a bankruptcy claim against Mr. Sherlock for an unpaid

balance of $2,322.00 (claim no. 2). Plaintiffs submitted

evidence showing that the unpaid charges were primarily related

to services performed in the filing of the Sherlocks’ individual

federal income tax returns in 1997 and 1998. Second, at the time

of the Herdelin loan the Plaintiffs owed unpaid property taxes on

their Stone Harbor, New Jersey home. It is unclear from the

record exactly how much was owed, but Plaintiffs submitted

canceled checks showing that shortly after the loan proceeds were

distributed, two payments were made to the Borough of Stone

Harbor totaling $61,934.18. We accept that for the purposes of

our TILA threshold inquiry, this amount is what was owed at the

time the loan was made. Finally, we add the portion of Mr. 11

Kancher’s attorney fees for personal services rendered to Mrs.

Sherlock, which are equal to $7,969.58 (one-third of the total

$23,908.75). Accordingly, the sum of the debts falling under the

category of personal debts is $72,225.76.

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 19 of 26
These amounts were later specified by Bankruptcy Judge Lyons to be 12

$78,481.00 in legal fees, $1,796.46 in expenses, and $52,449.89 in Mr. Frost’s

commissions. However, as we explain below, the exact amount of any debt

related to the bankruptcy itself is irrelevant for our inquiry.

20

3. Debts arising out of Mr. Sherlock’s Chapter 7

bankruptcy proceedings

The remainder of the bankruptcy claims against Mr. Sherlock

appear to be related to the administration and disposition of the

Mr. Sherlock’s individual bankruptcy estate. At the time the

Herdelin loan was taken, Barry Frost, the Chapter 7 trustee, and

his firm, Teich, Groh, Frost and Zindler, were owed approximately

$80,000.00 in trustee legal fees and roughly $65,000.00 in

commissions. The United States Trustee for the District of New 12

Jersey also filed a claim in the bankruptcy case for $500.00,

reflecting administrative expenses. Finally, the law firm of

Kenney & Kearney LLP, which represented Mr. Sherlock for purposes

of his bankruptcy filings, received $86,932.55 at the time of the

Herdelin loan for those bankruptcy-related services.

Though Plaintiffs urge that these debts should be

characterized as “personal” debts because they related to the

“personal” bankruptcy proceedings of Mr. Sherlock, we find that

they should not receive any weight in our determination of

whether the outstanding debts were primarily personal or business

in nature. These costs would have been incurred regardless of

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 20 of 26
We are further persuaded to this conclusion by Mr. Sherlock’s 13

statements about the reasons he entered bankruptcy in the first place. In his

March 28, 2005, deposition, Mr. Sherlock explained that his business, Bi-Tech,

was not failing and that that was not the reason for filing for Chapter 11

(later converted to Chapter 7) bankruptcy. Rather, he stated, “I had another

business in Texas, in Dallas, I was doing pretty well with the business down

there and basically just need[ed] time to develop a war chest of capital and

so bankruptcy gave me an automatic stay to do that.” W. Sherlock Dep., March

28, 2005, at 33. In the absence of any evidence from Plaintiffs to the

contrary, this also weighs in favor of finding that the refinancing was

intended to pay the debts of a bankruptcy stemming from business motivations.

Mr. Sherlock’s testimony in this regard also demonstrates why focusing

on the status of the debtor does not aid the TILA exemption inquiry, as in

this case the line between corporation and individual was extremely blurred. 

In his deposition, the following line of questioning was particularly

illuminating of this situation:

Q: What was the difference in your mind by filing a Chapter 11 in

your own name as opposed to one of the corporate names?

A: Because I owned the assets. I had the real estate buildings. 

21

the purpose for the bankruptcy and thus do not shed any light on

whether the Herdelin mortgage’s purpose of paying off bankruptcy

debts was primarily business- or personal-related. See Gombosi,

894 F. Supp. at 181 (refusing to consider costs of refinancing

mortgage because those costs would have been incurred regardless

of the purpose of those proceedings).

Since we will not consider the bankruptcy-related debts in

our inquiry about the status of the bankruptcy debts, we compare

only those categorized as “business” debts with those categorized

as “personal” debts. The remaining business debts, which total

$284,221.09, clearly outnumber the remaining personal debts,

which total $72,225.76. This comparison weighs in favor of

finding that the Herdelin loan was taken primarily for businessrelated purposes. See Bokros, 607 F. Supp. at 872 (“If 13

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 21 of 26
I had 100 percent of the stock of the corporations, so I wanted to

reorganize my positions.

W. Sherlock Dep., March 28, 2005, at 11. Thus, yet again we must reject

Plaintiffs arguments that a loan to pay off bankruptcy debts had a personal

purpose merely because it was the individual, rather than the corporation,

that declared bankruptcy.

22

‘primarily’ is to have any substantive content (as it must) . . .

it must refer to the use of more than half the funds.”).

4. Stated Reasons for Obtaining the Loan from Herdelin

Also weighing heavily in our determination that the Herdelin

loan was taken primarily for business purposes are the deposition

statements made by Mr. Sherlock about the reasons he chose

Herdelin as a creditor. Mr. Sherlock stated in his deposition

that, at the time the Herdelin loan became an option for him, he

had already secured an alternative commitment from Immigrant Bank

to provide funds, in the form of a mortgage refinancing, to pay

off his bankruptcy debts. (W. Sherlock Dep., March 31, 2005, at

92). He explained, however, that he did not consider it an

optimal solution because Immigrant Bank would only provide just

enough funds to pay off his existing debts, and nothing beyond

that. (Id.). The reason for that was that he “wanted to get so

much cash out for business opportunities and expenses going

forward.” (Id.). 

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 22 of 26
23

Thus, Mr. Sherlock stated that he was directed to Defendant

44 Financial to seek out alternative financing arrangements. 

When asked how he came to learn about 44 Financial, Mr. Sherlock

explained that he believed he became aware of them through

Commerce Bank which, he noted, “had various people they

recommended for business loans.” (Id. at 83). Mr. Sherlock

elaborated on this by explaining why the bank would refer outside

lending agencies like 44 Financial for business loans in

particular:

Q: Any particular reason -- why business loans or was it

just business loans that –

A: Well, sometimes you try to raise money for business

opportunities, and often the bank likes historical data,

meaning corporate returns and things of that nature. So

when you talk to your friend at the bank, they say these

kind of people might take a little more risk, that they’re

not governed by the same rules that we are as a major bank.

(Id.) Mr. Sherlock then stated that he believes he got in

contact with 44 Financial through his “business attorney, Mark

Kancher.” (Id.) 44 Financial then connected him to Mr.

Herdelin, a private lender who was willing to provide terms of

financing with Mr. Sherlock that were closer to what he was

looking for. In fact, Mr. Sherlock had stated earlier in his

testimony that although the Immigrant Bank deal would have

allowed him to pay off all his creditors, at closing with Mr.

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 23 of 26
 Though Plaintiffs contend that their arguments about the primary 14

purpose of the loan create an issue for the trier of fact, we may properly

resolve the issue as a legal matter here. “Where the relevant facts are not

in dispute, the court may decide the TILA exemption question as a matter of

law.” Gombosi, 894 F. Supp. at 182; Bokros, 607 F. Supp. at 872. Although

the parties here dispute the primary purpose of the Herdelin loan, the facts

24

Herdelin he sought $50,000 “cash out,” which would enable him to

“go forward” in a way that the Immigrant loan would not. (Id. at

50).

Mr. Sherlock’s testimony clearly indicates that in taking

the Herdelin loan over the Immigrant Bank loan, one of Mr.

Sherlock’s goals was to have a source of funds for business

endeavors going forward after paying off his bankruptcy debts. 

This weighs in favor of a finding that the Herdelin loan was a

transaction primarily for business purposes, and Plaintiffs have

not provided evidence to rebut such an inference.

C. Conclusion

It is clear from the evidence in the record that Plaintiffs’

primary purpose in obtaining the loan at issue from Mr. Herdelin

was to pay off various business-related debts and to obtain cash

for ongoing business endeavors. Plaintiffs have failed to carry

their burden of providing any evidence to rebut this, and have

further failed their positive burden of providing evidence to

support a finding that the Herdelin loan was taken primarily for

personal purposes. Instead, Plaintiffs incorrectly focus on 14

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 24 of 26
relevant to determining that purpose are not in dispute.

We reiterate that TILA, HOEPA (which is essentially just an amendment 15

to TILA) and RESPA all include the same threshold “business purpose”

exemption, and thus our analysis applies equally to claims brought under all

three statutes.

25

the status of the individual taking the loan or the collateral

providing security for the loan, rather than on the ultimate

reason for acquiring the funds from that transaction. In fact,

they have provided virtually no argument as to what “personal,

family or household” use the remaining loan proceeds were to be

put, other than to simply state that they sought to “refinance.” 

Thus, we must conclude that the money received from Herdelin was

not primarily for personal, family, or household purposes, and

thus the loan does not fall within the scope of either TILA or

RESPA. Accordingly, Defendants’ Motions for Partial Summary 15

Judgment as to Counts I, II and III of Plaintiffs’ Amended

Complaint are GRANTED.

An order follows.

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 25 of 26
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

WILLIAM F. SHERLOCK and :

PATRICIA A. SHERLOCK, :

:

Plaintiffs, : CIVIL ACTION

:

v. : No. 04-cv-3438

:

ROBERT HERDELIN and :

44 FINANCIAl CORP., :

:

Defendants. :

ORDER

AND NOW, this 17th day of March, 2008, upon consideration

of both Defendants’ Motions for Partial Summary Judgment (Doc.

Nos. 38, 41), all responses thereto, and all subsequent

supplemental briefing, it is hereby ORDERED that the Motions are

GRANTED. Judgment as a matter of law is hereby ENTERED in favor

of Defendants on Plaintiff’s claims under the Truth in Lending

Act (TILA), Home Ownership and Equity Protection Act (HOEPA), and

Real Estate Settlement Procedures Act (RESPA), and Counts I, II,

and III of Plaintiffs’ Amended Complaint (Doc. No. 8) are

DISMISSED. 

BY THE COURT:

s/J. Curtis Joyner 

J. CURTIS JOYNER, J. 

Case 2:04-cv-03438-JCJ Document 58 Filed 03/19/08 Page 26 of 26