Opinion ID: 604138
Heading Depth: 2
Heading Rank: 2

Heading: The Merits in Mellon Bank

Text: 19 Because this case is before us on an appeal from a summary judgment, we exercise plenary review, applying the same standard used by the district court. Under Fed.R.Civ.P. 56(c) summary judgment should be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In making this determination, a court must draw all reasonable inferences in favor of the nonmoving party. However, to defeat a motion for summary judgment, a party cannot rest simply on the allegations in the pleadings. Rather, it must rely on affidavits, depositions, answers to interrogatories, or admissions on file. Fed.R.Civ.P. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Quiroga v. Hasbro, Inc., 934 F.2d 497, 500 (3d Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 376, 116 L.Ed.2d 327 (1991). 20 The purchasers maintain that they have met this burden, pointing to the August 12, 1982 Commitment Letter from Mellon to Resort. 7 They maintain that in view of Mellon's powers under this document, they have demonstrated that there is sufficient evidence to allow a reasonable jury to find that Mellon participated in the fraud allegedly perpetrated against them. According to the purchasers, the Commitment Letter established Mellon's control over the entire development and thus its knowledge of the alleged fraud. We disagree, and inasmuch as the purchasers can point to no other evidence to demonstrate Mellon's control or knowledge, Mellon must be regarded as a holder in due course. 21 In the Commitment Letter Mellon stated that to secure the loan, Resort was to give Mellon a mortgage on the property and an assignment of any and all contracts or agreements of Resort to sell the units. According to the Commitment Letter, Resort also was required, inter alia: (1) to deliver to Mellon for its approval on the closing date, the complete plans and specifications for the Improvements, 8 including all working drawings; (2) to give Mellon control over any funds from the purchase contracts; and (3) to deliver the actual purchase contracts for Mellon to hold in escrow. Mellon further had the right to approve any changes in the Improvements. Finally, Mellon was not required to initiate its funding until it had control over the contracts for 60 units. 22 The purchasers explain their position as to Mellon's control in their Mellon Bank brief as follows, The literal language of the working agreement between the developer and [Mellon], and the inferences to be drawn therefrom, establish knowledge on the part of [Mellon] of everything that transpired with respect to the development. Brief at 23. Yet this statement is hardly logical, for it simply does not follow that by reason of a lender's protections and power under its loan agreement, it has knowledge of the tactics used by the borrower's employees to make sales. In fact, the purchasers have not pointed to anything in the Letter which demonstrates that Mellon took control of the Development. The provisions to which they do refer are simply standard security arrangements made by any prudent lender. 23 We are unwilling to hold that merely because a lender requires security and approval of aspects of construction, the lender thereby takes control of the project. To do so would wreak havoc on the lending industry, for any lender who reasonably wished to protect itself would be forced to run the risk of being sued for the unknown fraudulent acts of its borrowers. In Bankers Trust Co. v. Crawford, 781 F.2d 39, 44-45 (3d Cir.1986), we held that under Pennsylvania law a potential holder in due course does not have a duty to inquire into the underlying transaction absent evidence of bad faith. Similarly, here we refuse to believe that the Pennsylvania Supreme Court would require lenders to police the actions of their borrowers in order to avoid liability. 24 In addition, we note that the Commitment Letter, by its terms, covers only the construction of part of Phase I of the Development. The purchasers have not alleged any fraud in the construction of Phase I. Rather, their causes of action stem from the changes to Phase II, which were beyond the scope of the Commitment Letter. 9 25 Finally, we note that the purchasers have challenged the district court's grant of summary judgment on their fraud counterclaims based on Pennsylvania's two-year statute of limitations. We, however, need not address this contention because, as just discussed, the purchasers cannot prove that Mellon defrauded them based on the evidence they submitted to the district court. Accordingly, we do not reach the district court's ruling on the statute of limitations. 10