Court Opinion

ID: 4224448
Source: CourtListenerOpinion
Date Created: 2017-11-29 19:06:38.494444+00
Date Added: 2024-06-11T14:42:26.679156
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

601 CI-IRISTIANA INVESTORS, LLC, )
by Way of assignment from Wilmington )
Savings Fund Society, FSB,

Plaintiff,
C.A. No. N15J-03882

V.

CHARLES H. GIFFORD, III,

\_/`_’\/\/*'\/VV\/

Defendant.

Submitted: August 9, 2017
Deeided: November 29, 2017

Upon Defendant’s Motion for Relief from the Confessed Judgment

DENIED.

M

William D. Sullivan, Esquire, William A. Hazeltine, Esquire, Elihu E. Allinson,
III, Esquire, Sullivan ~ Hazeltine - Allinson LLC, 901 North Market Street, Suite
1300, Wilmington, DE 19801; Malcolm Gould, Esquire, Silverang, Donohue,
Rosenzweig & Haltzman, LLC, 585 East Lancaster Avenue, Suite 203, St.
David’s, PA 19087, attorneys for 601 Christiana Investors, LLC.

David A. Felice, Esquire, Bailey & Glasser, LLP, Red Clay Center at Little Falls,
2961 Centerville Road, Suite 302, Wilmington, DE 19808, attorney for Charles H.
Gifford, III.

WHARTON, J.

This 29th day of November, 2017, upon consideration of Defendant Charles
H. Gifford’s (“Gifford”) Motion for Relief from the Confessed Judgment
(“Motion”), Plaintiff 601 Christiana Investors, LLC’s (“601 Christiana”) Answer
in Opposition, Gifford’s Reply, oral argument, the unsolicited post-argument
submissions of the parties, and the record in this case, it appears to the Court that:

l. On September 2, 2015, 601 Christiana filed a Rule 58.1 confessed
judgment and the Prothonotary entered a “Tentative Confessed Judgment” against
Gifford as one of f1ve co-guarantors of a loan obtained by Peninsula Compost
Company, LLC from Wilmington Savings Fund Society FSB and assigned to 601
Christiana in the principal amount of $4,85 8,238.99.1 On October 5, 2015 , Gifford
objected to the entry of judgment by confession and requested that a hearing be
scheduled.2 After motion practice, limited discovery and pre-hearing briefing, a
hearing Was conducted on February 22, 2016 before a commissioner of this court.3
At that hearing, the commissioner resolved the two issues contested by the parties
in favor of 601 Christiana, ruling that 601 Christiana did have standing to bring

this action, and that Gifford knowingly, voluntarily and intelligently Waived his

 

lD.I. l.
2 D.I. 5.
3 D.I. 45.

rights in connection With the confession of judgment4 The commissioner entered
a form of order submitted by 601 Christiana on February 25, 2016.

2. On March 8, 2016, Gifford submitted a Motion for Reconsideration of
Commissioner’s Order Pursuant to Superior Court Civil Rule 132(a)(3)(ii).5 The
single argument presented in the Motion Was that the commissioner exceeded his
authority by entering a case-dispositive order instead of submitting proposed
findings of fact and recommendations for disposition to a judge. On July 12, 2016,
this Court entered an Order denying the motion.6

3. Gifford appealed to the Delaware Supreme Court. That Court affirmed
this Court’s Order on March 27, 2017.7 On appeal, Gifford raised two arguments
for the first time Which the Supreme Court determined Were Waived on appeal
because they had not been fairly presented to this Court: 1) that he Was unaware of
and did not consent to certain final loan modifications thereby releasing him from
his guaranty and voiding the confession of judgment; and 2) that 601 Christiana
lacked standing to confess judgment because of an invalid assignment under

Delaware suretyship law.8

 

4 D.I. 47.

5 D.I. 48.

6 D.I. 58.

7 Gifford v. 601 Chrz`stiana Investors, LLC, 2017 WL 1134769 (Del. 2017).
8licl'. at *4.

3

4. Gifford brings this motion under Superior Court Civil Rule 60(b).9 In
the Motion, he notes that, as a general proposition, the party seeking relief under
Rule 60 must establish that; 1) it acted in a reasonably prudent fashion; 2) there is
the possibility of a meritorious defense; and 3) there is a lack of substantial prejudice
to the non-moving party.10 The thrust of Gifford’s argument is that he has a
meritorious defense Which ought to be litigated on the merits. The basis of that
defense is his claim that, as guarantor of the confessed debt, he should be released
from his obligations under a guaranty he executed because there Were material
alterations to the guaranty about Which he did not know and to Which he did not
consent. Secondarily, he argues that he acted reasonably because the limited nature
of the Rule 58.1 inquiry excuses his neglect for not pursuing the material
modification in the earlier litigation. Relatedly, he claims that 601 Christiana
Withheld the relevant documents evidencing the material modifications until just
prior to the Rule 58.1 hearing, thereby constituting misconduct on its part sufficient
to Warrant vacating the confessed judgment Finally, Gifford argues that 601
Christiana Would suffer no prejudice should the judgment be vacated because, if 601
Christiana prevailed at trial, it Would be made Whole by the imposition of pre-

judgment interest.

 

9 D.I. 66.
10 Id. at 6-7; citing PNC Bank v. Sz`lls, 2006 WL 3587247 (Del. Super.) at *5.

4

5. 601 Christiana responds contesting Gifford’s arguments11
Specifically, 601 Christiana argues that Gifford has no possibly meritorious defense
because he contractually agreed that any extension, modification, renewal or change
to the loan documents would not affect his liability as a guarantor. Further the effects
of the documents Gifford claims materially altered his guaranty obligation were not
detrimental to him. Finally, 601 Christiana states that Gifford failed to raise his
excusable neglect and misrepresentation arguments in a timely manner, and when
he did raise them, he misstated the facts.

6. The Court turns first to Gifford’s claim that there is the possibility of a
meritorious defense. It seems obvious that, if there is no possibility of Gifford
presenting a meritorious defense on the merits, there is no point in vacating the
judgement. Gifford was one of five guarantors of a business loan extended by WSFS
to Peninsula Compost Company, LLC (“Peninsula”) on April 9, 2009 in the original
principal amount of $5.5 million to fund a large-scale composting business in
Wilmington. Other guarantors were Nelson Widell, Peninsula Compost Group,
LLC, and two businesses operated by Brian DiSabatino and E. Andrew DiSabatino,
Jr. Those businesses were EDiS Development Group V, LLC and Crystal Holdings,
Inc. Other documents were executed by the parties, including a Business Loan

Agreement and a Guaranty Agreement. Under the terms of the Guaranty Agreement,

 

11D.I. 70.

the guarantors agreed that they were jointly and severally liable for the amount due
under the loan.

7. Gifford identifies the Fourth Note and Loan Modification Agreement,
effective December 31, 2013 and the Fifth Note and Loan Agreement, effective
November 30, 2014 as critical to his purported meritorious defense. Gifford claims
he was unaware of either modification12 He says that the Fourth Modification
purported to waive certain financial covenants thereby increasing the risk of the
loan.13 As to the Fifth Modification, Gifford claims that in addition to waiving
certain financial covenants, the modification accelerated the maturity date of the note
by more than a year, from August 1, 2016 to June 30, 2015.14 On October 20, 2014,
between the dates of the Fourth and Fifth Modifications, the Delaware Department
of Natural Resources and Environmental Control (“DNREC”) ordered Peninsula to
cease accepting any material at its facility immediately and to begin closing the
business consistent with state mandated procedures.15

8. In response 601 Christiana argues that Gifford agreed under the
Guaranty that the underlying loan documents could be modified without his consent

and without affecting his responsibility as a guarantor.16 Further, both modifications

 

12D.I. 66 at 3-5.
13Id. at 3.

14Id. at 4.

15 Ia'.

16D.I. 70 at ll-12.

actually waived particular defaults under the Loan Documents - defaults that would
have required Gifford to pay the full amount of his guaranty obligation
immediately17 Specifically, 601 Christiana contends that the modifications did not
change the amount of Gifford’s debt, or effect any other substantial change.18
Instead, the modifications acted to Gifford’s benefit because the borrower -

Peninsula - was already in default, and the modifications waived that default.19

Finally, the acceleration of the maturity date did nothing to change the amount of
the debt or Gifford’s exposure because the loan was already in default.20

9. The Court has carefully reviewed the Guaranty and the Fourth and Fifth
Modifications and agrees with 601 Christiana. Section 2(a) of the Guaranty contains

the following language:

Guarantor agrees that any extension, modification,
renewal, or change in the Note (including, without
limitation, an increase or decrease in the interest rate), or
in any other of the Loan Documents by Lender or any
other subsequent holder of the Note by agreement with the
Borrower, or in the Loan Documents by the holder or
beneficiary thereof by agreement with the other party or
parties thereto, shall not in any manner affect or impair this
Guaranty.21

Gifford’s response is unpersuasive He argues that the language of § 2(a) does not

 

17 D.I. 70 at 3.

18Ia'. at 14-16.

19Ia’.

2°Ia'. at 15.

led. at Ex. 3, § 2(a).

explicitly address accelerating the maturity date, nor would any prudent guarantor
guaranty a loan where the lender could unilaterally accelerate the maturity date
without the guarantor’s consent.22 What a prudent guarantor would or would not
do is not the issue before the Court. Rather, the broad language of the Guaranty
that the “Guarantor agrees that M. . . modification, . .or Mg§ in the Note
(including, without limitation, an increase or decrease in the interest rate)”
(emphasis added)23 is before the Court. Certainly an acceleration of the maturity
date is a modification or change in the Note. An explicit expression that the
guarantor agreed that the guaranty included his consent to an acceleration of the
maturity date is unnecessary to bring such consent within the terms of the
Guaranty. For that reason, the Court finds that Gifford gave prior consent to the
acceleration of the maturity date of the Note. Further, it is important to consider
the circumstances that existed at the time the maturity date was accelerated by the
Fifth Modification. Peninsula had been in default prior to both the Fourth and
Fifth Modifications. Between the Fourth and Fifth Modifications, Peninsula was
effectively put out of business, and put in default of the loan, When DNREC
ordered it to cease accepting new material and to begin shutting down its

operations At that point, it appears that Peninsula was without any realistic

 

22 D.i. 74 at 6-8.
23 D.i. 70 at EX. 3, § 2(a).

expectation of meeting its financial obligations. Gifford’s guaranty could have
been triggered then. Since the loan was already in default and Gifford was at risk
at any time, a more realistic way to look at the change in the maturity date is that
the Fifth Modification merely postponed the inevitable day of reckoning by an
additional seven months. lt did not increase Gifford’s financial exposure.
Accordingly, the Court finds that the change in the maturity date did not materially
alter Gifford’s risk. Similarly, Gifford gave his prior consent to the other
modifications in the Fourth and Fifth Note and Loan Modification Agreements.
None of those modifications materially altered Gifford’s risk and, therefore,
Gifford’s objections to those modifications are without merit.

10. Despite having determined that Gifford lacks a potentially meritorious
defense, the Court will address Gifford’s argument that he acted with reasonable
diligence after learning of the loan modifications and their significance, and that
his conduct was that of a reasonably prudent person under the circumstances, so
that any neglect on his part was excusable.24 Related to this argument is Gifford’s
contention that 601 Christiana withheld the Fourth and Fifth Modifications until
just prior to the February 22, 2016 hearing before the commissioner.25 The Court

disagrees Contra Gifford, it appears that Gifford received the Fourth Modification

 

24D.I. 66 at l2-l3.
2“Id. at 13-14.

on March 13, 201426 and his counsel received both the Fourth and Fifth
Modifications on December 2, 2015.27 As far as the Court can tell, Gifford never
raised an issue concerning these modifications until the matter was on appeal to the
Delaware Supreme Court. The Court thinks that a reasonably prudent person in
Gifford’s circumstances as a guarantor of a multimillion dollar loan, where he was
jointly and severally liable as guarantor, and where the borrower was in default
with no real prospect of escaping default, would be fully engaged in asserting
whatever legitimate rights he might have. It appears that Gifford either was not
that reasonably prudent person, or had no legitimate rights to protect. To the
extent Gifford was neglectful, the Court finds that his neglect is not excused.

11. Lastly, Gifford argues that 601 Christiana would suffer no harm
should his motion be granted and a trial on the merits held. Obviously, this factor
is of vanishing importance given that Gifford has no possibly meritorious defense
and his failure to pursue what he claims to be a meritorious defense sooner was not

the result of excusable neglect.

 

26D.I. 70 at EX. 11.
27Ia'. at Ex. 13.

10

Therefore, Defendant Charles H. Gifford, III’s Motion for Motion for Relief

from Confessed Judgment is DENIED.

iT Is so oRDEREi). 4

W

Fe_ri'is W. Wharion, J.
b

 

11