Court Opinion

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Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-8-2006

In Re: Weedling
Precedential or Non-Precedential: Non-Precedential

Docket No. 04-4198

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Recommended Citation
"In Re: Weedling " (2006). 2006 Decisions. Paper 228.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/228

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                                               NOT PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT

                     No. 04-4198

IN RE: JAMES E. WEEDLING; DONNA M. WEEDLING;
   ROBERT E. WEEDLING; LYNNE K. WEEDLING,
                                    Debtors

  JAMES E. WEEDLING; DONNA M. WEEDLING;
  ROBERT E. WEEDLING; LYNNE K. WEEDLING,
                                Appellants

                          v.

                     PNC BANK

         FREDERIC R. BAKER, ESQUIRE,
                                             Trustee

    On Appeal from the United States District Court
        for the Eastern District of Pennsylvania
             (D.C. Civil No. 03-cv-06721)
       District Judge: Honorable John P. Fullam

                     No. 04-4239

IN RE: JAMES E. WEEDLING; DONNA M. WEEDLING;
   ROBERT E. WEEDLING; LYNNE K. WEEDLING,
                                    Debtors

                     PNC BANK,
                                           Appellant
                                            v.

                  JAMES E. WEEDLING; DONNA M. WEEDLING;
                  ROBERT E. WEEDLING; LYNNE K. WEEDLING,

                          FREDERIC R. BAKER, ESQUIRE,
                                                                Trustee

                    On Appeal from the United States District Court
                        for the Eastern District of Pennsylvania
                             (D.C. Civil No. 03-cv-06722)
                       District Judge: Honorable John P. Fullam

                      Submitted Under Third Circuit LAR 34.1(a)
                                 November 6, 2006

           Before: SLOVITER, CHAGARES and NYGAARD, Circuit Judges

                               (Filed: November 8, 2006)

                                       OPINION

SLOVITER, Circuit Judge.

      Appellants are Robert E. and Lynne K. Weedling (“Robert and Lynne”) and their

son, James E. Weedling, and his wife, Donna M. Weedling (“James and Donna”),

collectively, the “Weedlings.” They appeal the Order of the District Court affirming the

Bankruptcy Court’s finding that the Weedlings were equally at fault in perpetuating the

impasse over payment to PNC Bank, N.A. (“PNC”) under the Amended Plan of

Bankruptcy (the “Amended Plan”). Additionally, the Court also found that PNC was not

                                            2
the proximate cause for any losses that the Weedlings may have suffered on the sale of

their business.1 PNC cross-appeals on the failure to enter judgment for it for attorneys’

fees.

                                              I.

        All of the Weedlings live in Lehigh County. In 1992, Robert, Lynne, and Lehigh

Consolidated Industries, Inc. (“LCI”), which Robert owned and founded, filed for

bankruptcy protection pursuant to Chapter 11 of the Bankruptcy Code. James and Donna

were not parties to the bankruptcy proceeding but rather were guarantors of certain

indebtedness owed by LCI. At the time of filing, PNC was the principal secured creditor

of Robert and Lynne with respect to a $2,000,000 Promissory Note and accompanying

Mortgage on Robert and Lynne’s residence, and of James and Donna with respect to a

$300,000 Promissory Note and accompanying Mortgage on James and Donna’s

residence.

        In February 1993, PNC filed a motion to convert the case from Chapter 11 to

Chapter 7. The parties reached a resolution, which was then implemented in the form of

an Order of the Bankruptcy Court entered August 11, 1993. The Order reduced Robert

and Lynne’s outstanding liability to PNC from $2,000,000, plus interest, costs and

                    1
                     The Weedlings refer to the business as Gateway, see, e.g.,
             Appellant’s Br. at 27, whereas PNC refers to it as Gateco, see, e.g.,
             Appellee’s Br. at 35. Throughout the Opinion we will refer to the
             business as Gateway.

                                              3
attorneys’ fees, and James and Donna’s outstanding liability from $288,736.88, plus

interest, costs, and attorneys’ fees to the aggregate principal amount of $130,000.

       Robert and Lynne filed an Amended Plan that was confirmed by the Bankruptcy

Court in 1996. The Amended Plan gave PNC secured liens on the two properties limited

to the principal sum of $130,000 to be amortized over a twenty-year period. The liens

were to be secured by two new mortgages with the same existing lien priority. The

problem that is the subject of this appeal arose because none of the parties ever executed

new documents, i.e., new mortgage documents and notes, effectuating the provisions of

the Amended Plan.

       In August 1998, Robert and Lynne filed an action in the Court of Common Pleas

of Northampton County, Pennsylvania against PNC to compel PNC to live up to the terms

of the Amended Plan. In May 1999, that court dismissed the Complaint for lack of

jurisdiction. In August 1999, PNC sent notices to the Weedlings informing them of

PNC’s intention to collect the outstanding debt. The Weedlings then filed a motion with

the Bankruptcy Court to reopen the case and commence an adversary proceeding. The

Bankruptcy Court found that “(a) no actions on the part of [PNC] constituted the

proximate cause of any alleged loss to [the Weedlings]; and (b) [the Weedlings] were at

least equally at fault in perpetuating the impasse following entry . . . of [the] Order

confirming . . . [the] Amended Plan on March 26, 1996.” App. at 11a. The parties cross-

appealed to the District Court, which affirmed the order of the Bankruptcy Court. The

                                              4
parties then cross-appealed to this court. We have jurisdiction pursuant to 28 U.S.C. §

158(d) (2000).

                                              II.

       The Weedlings present four arguments on appeal. First, the Weedlings claim that

the District Court erred by finding that they were at least equally at fault in failing to

provide the mortgage documents and pay the note under the Amended Plan. Despite the

approval of the Amended Plan in 1996, the parties quickly thereafter reached an impasse

on the issue of who was responsible for providing the necessary documentation. The

Weedlings aver that they made “extensive efforts, both on their own and through their

legal counsel, to obtain the necessary information from the bank in order to make

payments pursuant to the terms of the Amended Plan.” Appellant’s Br. at 18. They point

to the fact that after the confirmation of the Amended Plan, PNC’s lawyer at the time,

Bruce Grohsgal (“Grohsgal”), wrote a letter to Judge Gardner of the Court of Common

Pleas of Lehigh County informing the latter that the foreclosure matter had settled

“subject to execution of mortgage modification documents restructuring the mortgage.”

App. at 96a.

       The Weedlings rely on two letters in support of their claim. The first, dated May

20, 1996, from Attorney David Eisenberg (“Eisenberg”), the Weedlings’ representative,

to Grohsgal, stated, “[Y]our client has not provided [Robert] with a billing statement for

the mortgage payment . . . . Accordingly [Robert] is unable to pay the mortgage payment

                                               5
because he has no possible way of computing it. Please make certain that regular billings

are made to the Weedlings as interest is adjusted monthly.” App. at 95a. The second,

dated July 9, 1996 from Grohsgal to Michael A. Valerio, Jr., PNC’s representative, states,

“I still need the accrued interest information and the forms of residential note and

mortgage that you desire to utilize for the $130,000 mortgage note secured by [Robert and

Lynne’s] and [James and Donna’s] homes.” App. at 99a.

       The Weedlings’ evidence notwithstanding, the District Court properly concluded

that the parties were equally at fault with respect to the failure to come up with the

necessary documentation to effectuate the Amended Plan. The Amended Plan contained

no provision requiring either party to calculate the amount due and owing on the

$130,000 lien secured by PNC. It only stated, “PNC . . . shall have its secured liens in the

[Weedlings’] properties . . . limited to $130,000. . . . This shall replace all secured liens

of PNC . . . against [Robert and Lynne’s] residence and the residence of James and Donna

. . . ; however, that property shall remain as additional collateral for the obligation to PNC

. . . as modified in the Plan.” App. at 77a. PNC’s attorney, Grohsgal, testified that in his

view, it was the Weedlings’ obligation to prepare the necessary documentation. In

addition, Eisenberg admitted that he had the “necessary legal talent” to prepare the

documentation, but stated that he was not asked to do so. App. at 33a. Lastly, the

Weedlings’ claim that they undertook extensive efforts to contact PNC is belied by the

record.

                                               6
       Second, the Weedlings argue that the District Court should have interpreted the

Amended Plan according to contract principles; PNC agrees. However, treating the

Amended Plan as a contract does not help resolve this dispute – the question is what was

the parties’ objectively-manifested intent with respect to the provision of the necessary

documentation. Because the Amended Plan was silent on that point, treating it as a

contract does not resolve the question of what the parties intended.

       In the alternative, the Weedlings argue that PNC prevented their performance

under the Amended Plan because PNC failed to provide them with the information

necessary to make payments. In support of this argument they cite Liddle v. Scholze, 768
A.2d 1183 (Pa. Super. Ct. 2001). Liddle is inapposite. Liddle paid $48,000 to Scholze

for two breeding emus. Id. at 1184. Because the parties recognized the distinct

possibility of infertility, the contract provided that if the emus did not breed, then Scholze

was to buy the emus from Liddle “for the amount paid in emu chicks from [Scholze’s]

own breeders.” Id. Liddle’s emus produced no chicks. Pursuant to the agreement,

Scholze offered Liddle a dozen chicks for $48,000. Liddle declined the offer, hoping that

the emus would breed the next year – they did not. Liddle then sought return of her

money. Scholze refused. The Court held that “once Scholze offered to fulfill her duties

under [the contract], there was no lack of performance. Conduct of one party that

prevents the other from performing is an excuse for nonperformance. By preventing

Scholze’s performance, Liddle excuse[d] it.” Id. at 1185 (internal citations omitted).

                                              7
Liddle only stands for the proposition that a party cannot prevail for nonperformance if

she alone is responsible for the nonperformance. The Amended Plan is not clear on that

point; therefore, Liddle is not instructive.

       The Weedlings next argue that their nonperformance should be excused due to

frustration of purpose. They cite to Kroblin Refrigerated Xpress, Inc. v. Pitterich, 805
F.2d 96, 102 (3d Cir. 1986) (citing Restatement (Second) of Contracts § 265 (1979)), for

an explanation of frustration of purpose. “Where, after a contract is made, a party’s

principal purpose is substantially frustrated without his fault by the occurrence of an event

the non-occurrence of which was a basic assumption on which the contract was made, his

remaining duties to render performance are discharged, unless the language or the

circumstances indicate the contrary.” Id. Again, the contract in this case, i.e., the

Amended Plan, did not speak to the question of who was responsible for providing the

necessary documentation. As such, the concept of frustration of purpose is not relevant.

In any event, we view the opinions of both the Bankruptcy Court and the District Court as

treating the Amended Plan as a contract.

       Third, the Weedlings contend that in light of the District Court’s finding that the

parties were equally at fault, it was error for the District Court to order that the terms of

the Amended Plan be effectuated. Simply put, the Weedlings argue that they should not

have to pay the full amount that they were obligated to pay under the terms of the

Amended Plan. They cite to Turner v. Mellon Mortgage Co. (In re Turner), 221 B.R. 920

                                               8
(Bankr. M.D. Fl. 1998). Like their other cited cases, Turner provides no support for their

argument. The Turner court held that because the defendant caused the mortgage

payment deficiency, the plaintiff was entitled to recover damages in the amount necessary

to make the account current. Id. at 925-26. In the instant matter, the underlying issue is

which party is responsible for the mortgage payment deficiency. Because the Weedlings

cannot demonstrate that PNC was the responsible party, Turner offers them no help.

       Fourth, the Weedlings challenge the District Court’s finding that no action on the

part of PNC was the proximate cause of loss to the Weedlings. The Weedlings’ claim is

that their business, Gateway, was undercapitalized, and thus undervalued, because the

substantial real estate liens on their respective homes prevented them from obtaining

financing. The Weedlings eventually sold the business to Lawrence McEnroe, who

testified at trial that the company would have been worth an additional $400,000 to

$600,000 had it not been undercapitalized. However, as PNC points out, although the

mortgage documents stated that there was a $2,000,000 lien on Robert and Lynne’s

residence and a $300,000 lien on James and Donna’s residence, the Amended Plan clearly

reduced those amounts to $130,000 total. The Amended Plan trumped the face amount of

the mortgages and any creditor would know that the Weedlings’ obligation to PNC was

only $130,000. Finally, when one financial institution, Ambassador Bank, was willing to

make a loan to the Weedlings for Gateway, Lynne refused to sign a new mortgage on the

joint residence. Therefore, the District Court properly found that any damages that the

                                             9
Weedlings suffered on the sale of Gateway were not proximately caused by inactivity, if

there was any, on PNC’s part. We see no error in the District Court’s decision.

                                             III.

       PNC argues that it is entitled to its attorneys’ fees pursuant to §506(b) of the

Bankruptcy Code, which provides that:

              To the extent that an allowed secured claim is secured by
              property the value of which, after any recovery under
              subsection (c) of this section, is greater than the amount of
              such claim, there shall be allowed to the holder of such claim,
              interest on such claim, and any reasonable fees, costs, or
              charges provided for under the agreement or State statute
              under which such claim arose.

11 U.S.C.A. § 506(b) (West 2006). Bankruptcy courts in the Eastern District of

Pennsylvania applying this section have noted that to fall within this section, the secured

creditor must be (1) oversecured 2 and the charges must be (2) provided for in the

agreement under which such claim arose (here the mortgage documents), (3) reasonable,

and (4) permitted under law. See In re Nunez, 317 B.R. 666, 668 (Bankr. E.D. Pa. 2004).

However, § 506(b) does not apply to fees arising post-confirmation. In Rake v. Wade,

508 U.S. 464, 468 (1993), the Supreme Court stated that § 506(b) “applies only from the

date of filing [of the bankruptcy petition] through the confirmation date [of the Plan].”

                    2
                       “An oversecured creditor is a secured creditor whose
            collateral is worth more than the amount of the debt to it.” Orix
            Credit Alliance, Inc. v. Delta Resources, Inc. (In re Delta
            Resources, Inc.), 54 F.3d 722, 724 n.1 (11th Cir. 1995).

                                             10
The attorneys’ fees at issue here arose in the context of the adversary proceeding that

forms the basis of these appeals. Attorneys’ fees arising post-confirmation are not

governed by §506(b), but rather by the mortgage document itself.

       Nevertheless, whether § 506(b) applies is immaterial because the language in the

mortgage documents states that, “[i]n the event that Mortgagee retains an attorney to

institute an action on the said Note/Guarantee or to foreclose on this Mortgage,” then the

Weedlings are required to pay attorneys’ fees. App. at 37a-38a. The mortgagee, PNC,

did not institute this action, nor did it foreclose on the mortgage. The Weedlings

commenced this adversary proceeding. Therefore, regardless of the application of §

506(b), PNC’s claim would fail under the second element of the § 506(b) calculus

because the mortgage document itself prevents collection of attorneys’ fees.

       Finally, PNC argues that it is entitled to attorneys’ fees pursuant to the Stipulation

Agreement which the parties entered into in August 2003, after the trial, but before the

Bankruptcy Court issued its decision. The Stipulation Agreement stated, “[b]oth parties

reserve the right to petition for legal fees at the conclusion of this case.” Appellee’s App.

at 2b, ¶ 3. PNC argues that the Bankruptcy Court was required to enforce the terms of the

Stipulation Agreement; according to PNC this means that the Bankruptcy Court was

required to award attorneys’ fees to it. However, PNC never filed a petition for

attorneys’ fees in the Bankruptcy Court and the decision to grant or deny the petition was

solely in the province of that Court. Therefore, the Bankruptcy Court’s November 6,

                                             11
2003 Order, finding that “each party shall bear their/its own costs and counsel fees

herein,” App. at 11, was entirely appropriate.

       For these reasons the District Court’s judgment will be affirmed.

                                            12