Court Opinion

ID: 9881087
Source: CourtListenerOpinion
Date Created: 2023-09-29 17:09:37.48587+00
Date Added: 2024-06-11T13:59:02.814507
License: Public Domain

J-A14010-23

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT O.P. 65.37

 LIFESTYLE REAL ESTATE LENDER,            :   IN THE SUPERIOR COURT OF
 LLC                                      :        PENNSYLVANIA
                                          :
                                          :
              v.                          :
                                          :
                                          :
 LIFESTYLE REAL ESTATE I, LP              :
                                          :   No. 2428 EDA 2022
                      Appellant           :

           Appeal from the Judgment Entered February 16, 2023
              In the Court of Common Pleas of Bucks County
                    Civil Division at No(s): 2016-03634

BEFORE: PANELLA, P.J., DUBOW, J., and SULLIVAN, J.

MEMORANDUM BY PANELLA, P.J.:                   FILED SEPTEMBER 29, 2023

      Lifestyle Real Estate I, LP (“Borrower”) appeals from the judgment

entered following the trial court’s grant in part of Borrower’s petition to mark

judgment satisfied, released, and discharged as to the satisfaction and release

of an in rem judgment against the mortgaged premises, and deny in part of

Borrower’s petition to mark judgment satisfied, released, and discharged as

to the guarantor liability and any deficiency balance due claims. Borrower

argues that the Pennsylvania Deficiency Judgment Act (“DJA”) is applicable

and mandates that the guarantor liability claim has been satisfied and

discharged because Lifestyle Real Estate Lender, LLC (“Lender”) failed to

petition to fix the fair market value of the property within six months of the

Sheriff’s sale, and that the trial court erred in finding that New Jersey law

applied. We affirm.
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       For purposes of this appeal, the relevant facts are essentially

undisputed; the parties hotly contest the legal ramifications of these facts. On

March 6, 2015, Borrower obtained a business loan from Lender in the amount

of $3,500,000 pursuant to the terms and conditions of a promissory note. The

note was secured by an open-end mortgage, security agreement, and

assignment of leases and rents and fixture filing. Borrower provided a vacant

commercial real estate property located in Bucks County as collateral to secure

the parties’ commercial loan transaction. Additionally, on March 6, 2015,

Lender entered into a guaranty agreement with Fred Rappaport, George

Popky, Lifestyle Real Estate I GP, LLC, and Lifestyle Healthcare Group, Inc.1

(collectively “Guarantors”).2 Guarantors, joint and severally, agreed to

personally guarantee all of the payments of the principal and any debt

regarding the note and the mortgage. Critically, the note and guaranty

agreement expressly stated that New Jersey law applied to the terms of the

commercial loan transaction.

       Borrower defaulted on the note and mortgage. On June 9, 2016, Lender

filed a complaint in mortgage foreclosure against Borrower’s commercial

____________________________________________

1 The Guaranty Agreement lists Rappaport as a member of both Lifestyle Real

Estate I GP, LLC and Lifestyle Healthcare Group, Inc.

2 Lender is limited liability company organized under the laws of the State of

Delaware, with its principal place of business in Englewood Cliffs, New Jersey.
Rappaport and Popky resided in Pennsylvania. Further, Borrower, Lifestyle
Real Estate I GP, LLC, and Lifestyle Healthcare Group, Inc., had the same
principal place of business in Newton, Pennsylvania.

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property in Bucks County. On February 21, 2018, the trial court entered an in

rem consent judgment in the foreclosure action in favor of Lender in the

amount of $4,929,375. On March 27, 2018, Lender filed a praecipe for writ of

execution in mortgage foreclosure as to the commercial property. At Lender’s

request, a writ of execution was issued. Subsequently, on July 13, 2018, a

Sheriff’s sale was held, at which Lender purchased the property for $1,191.55.

Lender then recorded the Sheriff’s deed for the property on August 6, 2018.

Notably, Lender did not file a petition to fix the fair market value of the

property within six months of the Sheriff’s sale.

       On April 16, 2021, Lender filed a civil action against Rappaport and

Deborah R. Popky, Executrix of the Estate of George Popky,3 in the United

States District Court for the Eastern District of Pennsylvania, asserting

Guarantors breached the guaranty agreement, and arguing that Guarantors

are liable to pay the balance of $4,929,375 owed on the in rem judgment.

Rappaport and Deborah R. Popky filed answers, asserting that Lender’s claims

are barred by the DJA.4

       On December 17, 2021, Borrower filed a petition to mark judgment

satisfied, released, and discharged as to both it and Guarantors. Borrower

____________________________________________

3We note that Popky died on December 5, 2020. Therefore, the complaint
named Deborah R. Popky, Executrix of the Estate of George Popky, as a co-
defendant.

4 This federal action has been stayed pending the resolution of this appeal.

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argued that Lender failed to file a petition to fix the fair market value of the

property within six months of the Sheriff’s sale; therefore, the judgment must

be marked satisfied and discharged pursuant to Section 8103(d) of the DJA.5

Lender filed a response, arguing that the DJA was inapplicable because the

note and guaranty agreement are governed by New Jersey law. On August

19, 2022, the trial court granted in part and denied in part Borrower’s petition.

The trial court granted Borrower’s petition as to the satisfaction and release

of the in rem judgment against the commercial property. However, the trial

court denied the petition as to claims related to Guarantors’ liability on any

____________________________________________

5 Section 8103(d) states the following:

       If the judgment creditor shall fail to present a petition to fix the
       fair market value of the real property sold within the time after
       the sale of such real property provided by section 5522 (relating
       to six months limitation), the debtor, obligor, guarantor or any
       other person liable directly or indirectly to the judgment creditor
       for the payment of the debt, or any person interested in any real
       estate which would, except for the provisions of this section, be
       bound by the judgment, may file a petition, as a supplementary
       proceeding in the matter in which the judgment was entered, in
       the court having jurisdiction, setting forth the fact of the sale, and
       that no petition has been filed within the time limited by section
       5522 to fix the fair market value of the property sold, whereupon
       the court, after notice as prescribed by general rule, and being
       satisfied of such facts, shall direct the clerk to mark the judgment
       satisfied, released and discharged.

42 Pa.C.S.A. § 8103(d); see also Home Sav. & Loan Co. of Youngstown,
Ohio v. Irongate Ventures, LLC, 19 A.3d 1074, 1078 (Pa. Super. 2011) (“If
the judgment creditor fails to file a § 8103(a) petition to fix the fair market
value of the property within six months of the sheriff’s sale, then the debtor
may file a petition to have the judgment marked satisfied, released and
discharged as a matter of law.”).

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alleged deficiency balance because the parties had agreed that New Jersey

law controlled. On September 21, 2022, Borrower filed a notice of appeal.6

       On appeal, Borrower raises the following questions for our review:

       1. Whether the trial court erred as a matter of law in denying
          Borrower’s Petition to Mark Judgment Satisfied, Released, and
          Discharged … with respect to claims related to guarantor
          liability where: (a) the Pennsylvania Deficiency Judgment Act,
          42 Pa.C.S. § 8103 (“DJA”) applies and provides that a
          judgment creditor’s failure to petition the court for an order
          fixing the fair market value within six months of the date of the
          property sale creates an irrebuttable presumption that the
          creditor is paid in full; (b) the DJA provides that the Court “shall
          direct the clerk to mark the judgment satisfied, released and
          discharged” upon presentation of facts that no petition has
          been filed within the six month time limited to fix the fair
          market value of the property sold, and Borrower presented
          facts that a sale occurred on July 13, 2018[,] and
          lender/judgment creditor has not filed a petition to fix the fair
____________________________________________

6 This Court entered an order to show cause why the appeal should not be

quashed because the appeal was untimely and no post-sentence motions were
filed. Borrower filed a response, arguing that its notice of appeal was filed one
day late because of an e-filing error and a breakdown in the trial court’s
prothonotary, and that post-trial motions were unnecessary because there
was no trial. This Court also issued a rule to show cause directing Borrower to
praecipe for the entry of judgment. Thereafter, Borrower praeciped the trial
court prothonotary to enter judgment on the decision of the trial court’s order
granting in part the petition to mark judgment satisfied as to the in rem
judgment and the mortgaged premises. On February 16, 2023, the Bucks
County Prothonotary entered the judgment. Ultimately, this Court noted that
Borrower presented a colorable claim of a breakdown in court operations,
highlighted the entry of judgment, and discharged the rule to show cause
orders. We will consider the appeal properly taken from the entry of judgment.
See Johnston the Florist, Inc. v. TEDCO Const. Corp., 657 A.2d 511, 513
(Pa. Super. 1995) (en banc) (noting that when a notice of appeal is filed prior
to the entry of a final judgment, appellate jurisdiction may be perfected by
the entry of judgment on the docket); see also Pa.R.A.P. 905(a)(5) (“A notice
of appeal filed after the announcement of a determination but before the entry
of an appealable order shall be treated as filed after such entry and on the
day thereof.”).

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         market value of the property; (c) a judgment that is marked
         satisfied under the DJA discharges as a matter of law the
         “debtor, obligor, guarantor or any other person liable directly
         or indirectly to the judgment creditor for the payment of the
         debt,” and is not limited to satisfaction of an in rem judgment
         even if no personal judgment was entered against those liable;
         and (d) the DJA does not create any exception for an alleged
         deficiency owed by guarantors to survive and/or be addressed
         in a separate proceeding?

      2. Whether the trial court erred as a matter of law in finding that
         New Jersey law applies to the alleged deficiency owed by the
         guarantors where (a) the DJA applies regardless of contract
         choice of law for reasons including that the property is located
         in Pennsylvania; (b) any agreements to waive the protections
         of the DJA are void; (c) lender/judgment creditor waived any
         choice of law or jurisdiction provisions in the Note, Mortgage,
         and/or Guaranty by initiating a mortgage foreclosure action in
         the Bucks County Court of Common Pleas, as well as a breach
         of guaranty agreement action in the United States District
         Court for the Eastern District of Pennsylvania, both of which
         invoke jurisdiction, venue, and the laws of Pennsylvania; (d)
         analysis of the Note and Guaranty with respect to choice of law
         was unnecessary because the judgment has been marked
         satisfied; and (e) the purpose of the DJA is to address any and
         all alleged deficiency owed, and public policy requires applying
         the DJA, and not New Jersey law?

Appellant’s Brief at 5-6.

             The trial court has the discretion to mark the judgment as
      satisfied, and an appellate court will not disturb its determination
      absent an abuse of discretion. Under Pennsylvania law, generally,
      an appellate court will find an abuse of discretion if the record
      shows that the law has been overridden or misapplied, or that the
      judgment exercised by the [trial c]ourt was manifestly
      unreasonable or motivated by partiality, prejudice, bias or ill-will.

Gallagher v. Sheridan, 665 A.2d 485, 486 (Pa. Super. 1995) (citations and

quotation marks omitted).

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      We will address Borrower’s claims together. Borrower argues that the

trial court erred in denying its petition to mark the judgment satisfied and

released on the guarantor liability claims. See Appellant’s Brief at 20. More

specifically, Borrower asserts that the DJA applies to discharge all deficiencies

owed on a debt, and is intended to protect both debtors and guarantors and

provide a final judgment in the matter. See id. at 20, 26, 28, 30, 38. Borrower

highlights that the trial court’s grant of the petition as to the mortgage

foreclosure action establishes that the DJA applies in this matter. See id. at

25. While conceding that Guarantors did not file the petition and no judgment

had been entered against them, Borrower contends the trial court should have

discharged them from liability due to Lender’s failure to petition the court to

fix the fair market value of the property within six months of the Sheriff’s sale,

as required by the DJA. See id. at 25, 29; see also id. at 32-33 (arguing that

the satisfaction of the judgment renders any guaranty liability discharged).

Borrower maintains that the DJA applies equally to in rem and in personam

actions, and that Lender was required to comply with the requirements of DJA

to collect any deficiency on the judgment from both debtors and guarantors.

See id. at 28-29, 30-31.

      Borrower also contends that the trial court erred in finding that New

Jersey law applies to the deficiency owed by Guarantors because the DJA

would be applied in a piecemeal manner in contravention of the statutory text

and substantial case law. See id. at 31-32, 34, 46, 47; see also id. at 30

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(wherein Borrower argues that the trial court erred in allowing Lender to avoid

the requirements of the DJA by finding that Lender’s deficiency claim would

be determined in its federal action). Borrower insists that the DJA applies

because the property is in Pennsylvania, and any issues should be resolved

according to Pennsylvania law. See id. at 34-36; see also id. at 43- 47

(stating that public policy dictates that the DJA, not New Jersey law, applies

to recover the deficiency owed, as the DJA prevents Lender from a double

recovery of the mortgaged property at less than fair market value as well as

money from the debtor).

      Borrower notes that under the DJA and related Rules of Civil Procedure,

lenders must seek any deficiency owed by filing a petition to fix fair market

value as part of the same matter in which judgment had been entered. See

id. at 36-37. Additionally, Borrower argues that the DJA does not allow for

waiver of its provisions, and by holding that New Jersey law applies, the trial

court effectively waived the provisions of the DJA. See id. at 37-39 (citing,

inter alia, 42 Pa.C.S.A. § 8103(e) (“Any agreement made by any debtor at

any time, either before or after or at the time of incurring any obligation, to

waive the benefits of this section or to release any obligee from compliance

with the provisions hereof shall be void.”). Borrower alternatively asserts that

Lender waived the choice of law provision by filing the mortgage foreclosure

action in Pennsylvania and initiating the federal action in the Eastern District

of Pennsylvania rather than in New Jersey. See id. at 39-41. Borrower

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accordingly suggests that any analysis of the note and guaranty was

unnecessary. See id. at 41-43.

      Preliminarily, the parties agree that the DJA applies in the mortgage

foreclosure action on the commercial property, and that the trial court did not

err in granting Borrower’s petition to mark judgment satisfied, released, and

discharged in this regard. See, e.g., Appellee’s Brief at 21 (acknowledging

that the DJA applied to Borrower’s claim regarding the commercial property

in question); Brief for Appellant at 25 (“The trial court correctly granted the

[p]etition as to the satisfaction and release of the judgment entered in the

mortgage foreclosure action.”). However, the parties disagree as to which

state’s law governs Lenders’ claims against Guarantors. In essence, Borrower

argues that because this issue arose out of a Pennsylvania real estate

foreclosure, it should be determined by Pennsylvania law, specifically the DJA.

Contrarily, Lender claims the matter at issue relates to the enforcement of the

underlying debt, and therefore, New Jersey law, as selected by the parties in

the guaranty agreement, governs.

      Under the guaranty agreement, “Lender may require Guarantor to pay

and perform any or all of the Guarantor’s liabilities and obligations under this

Guaranty and may proceed immediately against Guarantor without being

required or obligated to bring any proceeding or take any action against

Borrower[.]” Guaranty Agreement, 3/6/15, at 1-2. Further, “Lender may

collect from the undersigned even if Lender, by foreclosing on the real

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property collateral, has destroyed any right the undersigned may have to

collect from borrower.” Id. at 5 (capitalization omitted). Importantly, the

guaranty agreement provides, in pertinent part:

       (a) Governing Law. This Guaranty is, and shall be deemed to be,
       a contract entered into under and pursuant to the laws of the State
       of New Jersey and shall be in all respects governed, construed,
       applied and enforced in accordance with the laws of said state
       without regard to conflicts of laws considerations; and this
       Guaranty shall be construed without regard to any presumption
       or rule requiring construction against the party causing such
       instrument or any portion thereof to be drafted; and no defense
       given or allowed by the laws of any other state or country shall be
       interposed in any action or proceeding hereon unless such defense
       is also given or allowed by the laws of the State of New Jersey.
       The undersigned agrees to submit to personal jurisdiction in the
       State of New Jersey in any action or proceeding arising out of this
       Guaranty and, in furtherance of such agreement, the undersigned
       hereby agrees and consents that without limiting other methods
       of obtaining jurisdiction, personal jurisdiction over the
       undersigned in any such action or proceeding may be obtained
       within or without the jurisdiction of any court located in New
       Jersey and that any process or notice of motion or other
       application to any such court in connection with any such action
       or proceeding may be served upon the undersigned by registered
       mail to or by personal service at the last known address of the
       undersigned, whether such address be within or without the
       jurisdiction of any such court.

Id. at 7; see also Note, 3/6/15, at 5 (stating that New Jersey law governs

the Note).7

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7 Under New Jersey law, “[t]he action for any deficiency shall be commenced

within 3 months from the date of the sale or, if confirmation is or was required,
from the date of the confirmation of the sale of the mortgaged premises. In
such action judgment shall be rendered and execution issued only for the
balance due on the debt and interest and costs of the action.” N.J.S.A.
§ 2A:50-2. However, the deficiency act “shall not apply to proceedings to
(Footnote Continued Next Page)

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       The Restatement (Second) of Conflict of Laws gives guidance on the

choice of law relating to the foreclosure of a mortgage on property. See Miller

v. Allstate Ins. Co., 763 A.2d 401, 403 (Pa. Super. 2000) (noting that this

Court has adopted the Restatement (Second) of Conflict of Laws to resolve

issues); see also Chestnut v. Pediatric Homecare of Am., Inc., 617 A.2d

347, 350-51 (Pa. Super. 1992) (applying the Restatement (Second) of Conflict

of Laws to give effect to the parties’ choice of law provision in a contract).

Relevantly, as applied in the instant case, the Restatement (Second) on

Conflict of Laws directs that the method of foreclosure of a mortgage and the

resulting interests in that land are determined by the laws of the state where

the property is located. See Restatement (Second) of Conflict of Laws § 229

(“The method for the foreclosure of a mortgage on land and the interests in

the land resulting from the foreclosure are determined by the local law of the

situs.”); see also Howell v. Kline, 41 A.2d 580, 581 (Pa. Super. 1945) (“As

a general principle, all questions having to do with real estate and the

interpretation and effect of instruments relating to land and interests in land

are resolved in accordance with the law of the state where the realty is

situated.”); Restatement (Second) of Conflict of Laws, § 229, cmt. a-c (noting

____________________________________________

collect a debt evidenced by a note and secured by a mortgage on real property
in the following instances … [w]here the debt secured is for a business or
commercial purpose other than a two-family, three-family or four-family
residence in which the owner or his immediate family resides[.]” N.J.S.A.
§ 2A:50-2.3.

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that the courts of the situs of the property should determine the method, time,

and effect of foreclosure on the property).

      However, foreclosure issues that do not affect any interest in the actual

property are determined by the law governing the underlying debt. See

Restatement (Second) of Conflict of Laws § 229, cmt. e (“Issues which do not

affect any interest in the land, although they do relate to the foreclosure, are

determined, on the other hand, by the law which governs the debt for which

the mortgage was given. Examples of such latter issues are the mortgagee’s

right to hold the mortgagor liable for any deficiency remaining after

foreclosure ….”). To that end, a contractually agreed-upon choice-of-law

provision in a debt agreement is valid and effective if “the particular issue is

one which the parties could have resolved by an explicit provision in their

agreement directed to that issue.” Restatement (Second) of Conflict of Laws

§ 187(1); see also Synthes USA Sales, LLC v. Harrison, 83 A.3d 242, 252

(Pa. Super. 2013) (citing to Section 187 of the Restatement (Second) of

Conflict of Laws, and noting that in Pennsylvania, “[c]hoice of law provisions

in contracts will generally be given effect.” (citation omitted)).

      Applying these principles, the trial court correctly found that New Jersey

law applies, as the action is not based on any interest in the foreclosed

property, but on the underlying debt, which is controlled by the choice-of-law

provision in the guaranty agreement. See Trial Court Opinion, 11/15/22, at 7

(noting that the DJA does not apply to the Guarantors’ liability, as “the laws

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of New Jersey, not Pennsylvania govern the Guaranty, the debt incurred by

the guarantors and any remaining contractual obligations in addition to the

establishment of balance of debt owed.”). In other words, the action against

the guarantors does not arise from the mortgage or any interest in the

underlying commercial property, but from the guaranty agreement. See

Harrison, 83 A.3d at 252. As such, the guaranty agreement controls the

choice of law.

      Further, under the plain language of the guaranty agreement, Borrower

fails to dispute that the discharge of its liability under the DJA did not

extinguish Guarantors’ liability. See Guaranty Agreement, 3/6/15, at 5

(“Lender may collect from the undersigned even if Lender, by foreclosing on

the real property collateral, has destroyed any right the undersigned may have

to collect from borrower.”); see also Riverview Carpet & Flooring, Inc. v.

Presbyterian SeniorCare, __ A.3d __, 2023 PA Super 119, *32 (Pa. Super.

2023) (petition for reargument filed) (“When interpreting agreements

containing clear and unambiguous terms, we need only examine the writing

itself to give effect to the parties’ intent.” (citation omitted)). In fact, Borrower

points to nothing in the record that might suggest that Guarantors were

unaware of these provisions, or lacked a full opportunity to consider their

ramifications. Therefore, giving effect to the plain language in the guaranty

agreement, we conclude that the choice of law provision, stating that the

agreement was governed by the laws of the State of New Jersey, was

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enforceable, despite the fact the property and foreclosure proceedings of the

property were located in Pennsylvania. See Restatement (Second) of Conflict

of Laws § 229, cmt. e; see also Harrison, 83 A.3d at 252.8

       We further conclude that Lender did not waive the applicability of New

Jersey law, as stated in the guaranty agreement, against Guarantors by filing

the mortgage foreclosure action in Pennsylvania. Notably, under Pennsylvania

law, Lender was required to file the mortgage foreclosure action in

Pennsylvania, as the situs of the property is in Pennsylvania. Moreover, as

noted above, Lender and Guarantors agreed that any contractual obligations

regarding the debt between the parties would be subject to New Jersey law.

See Guaranty Agreement, 3/6/15, at 7. As the action is based on the

underlying debt, not the foreclosed property, we give effect to the parties’

____________________________________________

8 We note that our Supreme Court recognized that choice of law “agreements

can be avoided when the terms offend Commonwealth public policy even in
disputes between contracting parties.” Pennsylvania Dep’t of Banking v.
NCAS of Delaware, LLC, 948 A.2d 752, 759 (Pa. 2008). However, Borrower
has not established that the choice of law provision in the guaranty agreement
violates any public policy that would void the contract. Although Borrower
argues that trial court’s finding would render the DJA meaningless, it ignores
that the DJA was properly applied to the mortgaged premises in Pennsylvania
and utilized to mark satisfied the judgment against Borrower. Further,
Borrower has not demonstrated that New Jersey law will permit Lender to
enjoy the windfall of a double recovery. See, e.g., Summit Trust Co. v.
Willow Business Park, L.P., 635 A.2d 992, 997 (N.J. Super. Ct. App. Div.
1994) (observing that a fair market value credit may be appropriate to avoid
a windfall to a commercial lender when the lender pursues a deficiency
judgment after foreclosing on a mortgaged property).

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choice of law provision in the Guaranty Agreement, see Harrison, 83 A.3d at

252, and therefore, do not find waiver.9

       Judgment affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 9/29/2023

____________________________________________

9 We also reject Borrower’s reliance on 42 Pa.C.S.A. § 8103(e), as Borrower

fails to cite to any place in the record where the parties explicitly agreed to
waive the benefits of the DJA or to release Lender from compliance with the
provisions. As noted above, the parties merely chose New Jersey law as
controlling on the guaranty, and we give effect to such a choice. Moreover,
Borrower has not demonstrated that Lender’s filing of the action in the Eastern
District of Pennsylvania constitutes a waiver of any terms of the guaranty
agreement.

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