Court Opinion

ID: 803422
Source: CourtListenerOpinion
Date Created: 2012-06-29 20:09:56+00
Date Added: 2024-06-11T18:00:08.237226
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                _____________

                                     No. 11-3951
                                    _____________

                            EQUIPMENT FINANCE, LLC.

                                           v.

                      STEVEN M. HUTCHISON;
     BLUE HORIZON VEGETATIVE RECYCLING & LAND CLEARING, INC.

                              Steven M. Hutchinson,
                                                   Appellant
                                  _______________

                    On Appeal from the United States District Court
                       for the Eastern District of Pennsylvania
                                (D.C. No. 09-cv-01964)
                      District Judge: Hon. James Knoll Gardner
                                  _______________

                      Submitted Under Third Circuit LAR 34.1(a)
                                   June 28, 2012

          Before: SLOVITER, CHAGARES, and JORDAN, Circuit Judges.

                                 (Filed: June 29, 2012)
                                   _______________

                              OPINION OF THE COURT
                                  _______________

JORDAN, Circuit Judge.

      Steven M. Hutchison appeals the judgment of the United States District Court for

the Eastern District of Pennsylvania finding him liable for loans made by Equipment
Finance, LLC (“Equipment Finance”) that he did not repay. Hutchison argues that the

statute of limitations on Equipment Finance’s action for repayment of those loans has

lapsed. Because we agree with Equipment Finance that the action is not time-barred, we

will affirm the judgment of the District Court.

I.     Background

       Beginning in May 2001, Equipment Finance made a series of loans to Hutchison

and his North Carolina company, Long Leaf Wood Products, Inc. (“Long Leaf/Mid

Atlantic”).1 The first loan was in the amount of $127,803.66 and was evidenced by a

promissory note executed under seal indicating that, “[i]n addition to the payment[]

provided for [by this note] … , [Long Leaf/Mid Atlantic] promises to pay on demand any

additional amounts required to be paid [due to additional loans provided by Equipment

Finance] … and this note shall evidence … the payment of all such sums advanced or

paid by the Lender.”2 (App. at 12.)

       Beginning in July 2002 and continuing until January 2007, Equipment Finance

provided Hutchison with 17 additional loan checks totaling $1,352,040.3 Some of those

checks were made out to Hutchison, others were made out to Long Leaf/Mid Atlantic,

       1
         Hutchison later changed Long Leaf Wood Products, Inc.’s name to Mid Atlantic
Timber Company, Inc. For ease of reference, we refer to the company as Long Leaf/Mid
Atlantic throughout.
       2
       The note further set forth a schedule for repayment for a total amount due of
$161,298.87.
       3
        Equipment Finance also claimed that there was an 18th check for $30,000 that
they gave to Hutchison. Because Equipment Finance could not document that check, it
withdrew any claim for that additional amount.

                                             2
and, in two instances, checks were made out to a company owned by Hutchison’s son.4

All of the checks were deposited in either Hutchison’s personal accounts or in a Long

Leaf/Mid Atlantic account.5

       Hutchison only made payments totaling $9,644.78,6 bringing his total debt to

Equipment Finance to $1,503,694.09. Equipment Finance ceased sending money to

Long Leaf/Mid Atlantic in 2007. Long Leaf/Mid Atlantic stopped doing business shortly

thereafter. Further, the State of North Carolina suspended Long Leaf/Mid Atlantic’s

corporate existence in 2004 and dissolved the company in 2009 for its failure to file

annual reports. In November 2008, Equipment Finance made a demand for repayment

but Hutchison did not comply. On May 8, 2009, Equipment Finance filed suit against

Hutchison and his son’s company. Asserting diversity jurisdiction, Equipment Finance

alleged, among other things, breach of contract of the first loan based on the promissory

note and breach of implied contract for the loan it said was represented by the remaining

17 checks.

       4
        The checks written to Hutchison’s son’s company, Blue Horizon Vegetative
Recycling and Land Clearing, Inc. (“Blue Horizon”), were made in error and should have
been written to Hutchison or Long Leaf/Mid Atlantic. When Hutchison informed
Equipment Finance of that error, it told Hutchison to have his son endorse the checks
over to Hutchison and deposit them in his own account, which Hutchison did.
       5
        Some of the funds borrowed from Equipment Finance by Hutchison were used to
make mortgage payments for property in Wilmington, North Carolina. Equipment
Finance intended to buy that mortgage and utilize the property as security for the money
advanced.
       6
        Those payments were made in partial satisfaction of the first loan check issued
pursuant to the promissory note.

                                             3
       After a bench trial, the District Court issued findings of fact and conclusions of

law. The Court determined that Long Leaf/Mid Atlantic breached its obligation to repay

the first loan and owed Equipment Finance $151,654.09.7 The Court also determined that

it was appropriate to hold Hutchison personally liable for the loan to Long Leaf/Mid

Atlantic, since Hutchison was its sole officer, director and shareholder, completely

dominated the company, commingled corporate and personal funds, and failed to follow

corporate formalities, including the failure to file annual reports with North Carolina.

While the statute of limitations for a breach of contract claim in Pennsylvania8 is four

years, 42 Pa. Cons. Stat. Ann. § 5525(a)(7),9 the Court determined that the action was not

time barred because the statute of limitations on an action to recover funds loaned

pursuant to a promissory note executed under seal is 20 years, 42 Pa. Cons. Stat. Ann.

§ 5529(b),10 and Equipment Finance filed its lawsuit against Hutchison well within that

period.

       7
        That sum represents the difference between the $161,298.87 amount owed and
the $9,644.78 amount paid.
       8
         There is no dispute that Pennsylvania provides the controlling body of law for
this case.
       9
         That statute provides: “[T]he following actions and proceedings must be
commenced within four years: ... An action upon a negotiable or nonnegotiable bond,
note or other similar instrument in writing. Where such an instrument is payable upon
demand, the time within which an action on it must be commenced shall be computed
from the later of either demand or any payment of principal [or of] interest on the
instrument.” 42 Pa. Cons. Stat. Ann. § 5525(a)(7).
       10
          That statute provides: “Notwithstanding [§ 5525(a)] (relating to four-year
limitation), an action upon an instrument in writing under seal must be commenced
within 20 years.” 42 Pa. Cons. Stat. Ann. § 5529(b).

                                             4
       With respect to the remaining 17 checks, the Court found that an implied-in-fact

contract existed between Equipment Finance and Long Leaf/Mid Atlantic and that

contract was breached when Long Leaf/Mid Atlantic failed to repay the loan embodied in

those 17 checks.11 The Court determined that, with respect to all 17 checks, there was a

single and continuing contract and that the four-year statute of limitations under

§ 5525(a)(7) did not begin to run until January 2007, at the earliest, when Equipment

Finance issued the last of the 17 checks. Likewise, the Court determined that piercing the

corporate veil was appropriate to hold Hutchison liable for the those loan checks.

Combining the first loan with the 17 additional checks, the Court determined that

Hutchison owed Equipment Finance $1,503,694.09.12 Hutchison timely appealed.

II.    Discussion13

       The only issue that Hutchison appeals is the District Court’s determination that the

action with respect to some of the 17 checks is not time barred. He argues that there was

no continuous contract and that the statute of limitations for each check began to run on

the day such check was issued. Thus, Hutchison argues, recovery on any check dated

       11
         As noted above, two of those checks were written out to companies owned by
Hutchison’s son. The Court determined that Hutchison was liable for those amounts
because the checks were endorsed over to, and cashed by, Hutchison.
       12
          That sum represents the $151,654.09 total left owing on the promissory note
plus the $1,352,040 total of the 17 additional checks.
       13
          The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have
jurisdiction pursuant to 28 U.S.C. § 1291. We review the District Court’s factual
findings following a bench trial for clear error and exercise plenary review over its legal
conclusions. McCutcheon v. Am.’s Servicing Co., 560 F.3d 143, 147 (3d Cir. 2009).

                                             5
prior to May 8, 2005 – four years before the filing of the lawsuit on May 8, 2009 – is

barred by the statute of limitations. He submits that “[c]hecks are demand notes”

(Appellant’s Opening Br. at 13), and that the statute of limitations begins to run with “the

later of either demand or any payment of principal [or of] interest on the instrument,” 42

Pa. Cons. Stat. Ann. § 5525(a)(7). Using that standard, Hutchison submits that $664,000

of the District Court’s judgment against him cannot be collected.14 Equipment Finance

argues that the District Court correctly determined that there was a continuing agreement

and that loan repayment would not be expected to begin (and the statute of limitations

would not start to run) until, at the earliest, after the final loan check was delivered in

2007.

        We look to Pennsylvania law to determine whether an implied-in-fact contract

existed. See Erie R. Co. v. Tompkins, 304 U.S. 64, 73 (1938) (“[F]ederal courts

exercising jurisdiction in diversity of citizenship cases … apply as their rules of decision

the law of the state … .”). The nature of an implied-in-fact contract must be ascertained

from all the facts and circumstances. See Liss & Marion, P.C. v. Recordex Acquisition

Corp., 983 A.2d 652, 659 (Pa. 2009) (citing Ingrassia Construction Company v. Walsh,

486 A.2d 478, 483 (Pa. Super. Ct. 1984), for the proposition that an implied-in-fact

contract may arise where “the ordinary course of dealing and the common understanding

of men, show a mutual intention to contract” (citation omitted)); Ingrassia, 486 A.2d at

483 (stating that the existence and nature of an implied-in-fact contract is determined by

        14
        The checks that Hutchison argues are time barred were dated between July 1,
2002 and October 8, 2004.

                                               6
the parties’ “outward and objective manifestations of assent, as opposed to their

undisclosed and subjective intentions”). Where the facts and circumstances show the

existence of a continuing contract, the statute of limitations does not begin to run until

“the breach occurs or the contract is … terminated.” Wm. B. Tenny, Builder & Developer

v. Dauphin Deposit Bank & Trust Co., 448 A.2d 1073, 1075 (Pa. Super. Ct. 1982)

(citation omitted).

       The District Court found that the facts and circumstances with respect to the 17

checks showed the existence of a continuing contract. Those facts included the

depositing of all checks into accounts controlled by Hutchison, the promissory note’s

reference to future payments, the continuous nature of the checks, the November 2008

demand letter, and the other conduct of the parties. Therefore, the statute of limitations

did not begin to run until, at the earliest, Equipment Finance delivered the final loan

check in January 2007. We see no sound basis to disturb the District Court’s fact-finding

and legal conclusions, and because Equipment Finance brought the present action less

than four years after January 2007, the entire amount is recoverable.

       Hutchison asserts that several facts indicate that the loan checks should be

considered distinct rather than a continuing contract. First, he argues that the checks

were made out to different entities including Long Leaf, Mid Atlantic, Hutchison himself,

and, in two cases, his son’s company, Blue Horizon. He submits that, “had there been a

continuous contract, all of the payees of the checks would have been exactly the same.”

(Appellant’s Opening Br. at 10.) Second, while Hutchison concedes the District Court’s

factual determination that there was an agreement with respect to the first check, he

                                              7
disputes that “the checks fall into the language of the Promissory Note.” (Id.) Rather, he

argues that the 17 additional checks were demand notes that were both separate from

each other and from the promissory note evidencing the first loan and that “the Statute of

Limitations begins to run on the date of [the issuance] of [each loan] check.” (Id. at 11.)

Appellant submits that to hold otherwise would allow Equipment Finance and other

lenders to start the clock on the statute of limitations at the time of their choosing when

they make a demand for repayment. Such a result, he argues, permits Equipment Finance

to “arrest the running of the Statute of Limitations … by resting on its laurels and

waiting until it files suit to say that demand was made.” 15 (Id. at 8.)

       We disagree. On the facts of this case, Hutchison elevates form over substance

when he argues that the loans should be considered distinct because the checks were

made out to different individuals or entities. All of the checks were intended for

Hutchison and his business, and they were treated that way. They were ultimately

       15
         In his brief, Hutchison cites Gurenlian v. Gurenlian, 595 A.2d 145 (Pa. Super.
Ct. 1991) to support his argument that the statute of limitations begins to run as soon as
each check was issued. In Gurenlian, the court distinguished a promissory note from a
demand note and indicated that a promissory note conditioned repayment upon the
making of a demand while a demand note did not have such a condition. The Court thus
reasoned that the statute of limitations on a promissory note would not begin until a
demand is made, but for a demand note, “the running of the statute of limitations was not
contingent on a demand being made.” Id. at 150.

       There is support here, however, for the position that the 17 checks constituted a
unitary loan since the first loan check was issued pursuant to a promissory note and
provided for the possibility of additional payments, and the District Court determined that
that was the parties’ intent.

                                              8
deposited in accounts controlled exclusively by Hutchison and used for his benefit or for

the benefit of the company he treated as an alter ago.

       Because we agree with the District Court that the present case presents a

continuous agreement, Hutchison’s remaining arguments are unavailing. Contrary to

Hutchison’s assertions, Equipment Finance did not “rest on its laurels” but rather made a

demand in the months following the final check and brought suit the following year due

to Hutchison’s failure to comply with that demand. As a result, Equipment Finance’s

action is not barred by the relevant statute of limitations.

III.   Conclusion

       For the forgoing reasons, we will affirm the judgment of the District Court.

                                               9