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Halifax Center, LLC v. PBI Bank, Inc.

United States District Court, W.D. Kentucky, Owensboro Division

February 18, 2014

HALIFAX CENTER, LLC, ET AL., Plaintiffs,
v.
PBI BANK, INC., Defendant.

MEMORANDUM OPINION AND ORDER

JOSEPH H. McKINLEY, Jr., District Judge.

This matter is before the Court on a motion by Defendant, PBI Bank, Inc., for judgment on the pleadings [DN 20]. Fully briefed, this matter is ripe for decision.

I. STANDARD OF REVIEW

The standard of review for a Rule 12(c) motion for judgment on the pleadings "is the same as for a motion under Rule 12(b)(6) for failure to state a claim upon which relief can be granted." Fritz v. Charter Tp. of Comstock , 592 F.3d 718, 722 (6th Cir. 2010)(citing Ziegler v. IBP Hog Mkt., Inc. , 249 F.3d 509, 511-12 (6th Cir. 2001)); Fed.R.Civ.P. 12(b)(6); Fed.R.Civ.P. 12(c). Upon a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a court "must construe the complaint in the light most favorable to plaintiff[, ]" League of United Latin American Citizens v. Bredesen , 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted), "accept all well-pled factual allegations as true[, ]" id., and determine whether the "complaint states a plausible claim for relief[.]" Ashcroft v. Iqbal , 556 U.S. 662, 679 (2009). Under this standard, the plaintiff must provide the grounds for his or her entitlement to relief which "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555 (2007). A plaintiff satisfies this standard only when he or she "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678. A complaint falls short if it pleads facts "merely consistent with a defendant's liability" or if the alleged facts do not "permit the court to infer more than the mere possibility of misconduct." Id. at 678, 679. Instead, the allegations must "show[ ] that the pleader is entitled to relief.'" Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).

II. BACKGROUND

Plaintiff, David G. Chandler, and a business associate entered into an agreement to purchase a promissory note from the United States Department of Housing and Urban Development ("HUD") in May of 2009 for a mortgage on a 165-unit apartment complex in Chicago, Illinois. The total purchase price was $9, 145, 020.06. HUD required an irrevocable and non-refundable deposit of $1, 010, 000, which Chandler paid. Chandler sought financing from PBI for $6, 000, 000 of the purchase price for the HUD note. The record does not reflect whether Chandler entered into the agreement to purchase the HUD Note prior to meeting with PBI to acquire financing. In his Amended Complaint, Chandler alleges that after he was committed to purchase the HUD Note, PBI representatives informed him that they would make the HUD loan only if he purchased an unrelated property located at 1020 Halifax Drive in Owensboro, Kentucky. At that time, the Halifax property was owned by an unrelated third-party. According to Chandler, PBI informed him that it held the loan and mortgage on the Halifax property and the loan was in default. At this time, Chandler had never seen the property, did not know the Halifax property owner, or have any relationship with the owner.

Chandler alleges that while he did not want to purchase the Halifax property, PBI required him to buy the Halifax property as a condition to making the $6, 000, 000 loan. PBI's written credit memorandum for the HUD loan expressly states that the purchase of the Halifax Property is a condition of that loan. (Amended Complaint, Exhibit B.) PBI and Chandler entered into a written Agreement for Purchase and Financing of Real Property to buy the Halifax Property. The Halifax Property Agreement to Purchase was executed by Chandler and PBI, not the owner of the Halifax Property. It provides that "PBI agrees that it shall cause owner of the Property to sell the Property to [Chandler] for the sum of $1, 253, 675.74." (Halifax Property Agreement at 1, Amended Complaint, Exhibit C). The Agreement is dated June 16, 2009, and the purchase of the HUD Note closed the same day with PBI providing the $6, 000, 000 loan.

On June 29, 2009, Halifax Center, LLC, a limited liability company formed by Chandler, signed the promissory note for the Halifax property in the amount of $1, 253, 675.74, which Chandler understood was the unpaid balance of the original owner's loan from PBI. Chandler obtained the loan to purchase the property from PBI. The loan was a 24-month, interest-only loan at an interest rate of 3.25%. PBI required Chandler to personally guarantee $200, 000 of debt. Chandler had the option at the end of the two-year term, to refinance or to pay PBI $200, 000 and convey the Halifax Property to PBI.

In June of 2010, Chandler sought additional funds from PBI for the HUD property. The Halifax Loan was not due to mature for another year. Despite this fact, Plaintiffs assert that PBI insisted, as a condition of making the new loan, that the Halifax Loan be refinanced at an increased interest rate and that Chandler personally guarantee the entire indebtedness. On June 29, 2010, PBI made the loan to Chandler for the additional funds for the HUD property. PBI and Chandler executed a Change in Terms Agreement for the Halifax Loan refinance, and Chandler executed a Commercial Guaranty for the entire indebtedness on November 1, 2010.

Plaintiffs filed this cause of action alleging that PBI violated the anti-tying provisions of the Bank Holding Company Act ("BHCA"), 12 U.S.C. § 1972 (Count I) and a state law claim of economic duress (Count II). Defendant now moves for a judgment on the pleadings as to the Plaintiffs' anti-tying claim under Count I arguing that Plaintiffs cannot establish a colorable claim under 12 U.S.C. § 1972. Defendant further argues that Count I must be dismissed because "one year after entering into the loan transaction said to have been improperly tied to a $6, 000, 000 real-estate loan from PBI..., Plaintiffs reaffirmed that loan transaction by refinancing through it through PBI, thereby waiving their statutory claim as a matter of law." (Defendant's Memorandum in Support of Motion for Judgment on the Pleadings at 1.) Defendant argues that Count II of the amended complaint should likewise be dismissed because the facts alleged by Plaintiffs simply do not support an economic duress claim under controlling Kentucky law.

III. DISCUSSION

A. Anti-Tying Claim

Plaintiffs allege that PBI violated the BHCA by establishing an unlawful tying arrangement. The BHCA provides, in relevant part, that:

(1) A bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the ...

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