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Fifth Third Bank v. Revelation Energy, LLC

United States District Court, S.D. West Virginia, Huntington Division

April 18, 2019

FIFTH THIRD BANK, an Ohio Banking Corporation, Plaintiff,
REVELATION ENERGY, LLC, a Limited Liability Company, and REVELATION ENERGY HOLDINGS, LLC, a Limited Liability Company, Defendants.



         Pending before the Court are motions by Plaintiff, Fifth Third Bank ("Fifth Third") (ECF Nos. 32, 49, 56) and Defendants, Revelation Energy, LLC ("Revelation") and Revelation Energy Holdings, LLC ("REH") (ECF No. 47). For the following reasons, the Court GRANTS, in part, Plaintiffs Motion for Summary Judgment, insofar as the terms of the Loan Documents and Forbearance Agreement were breached and Defendants are liable for damages, and HOLDS IN ABEYANCE the determination of damages (ECF No. 32), DENIES Defendants' Motion for Partial Summary Judgment (ECF No. 47), HOLDS IN ABEYANCE Plaintiffs Motion to Supplement Record on Summary Judgment (ECF No. 49) and Plaintiffs Motion to Strike Jury Trial Demand (ECF No. 56), SUSPENDS all calendar deadlines, and ORDERS Plaintiff to file a memorandum outlining relief consistent with the Complaint and include breakdowns of the calculations of monies owed under the Notes and, alternatively, the Forbearance Agreement by May 2, 2019. Defendants shall respond to Plaintiffs memorandum by May 9, 2019.

         I. BACKGROUND

         On July 12, 2011, Fifth Third made an initial loan to Revelation in the principal amount of $20, 000, 000.00. First Note, ECF No. 33-1. This loan was guaranteed by REH. First Guaranty, ECF No. 33-2. On July 2, 2012, Fifth Third made an additional loan to Revelation in the amount of $5, 200, 000.00, also guaranteed by REH. Second Note, ECF No. 33-3; Second Guaranty, ECF No. 33-4. Both Notes were amended on April 22, 2013. Amendment, ECF No. 33-5. All documents cited in this paragraph constitute the "Loan Documents." After the occurrence of "certain conditions constituting defaults," the parties entered into a forbearance agreement on March 31, 2017. Forbearance Agreement, p. 2, ECF No. 33-6. The Forbearance Agreement affirmed the duties of the parties under the Loan Documents and explicitly preserved the rights to remedy by Fifth Third for Defendants' past defaults. Id. at 3. The Forbearance Agreement marked the fourth time parties restructured their repayments. Compl, ¶ 4, ECF No. 1; Defs.' Resp. to Mot. Summ. J., p. 4, ECF No. 34. In return for Fifth Third's agreement to forbear, Defendants' stipulated they owed a total of $7, 662, 684.94 on the principal amount between the two loans and $243, 829.80 in interest and fees as of December 31, 2016.[1]Forbearance Agreement, at 3. Defendants agreed this principal amount would accrue interest at four percent per annum and Revelation would make payments of $120, 000.00 per month, starting at the date of signing and paying off the remaining principal, remaining interest and fees, and any accrued interest, in full, by February 1, 2018. Id. at 6. Subsequently, Revelation missed payments in September and October, and did not pay off its remaining balance by February 1, 2018. Notice of Default, ECF No. 1-12; Answer, ¶ 37, ECF No. 11; Defs. 'Resp. to Mot. Summ. J., at 4.

         Plaintiff filed the Complaint on February 6, 2018, alleging claims of breach of contract under the Loan Documents (Counts One and Two) and, alternatively, under the Forbearance Agreement (Count Three). Comply at 6-7. After failing to file a timely response, the Clerk entered default against Defendants on March 12, 2018. ECF No. 9. On March 16, 2018, Defendants filed the Motion to Set Aside Entry of Default, ECF No. 12, and an Answer to Plaintiffs Complaint, which included two counterclaims. Answer, at 11-15. The Court vacated the entry of default on April 18, 2018. ECF No. 17. Defendants' Counterclaims were dismissed on December 19, 2018 for failure to state a claim. ECF No. 41. The Court now turns to the claims in the Complaint.


         A party moving for summary judgment must show there is no genuine issue of any material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). In considering this, the Court shall not "weigh the evidence and determine the truth of the matter[.]" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). However, the Court shall draw any permissible inference from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986). The nonmoving party must offer some "concrete evidence from which a reasonable juror could return a verdict in his [or her] favor[.]" Anderson, Ml U.S. at 256. Summary judgment is appropriate when the nonmoving party has the burden of proof on an essential element of his or her case and does not make, after adequate time for discovery, a showing sufficient to establish that element. Celotex Corp. v. Catrett, Ml U.S. 317, 322-23 (1986). The nonmoving party must satisfy this burden of proof by offering more than a mere "scintilla of evidence" in support of his or her position. Anderson, 477 U.S. at 252.


         Plaintiff argues Defendants breached of contract under the terms of the Loan Documents and, alternatively, the Forbearance Agreement, and move for summary judgment on the matter. Defendants move for partial summary judgment on an underlying allegation of Count Three.

         A. Choice of Law

         As a threshold matter, the Court must determine the applicable law for the Loan Documents. "When exercising diversity jurisdiction, a federal district court must apply the choice-of-law rules of the state in which it sits." Cavcon, Inc. v. Endress ± Hauser, Inc., 557 F.Supp.2d 706, 719 (S.D. W.Va. 2008) (citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). Generally, West Virginia courts will uphold a choice of law provision in a contract. However, "[a] choice of law provision in a contract will not be given effect when the contract bears no substantial relationship with the jurisdiction whose laws the parties have chosen to govern the agreement, or when the application of that law would offend the public policy of this state." General Electric Company v. Keyser, 275 S.E.2d 289, Syl. Pt. 1 ( W.Va. 1981). Here, the parties do not contest the choice of law provision in either Note. As such, the First Note is interpreted under Ohio law, whereas the second note is interpreted under West Virginia law.[2] First Note, ¶ 18(b); Second Note, ¶ 7.14.

         B. Breach

         Parties do not contest that the Forbearance Agreement was precipitated by events constituting breach under the original Notes and was preceded by three other forbearance agreements. Compl, ¶ 4; Defs.' Resp. to Mot. Summ. J., at 4. The only defense raised by Revelation and REH is that, when Revelation fell behind on its repayments once again, it assumed it could alter the terms of the note unilaterally as part of a "usual course of dealings." Defs. 'Resp. to Mot. Summ. J., at 5. However, this is not a cognizable defense under either Ohio or West Virginia law.

         In PNC Equip. Fin., LLC v. Mariani, the defendant failed to remit full repayment of a loan after four forbearance agreements. No. 1:14-CV-663, 2017 WL 1102809, at *3 (S.D. Ohio 2017) (applying Ohio law). The defendant claimed this established a "pattern and practice [of extending the forbearance period] that Defendants came to rely on and expect. Id. at *6. The court held that this argument was not legally sufficient, because the forbearance agreement did not require further ...

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