EagleBank v. Schwartz

1

EAGLEBANK, Plaintiff/Counterclaim Defendant, v. YAJIA HU SCHWARTZ, individually and as trustee of the Yajia Hu Schwartz Revocable Trust and as co-trustee of the Axis Investment Holdings Trust, and MARK ALAN SCHWARTZ, individually and as co-trustee of the Axis Investment Holdings Trust, Defendants/Counterclaimants, And AXIS INVESTMENT HOLDINGS TRUST and TAX LIEN LAW GROUP, LLC, Defendants/Counterclaim Plaintiffs.

Civil Action No. 1:22-cv-01762-SBP

United States District Court, D. Colorado

September 25, 2024

ORDER

Susan Prose, United States Magistrate Judge

This matter comes before the court^[1] on the Motion for Partial Judgment on the Pleadings Under F.R.C.P. 12(c) (the “Motion” or “Rule 12(c) Motion”) filed by Plaintiff and Counterclaim Defendant EagleBank, ECF No. 52.^[2] Having reviewed the Motion, the relevant pleadings, and the applicable law, the court concludes that oral argument will not materially assist in the resolution of the Motion. The court GRANTS the Motion for the reasons set forth below.

BACKGROUND

I. Facts

For purposes of this court's evaluation of the Rule 12(c) Motion, the relevant pleadings are (1) the First Amended Complaint and attached exhibits, ECF Nos. 19 (“Amended Complaint” or “Am. Compl.”), 19-1 through 19-7 (exhibits)), filed by EagleBank on August 30, 2022; (2) the September 15, 2022 amended answer to the Amended Complaint, ECF No. 24, which includes counterclaims against EagleBank (“Answer/Counterclaims”), filed by the litigant group this court will collectively refer to as the “Schwartz Parties”^[3]; and (3) the answer to the Schwartz Parties' counterclaims filed by EagleBank on September 26, 2022 (ECF No. 27). The court therefore emphasizes the well-pleaded facts drawn from these pleadings as well as matters properly subject to judicial notice-including the entire docket here and records from related state court proceedings.^[4]

A. Schwartz, Axis, and Tax Lien Law default on a guaranty to EagleBank

The procedurally tortuous history of this action began over a decade ago in the state of Maryland, where EagleBank is incorporated and has its principal place of business. Am. Compl. ¶ 1. In August 2013, an entity called Sulion, LLC, entered into a loan agreement with EagleBank, which the Maryland court referred to as the “REO Loan.” Tax Lien Law Group, LLC v. EagleBank, et al., Nos. 1129, 1130, 2021 WL 3360972, at *1 (Md. Ct. Spec. App. Aug. 3, 2021) (observing that the purpose of the REO Loan was to allow Sulion to “borrow up to two million dollars for the acquisition of distressed real estate”), cert. denied, 263 A.3d 518 (Md. 2021).^[5] Schwartz controlled Sulion. See Wells Fargo Bank, N.A. v. Mesh Suture, Inc., 31 F.4th 1300, 1303 (10th Cir. 2022) (noting, in affirming summary judgment awarding control of a bank account to Schwartz's former business partner, that Schwartz, “allegedly to extract a concession from Dr. Dumanian, transferred the entire balance of Mesh Suture's Wells Fargo account ($3,929,135.89) into a non-Wells Fargo account held by Sulion LLC, which he controlled”).

As relevant to the instant dispute, Schwartz, Axis, and Tax Lien Law became the guarantors of the REO Loan. The agreement reflecting that guaranty included a “confessed-judgment” provision:

Upon the occurrence of an event of default, and if such event of default shall continue beyond any applicable notice and cure period, the guarantor hereby authorizes any attorney designated by the lender or any clerk of any court of record to appear for the guarantor in any court of record and confess judgment against the guarantor without prior hearing, in favor of the lender for, and in the amounts of, the balance then due under any one or more of the promissory notes evidencing all or any part of obligations, all accrued and unpaid interest thereon, all other amounts payable by the guarantor to the lender under the terms of this agreement, costs of suit, and attorneys' fees of five percent (5%) of the unpaid principal sum.

Tax Lien Law Group, 2021 WL 3360972, at *1 (emphasis added). Separately, in May 2015, Sulion obtained another loan from EagleBank, which the Maryland court referred to as the “Tax Lien Loan.” Id. Schwartz, Axis, and Tax Lien Law were the guarantors of the Tax Lien Loan.

By the time the two loans to Sulion came up for renewal in 2018, the principal balance on the REO Loan was zero, and the balance on the Tax Lien Loan was $3,847,793.50. Id. Schwartz and EagleBank agreed to renew the REO Loan under a “2018 Loan Agreement,” which increased the credit limit to six million dollars. Schwartz, Axis, and Tax Lien Law were the guarantors on the 2018 Loan Agreement, which again was subject to a guaranty agreement that included a confessed-judgment provision. Of the six-million-dollar credit limit, $3,847,793.50 was immediately used to pay the balance of the Tax Lien Loan and closing costs, leaving $2,099,546.50 of available credit.

B. EagleBank obtains a $3.5 million Judgment by Confession against Schwartz, Axis, and Tax Lien Law

On January 22, 2020, EagleBank filed complaints against the borrowers (Sulion and two other entities) and the guarantors: Schwartz, Axis, and Tax Lien Law. Tax Lien Law Group, 2021 WL 3360972, at *3. EagleBank alleged that the borrowers had defaulted and that Schwartz, Axis, and Tax Lien Law had failed to honor their obligations as guarantors. EagleBank supported its complaints with documentation, including copies of the note and guaranty agreement underlying the 2018 Loan Agreement and an affidavit by an EagleBank representative testifying to the default.

On January 30, 2020, a Judgment by Confession was entered against Schwartz, Axis, and Tax Lien Law in the amount of $3,534,029.08, plus pre-judgment interest at the rate of 6.625% from January 9, 2020, attorney's fees in the amount of $4,500, and post-judgment interest. Id. at *4; see also 1/30/2020 Certified Judgment by Confession, EagleBank v. Tax Lien Law Group, LLC, et al., case number V478002 (Montgomery Cnty., Md., Circuit Ct.), ECF No. 19-3 at 2-4 (the “Judgment by Confession”). The court simultaneously issued notice of the Judgment by Confession to the borrowers and guarantors-i.e., Schwartz and entities under his control.

Schwartz tried, but failed, to vacate the Judgment by Confession. On appeal to the Court of Special Appeals of Maryland, Schwartz argued that the guarantors (and borrowers) “were not provided with adequate notice or service of the judgments, that the 2018 Note and 2018 Guaranty were unenforceable and void ab initio due to lack of consideration, that there was no event of default other than the one manufactured by EagleBank, and that EagleBank breached its contract with Borrowers and committed fraud by charging $52,000 for the loan renewal and credit increase when it ‘had no intention of lending anything to Borrowers.'” Tax Lien Law Group, 2021 WL 3360972, at *4. The Maryland appellate court rejected each of these arguments, id. at *5-9, and specifically confirmed that Schwartz-along with the other guarantors, who are controlled by Schwartz-never repaid the millions of dollars they owed to EagleBank:

Notably, as for the existence of an event of default, Appellants do not contend that they paid the entire principal amount of $3,900,453.50 or any of the late charges, fees, and interest that were included in the judgment amount of $3,534.029.08. Dr. Schwartz's^[6] conclusory and unsupported assertions do not identify any facts to support the notion that there was no event of default. The record clearly reflects that the funds borrowed under the 2018 Loan Documents were not fully repaid- thus there is no basis for the Appellants' contention that there had been no event of default.

Id. at *7 (emphasis added). There is nothing in the record before this court indicating that Schwartz (or any of the entities he controls) has since repaid this nearly four-million-dollar debt.

Schwartz and his co-guarantors mounted a collateral attack on the Judgment by Confession by filing a complaint in a different jurisdiction (Anne Arundel County, Maryland), which that court rejected on res judicata grounds. See Tax Lien Law Group, LLC, et al. v. EagleBank, No. 80, 2024 WL 3548447, at *1 (Md. Ct. Spec. App. July 26, 2024) (“Tax Lien Law Group II”) (affirming dismissal of Schwartz's second case). Thus, the Judgment by Confession remains in place.

C. Schwartz quitclaims a Vail Valley residential property to Yajia Schwartz after entry of the Judgment by Confession

Also relevant to the court's assessment of the Rule 12(c) Motion is a parallel timeline involving the ownership status of property located in the Vail Valley in Eagle County, Colorado.

In June 2016, Schwartz, as trustee of the “Mark Alan Schwartz Revocable Living Trust Number One Dated 12/14/1999,” quitclaimed the property, located at 460 El Mirador in Edwards, Colorado (the “Property”), to Axis-an entity, as noted above, controlled by Schwartz. See Quitclaim Deed, ECF No. 19-2 (recorded on 6/28/2016 at reception number 201609829). The amount of “valuable consideration” for the transfer of the Property-described by the Schwartz Parties as a “7,800 sq. ft estate home [that] spans two acres and has panoramic mountain views,” Answer/Counterclaims ¶ 9-was ten dollars. ECF No. 19-2.

On May 21, 2021, while the Judgment by Confession against Schwartz Axis, and Tax Lien Law was on appeal, Axis recorded a quitclaim deed purporting to transfer the Property for ten dollars to the Yajia Hu Schwartz Revocable Trust, a trust controlled by Schwartz's wife.^[7] See Quitclaim Deed, ECF No. 19-4 (recorded on 5/21/2021 at reception number 202112157) (the “May 2021 Transfer”). The Property generates $250,000 in annual income for Yajia Schwartz. Answer/Counterclaim...