Zamias v. Fifth Third Bank

GEORGE ZAMIAS, ESTATE OF MARIANNA ZAMIAS, DECEASED,DAMIAN ZAMIAS, individually and as co-executor of the Estate of Marianna Zamias,STEPHEN ZAMIAS, individually and as co-executor of the Estate of Marianna Zamias,ESTATE OF SAMUEL ZAMIAS, DECEASED, Kathleen Zamias, Executor, Plaintiffs, v. FIFTH THIRD BANK, Defendant.

Case No. 3:17-cv-153

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

July 17, 2018

JUDGE KIM R. GIBSON

MEMORANDUM OPINION

I. Introduction

Pending before the Court is Fifth Third Bank's Motion for Judgment on the Pleadings (ECF No. 36). The Motion is fully briefed (see ECF Nos. 37, 41) and is ripe for disposition. For the reasons that follow, the Court will GRANT Fifth Third's Motion in full.

II. Background¹

A. Factual History²

This dispute arises from real estate loans made on the eve of the Financial Crisis to facilitate the construction of shopping malls in Eastern Pennsylvania. (See generally ECF No. 28 at ¶¶ 8-18.)

1. Fifth Third Extends Loans, which Plaintiffs Guarantee

In 2007, Fifth Third executed a $20,000,000.00 construction loan with Taylor Associates (the "Taylor Loan") to finance the construction of a mall in Taylor Borough, Lackawanna County. (Id. at ¶¶ 9, 12, 13.) George Zamias, Marianna Zamias, Damian Zamias, Samuel Zamias, and Stephen Zamias (the "Zamias Guarantors" or "Plaintiffs") executed a Continuing Guaranty and Suretyship Agreement for the full amount of the Taylor Loan. (Id. at ¶ 14.)

In 2008, Fifth Third executed an $11,400,000.00 construction loan with Pittston Associates (the "Pittston Loan") to finance the construction of a mall in Pittston Township, Luzerne County. (Id. at ¶¶ 10, 16.) The Zamias Guarantors executed a Continuing Guaranty and Suretyship Agreement for the full amount of the Pittston Loan. (Id. at ¶ 17.)

Fifth Third extended these loans despite knowing that they were not adequately collateralized. (Id. at ¶ 18.) Furthermore, at all relevant times, Fifth Third knew that Damian, Stephen, and Samuel Zamias were beneficiaries of a life insurance policy that would provide them with "substantial death benefit payment[s] upon the death of both George and Marianna Zamias." (Id. at ¶ 19.)

The Financial Crisis hit the Taylor and Pittston projects (together "the Projects") hard. (Id. at ¶ 21.) Multiple tenants terminated their commitments. (Id.) Around the same time, "Fifth Third ceased funding the Projects." (Id. at ¶ 22.) As a result, the Projects failed to pay their bills on time, causing creditors to file merchants' liens. (Id.) Construction on the Projects was also delayed. (Id.)

2. The Parties Modify the Loan Agreements and Plaintiffs Execute New Guaranties

Neither of the Projects had been completed by the time that the Taylor and Pittston Loans (together "the Loans") matured. (Id. at ¶¶ 24-26.) After the Loans matured, Fifth Third and the Zamias Guarantors modified the Loans and executed new guaranties. (Id.)

The Taylor Loan matured on June 1, 2009. (Id. at ¶ 24.) The parties amended the Taylor Loan on September 29, 2009 by executing the "Taylor First Loan Modification," which amended the promissory note (now the "Restated Note") and reduced the loan balance to $17,245,500.00. (Id. at ¶ 24.) The parties modified the Taylor Loan a second time on December 28, 2011, extending the maturity date to January 5, 2012. (Id. at ¶ 27.) The Zamias Guarantors executed new guaranties for these amendments to the Taylor Loan. (Id. at ¶¶ 24-26.)

The Pittston Loan matured on July 1, 2010. (Id. at ¶ 26.) The parties amended the Pittston Loan on September 10, 2010 by executing the "Pittston Forbearance Agreement," which reduced the principal to $9,925,000.00 and extended the expiration date to July 5, 2012. (Id. at ¶¶ 26.) The Zamias Guarantors executed new guaranties for the Pittston Forbearance Agreement. (Id. at ¶¶ 24-26.)

By late 2011, the Projects were worth "substantially less" than the value of the Loans. (Id. at ¶ 29.) But Fifth Third refused to allow the Zamias Guarantors to buy out their guarantees because Fifth Third believed that it could collect in full once George and Marianna Zamias died and their heirs collected their substantial life insurance benefits.³ (Id.)

To achieve its scheme to collect the life insurance benefits owed to Damian, Stephen, and Samuel Zamias, Fifth Third needed to keep the Taylor and Pittston Loans "on the books" until George and/or Marianna Zamias died. This required that Fifth Third "bridge the valuation gap" on the Projects; Fifth Third needed to make it appear that "the Loans were sufficiently collateralized" to comply with federal regulations. (Id. at ¶¶ 33-35.) Fifth Third accomplished this by entering into forbearance agreements on both Loans with the Zamias Guarantors in March of 2012. (Id. at ¶¶ 36-40.)

To bridge the valuation gap on the Taylor Loan, Fifth Third executed a "Forbearance Agreement" and a "Second Modification of the Loan Agreement." (Id. at ¶ 37.) Through these modifications, Fifth Third: (1) further reduced the balance by $5,000,000.00 to $12,245,000.00, (2) required Taylor Associates and Pittston Associates to execute a new note (the "Term Note") for $5,000,000.00 (effectively nullifying the $5,000,000.00 reduction in the overall balance), (3) required the Zamias Guarantors to guarantee the new Term Note, and (4) "required the Zamias Guarantors to execute pledges and collateral assignments of the partnership interests of numerous other projects . . . in which they had interests."⁴ (Id. at ¶ 37.) The reorganization of the Taylor Loan was accomplished on March 28, 2012 when the parties executed a "Forbearance Agreement" and a "Second Modification of the Loan Agreement." (Id. at ¶ 38.)

To bridge the valuation gap on the Pittston Loan, which was already in forbearance, Fifth Third "demanded" that the Zamias Guarantors "pledge and assign [to Fifth Third] their partnership interest in two projects"⁵ and mortgage Fifth Third land "that was already mortgaged to another bank." (Id. at ¶ 36.) In other words, Fifth Third "strong arm[ed]" the Zamias Guarantors into pledging assets that were "already pledged as collateral to other lenders." (Id.) The reorganization of the Pittston Loan was accomplished on March 28, 2012, when the parties executed the "First Amendment to Forbearance Agreement." (Id.)

Unsurprisingly, Fifth Third required the Zamias Guarantors to execute Amended Guaranties for the repackaged Taylor and Pittston Loans. (Id. at ¶ 39.)

Fifth Third also fixed a "release price" to each of the "pledged" properties. (Id. ¶ 43.) The release prices "bore no rational relation to any sort of industry accepted form of valuation but were instead manufactured . . . by Fifth Third . . . in order to make the [p]ledges appear to have value to federal regulators and thereby justify the Term Note that should have been written down altogether." (Id. at ¶ 45.) While several of the "pledged" properties have been foreclosed or refinanced, only two of them sold at their "release prices,"⁶ indicating that the "release prices" bore no relation to the actual value of the pledged properties. (Id. at ¶¶ 45, 50.) Fifth Third coerced the Zamias Guarantors into pledging these properties by threatening to confess judgment, despite knowing that assigning these pledges violated the loan agreements for each of the pledged properties. (Id. at ¶ 52.)

In January 2014, Fifth Third required Taylor Associates, Pittston Associates, the Zamias Guarantors, and Samuel Zamias's widow⁷ to execute amended forbearance documents on both Loans. (Id. at ¶ 59.) For the Taylor Loan, the parties executed an "Amendment to the Forbearance Agreement," an "Amended and Restated Promissory Note," and "Second Amended and Restated Guaranties for both the Term Note and [the] Restated Note" on January 29, 2014. (Id. at ¶ 61.) The same day, the parties executed a "Second Amendment to the Forbearance Agreement" on the Pittston Loan. (Id. at ¶ 60.)

3. The Borrowers File for Bankruptcy

On May 20, 2015, Taylor Associates and Pittston Associates filed for bankruptcy and sold the Projects at Fifth Third's direction. (Id. at ¶ 81.) The Pittston Project sold for $4,250,000.00. (Id. at ¶ 66.) The Taylor Project was deeded back to Fifth Third after Fifth Third submitted the highest offer in the form of a $6,100,000 "credit bid." (Id. at ¶ 88.) But Fifth Third failed to credit Taylor Associates, Pittston Associates, and/or the Zamias Guarantors with any value for the Taylor Project and never disclosed its appraisal value. (Id.) Fifth Third's refusal to credit Taylor Associates and the Zamias Guarantors either the fair market value or the sales price of the Taylor Project violated the terms of the Order Confirming the Sale of Property, entered by Bankruptcy Judge Deller as part of the bankruptcy proceedings. (ECF No. 28 at 16.)

B. Procedural History

On June 26, 2017, Plaintiffs filed this action in the Court of Common Pleas of Cambria County, Pennsylvania. (See ECF No. 1-2.) Plaintiffs asserted six counts against Fifth Third: (1) fraud; (2) tortious interference with contractual relations; (3) breach of duties of good faith and fair dealing; (4) accounting; (5) fraud in the inducement; and (6) predatory lending practices. (ECF No. 1-2 at 17-23.) Fifth Third removed the case to this Court on August 18, 2017. (ECF No. 1.) On August 25, 2017, Fifth Third filed a Motion to Dismiss. (ECF No. 4.) On September 5, 2017, Plaintiffs filed a Motion to Remand Based on Abstention. (ECF No. 7.)

On January 9, 2018, the Court entered a Memorandum Opinion and Order denying Plaintiffs' Motion to Remand and granting in part, and denying in part, Fifth Third's Motion to Dismiss. (ECF No. 26.) The Court denied Fifth Third's Motion to Dismiss Plaintiffs' tortious interference claim (Count 2) in regards to the allegations that were not barred by the statute of limitations. (Id. at 40.) The Court granted Fifth Third's Motion to Dismiss Plaintiffs' fraud claim (Count 1), fraudulent inducement...