PNC Bank, National Association v. Dana Transport, Inc.

Background

PNC Bank, National Association, Wells Fargo Capital Finance, LLC, Wells Fargo Bank, National Association, BMO Harris Bank, Huntington National Bank, Cathay Bank, and Bank Leumi, USA were lenders participating in a loan facility provided to Dana Transport, Inc. and Ronald B. Dana. The lenders alleged that the defendants owed attorneys’ fees incurred while defending an earlier lawsuit brought by Dana in this District. That earlier lawsuit was voluntarily dismissed before motion practice or a decision on the merits. The lenders incurred at least $246,704.38 in defense fees.

The parties’ 2009 Third Amended Loan Agreement required each borrower to indemnify the lenders for liabilities, costs, and attorneys’ fees incurred in claims or litigation related to the agreement or related transactions. The provision excluded losses arising from the willful misconduct of the party being indemnified. Ronald B. Dana also reaffirmed a personal guaranty. The defendants did not pay the fees, so the lenders filed this action.

Motions and Legal Standard

The lenders filed three motions for partial summary judgment. Summary judgment is a decision entered without a trial when the evidence shows that no genuine dispute over a material fact requires a jury’s decision and the moving party is entitled to judgment under the law.

The court stated that the lenders had to show the existence of a contract requiring indemnification, their performance under that contract, and the defendants’ failure to pay covered fees. The court found no dispute that the loan agreement existed, that the lenders performed by advancing funds, and that the defendants had not indemnified the lenders for the fees from the earlier lawsuit.

Duress Defense

The defendants argued that the Third Amended Loan Agreement and other lending documents were signed under economic duress. The court held that any duress defense had been waived because the defendants accepted the agreements’ benefits and waited until 2015—about two years after refinancing ended the lending relationship in January 2013—to raise duress.

The court also held that the defense failed on the merits. Economic duress requires a wrongful threat that deprives a party of free choice; financial pressure or unequal bargaining power alone is insufficient. The lenders’ threats to stop funding, raise interest, demand repayment, or exercise other contractual rights were not wrongful threats under the circumstances. The court also noted that Dana had acknowledged its defaults in the 2009 forbearance agreement.

Willful-Misconduct Defense

The indemnification provision did not apply to conduct arising from the lenders’ willful misconduct. The court held that, at a minimum, willful misconduct under New York law required an intentional breach of contract or comparable intentional wrongdoing. The court concluded that Dana had not produced evidence creating a genuine factual dispute that the lenders intentionally breached a contract, intended to cause harm, or acted with gross negligence.

The court addressed Dana’s allegations concerning the swap agreements, personal guaranty, collateral-title appraisals, real-estate financing, Wells Fargo’s role, consultant communications, fees and interest rates, credit decisions, and the payoff letter. It found that some allegations lacked evidentiary support, while others described conduct authorized by the loan agreements, ordinary error or negligence, legitimate economic self-interest, or conduct by someone other than the lenders. None established the required willful misconduct.

Other Defenses

The court rejected Dana’s other defenses. It held that the validity of the January 2013 payoff letter did not affect the indemnification obligation because that obligation survived termination of the loan agreement. The fraud defenses failed because Dana did not identify a material false statement on which it relied in signing the Third Amended Loan Agreement. The court also rejected the public-policy, unconscionability, and good-faith-and-fair-dealing defenses.

Disposition

The court granted the plaintiffs’ motions for partial summary judgment. It ruled that the defendants’ asserted defenses did not prevent enforcement of the indemnification provision as to the attorneys’ fees incurred in the earlier lawsuit. The court did not state in this opinion that it was entering a final fee amount, and it directed the parties to submit a joint letter proposing next steps within two weeks. The clerk was directed to terminate the motions listed at docket numbers 151, 157, 161, and 189.