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`14 of 32 DOCUMENTS
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`PNC BANK, NATIONAL ASSOCIATION, Plaintiff, v. BRANCH BANKING AND
`TRUST COMPANY, Defendant.
`
`Case No. 8:08-cv-611-T—24TGW
`
`UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF
`FLORIDA, TAIVEPA DIVISION
`
`704 K Supp. 211 1229; 2010 US. Dist. LEXIS 32937
`
`March 8, 2010, Decided
`March 8, 2010, Filed
`
`SUBSEQUENT HISTORY: Motion granted by, in part,
`Motion granted by,
`in part, Motion denied by,
`in part,
`Costs and fees proceeding at PNC Bank V. Branch
`Brmking & Tru.s':‘ Co., 2010 US. Dist. LEYIS 84158
`(.:\/ID. Flax, July I6, 2010)
`Affintred by PNC Bank v. Branch Banking & Trust Co..
`412 Fed. /lpprt‘. 246, 201} US. App. LEXIS 2183 (11:12
`Cir. Fla, Feb. 2, 2011)
`
`PRIOR HISTORY: PNC Bank v. Branch Bcmirirtg ci-
`Trust‘ Ca, 2010 US. Dist. LEXIS 3046 (rl/ID. FlU., Jan.
`I 4, 2010)
`
`CASE SUMMARY:
`
`PROCEDURAL POSTURE: Plaintiff bank filed suit
`
`against defendant bank alleging (I) breach of contract,
`(2) a claim that defendant's failure to remit l00% of all of
`a company's principal
`repayments constituted gross
`negligence, bad faith, or willful misconduct
`,
`(3)
`conversion. and (4) breach of trust and fiduciary duty.
`Defendant filed a motion to dismiss.
`
`OVERVIEW: In the breach of contract ciaint, plaintiff
`alleged
`that
`defendant
`breached
`the
`participation
`agreement by (1) failing to remit to plaintiff all of the
`company's principal
`repayments,
`(2) allowing the
`
`company to use loan proceeds to pay for golf course
`expenditures, and (3) waiving late fees without plaintiffs
`consent. Defendant argued that plaintiff waived its right
`to assert a breach of contract claim relating to its failure
`to remit
`to plaintiff 100% of the company's principal
`repayments. The court found that plaintiffs acceptance of
`defendant's August 2, 2007 proposai, as well as plaintiffs
`failure to object
`to defendant's partial
`remittance of
`principal repayments during the year-and-a half that they
`funded the ioan together prior to the company's defauit.
`constituted clear evidence of plaintiffs waiver. Next. the
`court found that defendant's failure to remit to plaintiil"
`100% of all of the company's principal repayments was a
`mistake that amounted to mere negligence. The court
`reasoned that defendant mistalceniy remitted partial
`principal
`repayments
`to plaintiff, and there was no
`evidence that defendant ever intentionally withheld any
`of the principal repayments.
`
`OUTCOME: Defendant's
`
`motion to
`
`dismiss was
`
`granted.
`
`CORE TERMS: golf course, repayment, funding, loan
`proceeds,
`expenditures,
`email,
`remit,
`funded,
`loan
`balance, outstanding balance, bad faith, site, breach of
`contract,
`administered,
`gross
`negligence, willful
`misconduct, remitted, remittance, outstanding, collected,
`
`SENJU EXHIBIT 2338
`Lupin v Scnju,
`IPRZOIS-01097, IPRZUIS-01099,
`IPRZUIS-01100 &lPR20l:'a—n1tn:
`
`

`

`704- F. Supp. 2d 1229, *_'. 2010 U.S. Dist. LEXIS 32937, **
`
`Page 2
`
`remitting, screen, claims
`phases, conclusions of law,
`relating,
`inis-adntinistration, waived,
`inspection report,
`inspector's, totaling
`
`LexisNe.\'is(R) Headnotes
`
`[HN5] Good faith means honesty in fact and the
`observance of reasonable commercial standards of fair
`
`dealing, and it assures that neither patty acts in a manner
`that destroys the rights or interests of the other party to an
`agreement.
`
`Civil Procedure > Trials > Jury Trials > Province of
`Court & Jmy
`Contracts Law > Contract Conrlitions & E-ovisions >
`Waivers > General Overview
`
`[HNI] Whether a waiver has occurred is generally a
`question of fact.
`
`Corrtrrrcrs Law > Contract Comlitions & Provisions >
`Wiuivers > General Overview
`
`EHN2] Under Florida law, waiver is the voluntary and
`intentional selinquishnieat or abandonment of a known
`and existing right or privilege which, except for the
`waiver,
`the party would have enjoyed. Waiver can be
`established through express
`language or implied by
`conduct that clearly leads a party to believe that a right
`has been waived. However, more delay is insufficient to
`establish waiver.
`
`Contracts Law > Remedies > C'ompensa1.‘or_v Damages =-
`Geneml Overview
`
`{HN3] Damages for a breach of contract should put the
`plaintiff in the same position it would have been in had
`the defendant not breached the contract.
`
`Torts >~Ne'gIige:rce 3' Actions > General’ Overvirzw
`[HN-'1] A finding of gross negligence requires a showing
`of (1) the existence of a composite set of circumstances
`that,
`taken together, constitute imminent or clear and
`present danger amounting to more than normal and usual
`peril;
`(2) chargeable knowledge or awareness of the
`imminent or clear and present danger; and (3) the act or
`omission complained of must occur in a manner which
`evinces a conscious disregard of the consequences, as
`distinguished from a careless disregard (as in simple
`negligence) or from willful or wanton disregard (as in
`culpable or criminal negligence).
`
`Corm-acts Law :2 Corrrrrrcit Interprerritiorw > Good Fair}:
`& Fair Dealing
`
`Torts > Negligence >-Actions > General.’ Overview
`IHN6] A finding of willful misconduct
`requires a
`showing of (l) intentional performance of an act knowing
`that the act likeiy would result in injury or damage; (2) an
`action taken with reckless disregard of the consequences‘,
`or (3) a deliberate failure to discharge a duty necessaly to
`safety.
`
`[**I] For PNC Bank, National Association,
`COUNSEL:
`Plaiiitiffz Andrew J. Muha, Colin E. Wrabley, James .F.
`Restivo, Jr., Nina M. Faber, Paul M. Singer, LEAD
`ATTORNEYS, PRO HAC VICE, Reed Smith, LLP*,
`Pittsburgh, PA; Jeffrey Caner Andersen, Jeffrey Wayne
`Warren, LEAD ATTORNEYS, Bush Ross, PA, Tampa,
`FL.
`
`For Colonial Bank, N.A., Defendant: Christi Adams,
`James
`S. Grodin, LEAD ATTORNEYS, Foley &
`Lardner, LLP, Orlando, FL.
`
`For Branch Banking and Trust Company, Defendant:
`Christi Adams, LEAD ATTORNEY, Foley & Lardner,
`LLP, Orlando, FL.
`
`For Jay M. Cohen, Mediator: Jay M. Cohen, LEAD
`ATTORNEY, Jay M. Cohen, PA, Winter Park, FL.
`
`JUDGES: SUSAN C. BUCKLEW, United States
`District Judge.
`
`OPINION BY: SUSAN C. BUCKLEW
`
`OPINION
`
`[* 1230] ORDER
`
`This matter came before the Court on a non-jury trial
`that was held February 23-25, 2010. This Court has
`jurisdiction over this action pursuant to 28 U.S.C'. 5‘? I332.
`After comiidering all of the evidence,
`the deposition
`designations and cross-designations, the pleadings tiled
`by the parties, the arguments made by counsel, and the
`legal authorities snbniitted to the Court, the Court makes
`
`

`

`704 F. Supp. 2d 1229, *1230; 2010 U.S. Dist. LEXIS 32937, **1
`
`Page 3
`
`the following findings of fact and conclusions of law. To
`the extent that any of the findings of fact might constitute
`conclusions of
`[’**2]
`law,
`they are adopted as such.
`Conversely,
`to the extent that any conclusions of law
`constitute findings of fact, they are adopted as such.
`
`I. Finrlings of Fact 1
`
`Stipulated Facts ("SF") can be found in the
`l
`parties’ Pretrial
`Statement
`(Doc. No.
`63).
`References to the trial exhibits are as follows: J-it
`
`refers to the parties‘ joint exhibits, P—# refers to
`Plaintiffs exhibits, and D—# refers to Defendants
`exhibits.
`
`Attached to this Order are three er-thihits
`
`certain
`explain
`to
`the Court
`by
`created
`calculations within this Order, The information in
`these exhibits comes from evidence admitted
`
`during the trial, including J-55.
`
`is the successor to
`Piaintiff PNC Bank ("PNC")
`["=123l}
`(SF it 1).
`Mercantile Mortgage Corporation.
`Defendant Branch Banking & Trust Company is the
`successor-in~interest to certain assets of Colonial Bank
`
`("Coionial"). (SF # 3). Throughout this Order, the Court
`will referto Plaintiff as PNC and Defendant as Coloniai.
`
`This lawsuit arises out of a loan participation
`agreement ("Participation Agreement") entered into in
`August of 2006 by James Bange 2 of Coionial and John
`Long 3 of PNC. (SF # 5; SF it 8; J-6). The Participation
`Agreement related to a $ 36.5 million loan made by
`Colonial
`[**3] to Venetian Bay of New Smyrna Beach,
`LLC ("Venetian Bay")
`to
`fund Venetian Bay's
`construction of the Venetian Bay residential development
`community. (I-3. 1-6). The two main issues in this case
`relate to Colonials failure to administer the parties‘
`participation in the loan on a LIFO basis (as required by
`the Participation Agreement) and the use of the loan
`proceeds by Venetian Bay to pay for golf course
`cxpenditttres.
`
`James Bange was a senior lender at Colonial at
`2
`the time. (SF # 8).
`3
`John Long was the Senior Vice President of
`Mercantile, PNC's predecessor at the time. (SF #
`3).
`
`A rlministratiorz off}: 3 Parties’ Participrttiort in the Loan
`
`The undertying loan agreement between Colonial
`and Venetian Bay is similar to a line of credit, in that the
`balance of the loan was constantly changing. The ioan
`balance would increase when Venetian Bay drew upon
`the loan and would decrease when Venetian Bay made
`periodic principal repayments after it sold its lots to
`builders.
`
`The Participation Agreetnent provided that PNC
`would fund all
`loan amounts made by Cotonial
`to
`Venetian Bay in excess of S 26.5 million, up to a
`maximum amount of S
`10 million.
`Specifically,
`paragraph 6 of
`the Participation Agreement
`[**4]
`provides the following:
`
`this Participation
`theory of
`The
`Agreement between these parties is that
`[Colonial]
`shall
`fund
`the
`first
`$
`26,50t},000.00, and [PNC] shali fund all
`amounts
`above
`$
`26,5G0,000.00. All
`principal payments from [Venetian Bay]
`shalt
`be
`paid
`to
`{PNC}
`until
`the
`outstanding loan balance is paid down to $
`26,500,000.00, and dtereafter, all principai
`payments shalt be retained by [Coloniai].
`
`(J-6). This manner of ftrnding--where PNC funds 100%
`of all amounts in excess of $ 26.5 million and is paid
`100% of all amounts coilected by Colonial as long as
`PNC has an outstanding loan t3alance——is referred to as a
`LIFO loan. “
`
`LIFO stands for "last in, first out," meaning
`4
`that the last doliars put in to fund the loan are the
`first dollars repaid when amounts are collected
`from the borrower. By comparison, a revolving
`loan administered on a pro rata basis, or part
`passeu basis, would require that each bank
`advance principal based upon fixed percentages
`and receive principal
`reductions in a similar
`fashion.
`
`the Participation
`to Paragraph 14 of
`Pursuant
`Agreement, Colonial was the "lead" bank, responsihie for
`the collection, rnanagement, and administration of the
`loan. As such, Colonial
`[**5] directly funded Venetian
`Bay's draw requests, and then Coloniai sought funding
`front PNC for its participatiort
`in the funding. This
`funding procedure was set forth in Paragraph 6 of the
`Participation Agreement, which provides that when
`
`

`

`704 F. Supp. 2d i229, *123l; 2010 US. Dist. LEXIS 32937, **5
`
`Page 4
`
`Venetian Bay made a draw on the loan, Colonial was
`required to give PNC a funding request for the amount of
`PNC's participation (along with notice that all conditions
`precedent to the funding had been satisfied), and then
`PNC was required to wire the funds to Colonial within
`three days. (J—6).
`
`Venetian Bay made principal repayments directly to
`Colonial. Paragraph 16
`[*1232] of the Participation
`Agreement provides that when Venetian Bay made a
`principal repayment, Colonial was required to pay PNC
`100% of the amounts collected until PNC's outstanding
`balance was reduced to zero, and Colonial was required
`to make such remittance within two business days after it
`received the money from Venetian Bay. (J-6).
`
`Under Paragraphs 7 and 8 of the Participation
`Agreement, PNC was obligated to fund all amounts over
`95 26.5 million loaned to Venetian Bay as long as PNC's
`outstanding balance did not exceed $ 10 million. (J-6).
`Specifically, Paragraphs 7 and 8 of the Participation
`[**6] Agreement provide the following:
`
`7. PURCHASE AND SALE OF
`
`hereby
`[Colonial]
`PARTICIPATION.
`hereby
`and
`[PNC]
`sells
`to
`{PNC}
`purchases from [Colonial] the excess loan
`amounts of all fundings over and above iii
`26,500,000.00 based upon fundings drawn
`by
`{Venetian Bay} under
`the Loan
`Documents ("the Participation Amounts").
`The respective amounts of the Loan to be
`held by [Colonial] and [PNC], based upon
`the full advance of the proceeds of the
`Loan, are:
`
`a. [Colonials] Share: the
`lirsl $ 26,500,000.00; and
`
`['PNC's] Share: all
`b.
`amounts funded or to be
`funded in excess of
`$
`
`(maximum
`26,500,000.00
`of $ l0,000,000.00).
`
`8. PARTICIPATION PROCEDURE.
`
`a. [PNC] shall purchase
`Panicipation
`from
`the
`{Colonial} as provided in
`Paragraph 7 above.
`
`(J-6).
`
`On August 23, 2006, PNC wired to Colonial its first
`funding payment under the Participation Agreement
`in
`the
`amount of $ 8,913,920.27.
`(I-8). The parties
`determined this amount by taking the outstanding balance
`of the loan on August 17, 2006 ($ 35,413,920.2‘7) and
`subtracting the $ 26.5 million portion that Colonial was
`required to fund, leaving a balance of $ 8,913,920.27 to
`be funded by PNC. (J-55).
`
`is undisputed that after PNC's initial funding in
`it
`[**7] of 2006, Colonial failed to administer the
`August
`parties’ participation in the loan on a LIFO basis for
`almost a year. Instead, Michelle Fuller, Colonial‘s Vice
`President of Construction Loan Administration, testified
`that Colonial
`niistalcenly
`adtninistereti
`the parties‘
`participation in the loan on a pro rala basis. Fuller
`testilied that very few of the loans in her construction
`administration department were administered on a LIFO
`basis, and when PNC‘s loan participation information was
`manually entered into Colonial's computer
`system,
`someone mistakenly designated the parties‘ participation
`as pro rata, with PNC's participation being designated as
`27.397% of the loan. 5 (13-20). As a result, Colonial
`sought funding from PNC for 27.397% of the amounts of
`Venetian Bay's draw requests and Colonial
`remitted
`repayments from Venetian Bay to PNC for 27.397'% of
`the amounts that Colonial collected.
`
`5 This percentage was calculated by dividing the
`$ 10 million I‘l1a.\‘il‘tlull‘l amount that PNC would
`fund by the S 36.5 million t1‘lZt.\:il‘I‘ll1ll1 amount that
`could be loaned to Venetian Bay.
`
`panics‘
`the
`administration of
`erroneous
`This
`seen by
`reviewing the
`loan
`participation can be
`transactions that occuned. For e:~;ample_.
`[**8]
`from
`August 2006 through September 19, 2006, Colonial
`collected $ 2,511,008.88 from Venetian Bay. 0-55; 3-9).
`However, despite PNC's outstanding balance of almost 3
`9 million, Colonial only remitted 27.397'% or S
`687,947.55 to PNC.
`(I-55;
`J-9). Likewise,
`from
`September 6, 2006 through September 19, 2006, Colonial
`funded S l.,778,18].19 in draw [*1233]
`requests from
`Venetian Bay, but Colonial only sought funding front
`PNC for 27.397% of that amount or S 487,172.93. (J-55;
`13-1). When it sought funding from PNC or was remitting
`
`

`

`704 F. Supp. 2d 1229, *l233; 2010 U.S. Dist. LEXIS 32937, **8
`
`Page 5
`
`payments to PNC for these amounts, Colonial gave PNC
`documentation
`showing
`how the
`amounts were
`calculated. (J-9; D-1). This clocurrrentation revealed that
`Colonial was only seeking funding from, and remitting
`payments to, PNC at 27.397%. '5 (I-9; D-1).
`
`6 The documentation for the September 26, 2006
`remittance, November 7, 2006 funding request,
`January 9, 2007 remittance, January 18, 2007
`funding request, April 26, 2007 funding request,
`and April 25, 2007 remittance also revealed that
`Colonial was only seeking funding from, and
`remitting payments to, PNC at 27.397%.
`(D—2;
`D-4; D-5; 1-11; 1-15). Likewise, the Participation
`Certificate for PNC's outstanding balance on
`November 7,
`[**9] 2006 reflects that PNC‘s
`participation was considered to be 27.397%.
`(1-14).
`
`In luly of 2007, it was discovered that Colonial was
`not administering the parties‘ participation in the loan on
`a LIFO basis. As a result, on August 2, 2007, Jim Hogan
`from Colonial sent an email to John Long at PNC stating
`the following:
`
`. l have a slightly different proposal to
`.
`.
`make to you re: Venetian Bay. At
`the
`moment,
`due
`to
`[Colonial's]
`mis—atlministration of the loan and nothing
`that
`[PNC]
`did,
`[Colonial
`is]
`approximately [$ 873,000] over-funded on
`the current
`loan balance of
`[S 36.5
`million]. {Colonial has $ 27.373 million]
`outstanding and [PNC] has a balance of [$
`9.126 million].
`Under
`our
`LJFO
`agreement, [Colonial] should have ceased
`funding at
`[$ 26.5 million} and [PNC]
`should have funded up to your limit of [Eli
`l0 million].
`
`[Colonial] now ha[5] in hand funds to
`make a principal payment against the line
`of [$ 892,000}. I would like to propose to
`you that we apply [23 873,000} of that
`amount against
`[Colonial's] principal
`to
`get {Coloniai} back to our [3 26.5 million}
`cap. The remainder,
`[3 19,000] would
`come to [PNC] for principal reduction.
`Thereafter, until [PNC is] fully repaid, all
`principal [**l0} repayments would come
`
`to [PNC]. Does that work for you? I would
`really like to redress [Colonial's] overlimit
`situation in this rnarmer ifpossible.
`
`lolm Long responded via email:
`(J-23). An hour later,
`"Okay to your proposal." (I-23).
`
`As a result of this entail communication, on August
`3, 2007, Colonial remitted to PNC $ 19,669.69 of the S
`892,843.94 it received from Venetian Bay, which brought
`Colonial's outstanding loan balance to $ 26.5 million and
`PNC's outstanding balance to S 9,107,156.06.
`(I-23;
`I-25). Therefore, on that date, the parties‘ participation
`balances were exactly what they should have been had
`their participation been properly administered using LIFO
`for funding and remittance from the very beginning. (Ex
`1.2 to 13-27).
`
`Thereafter, when Colonial received the November 2,
`2007 and December 6, 2007 principal repayments from
`Venetian Bay, Colonial remitted 100% of these amounts
`to PNC. (I-55). However, when Venetian Bay made a
`draw against
`the loan on December 12, 2007 for $
`1,079,138.78, Colonial
`irritially sought
`funding from
`PNC for 27.397% of that amount, but about a week later,
`Colonial sought funding from PNC for the remainder.
`(J-55). Therefore,
`on December 27, 2007,
`[**ll]
`Colonial's outstanding loan balance was $ 26.5 million
`and
`PNC's
`outstanding
`balance
`was
`S
`9,14-2,758.72--exactly the amounts requiretl under proper
`LIFO atlministrution. (J-55; D-27, Ex. 1.2).
`
`On December 28, 2007, Venetian Bay made a draw
`against the loan for $ 832,837.42. (J-55). Colonial sought
`{"‘123-1]
`liutdirtg from PNC for the entire amount, but
`PNC refused to fund the draw.
`(J-43). Thereafter,
`Colonial received two more repayments from Venetian
`Bay totaling fl: 130,000, and Colonial remitted the entire S
`l30,000 to PNC. (J-55). As a result, PNC's renrairting
`outstanding principal balance is fl! 9,0l2,758.72. (I-55; SF
`:1 26).
`
`While Colonial concedes that it did not administer
`
`the parties‘ participation in the loan on a LEFO basis
`during the first year, Colonial argues that PNC waived
`any claims relating to Colonials administration when
`PNC accepted Colonials email proposal on August 2,
`2007 to fix their loan balances. 7' Additionally. Colonial
`argues, and its expert. James Cross, opined. that PNC did
`not
`stiffer any damages
`as
`a
`result of Colonial
`administration of the loan. 3 Cross explained that alter
`
`

`

`704 F. Supp. 2d 1229, *1234; 2010 U.S. Dist. LEXIS 32937, **1l
`
`Page 6
`
`Colonial remitted to PNC the partial amount of Venetian
`Bay's principal repayment on August 3,
`[**l2] 2007 for
`the puapose of adjusting the panics‘ loan balances, the
`parties‘ balances were exactly what
`they should have
`been if their participation had been administered under
`LIFO from the very beginning.
`
`7 The Court will address the issue of waiver in
`the Conclusions of Law section of this Order.
`
`The Court notes that John Long from PNC
`8
`testified that PNC was paid all interest due to it
`under the Participation Agreement.
`
`Ivan Hoffman, opined that PNC
`PNC‘s expert,
`suffered $ 9,012,758.72 in damages 9 as a result of
`Colonial's failure to remit to PNC 100% of Venetian
`
`their
`required by
`as
`repayments,
`Bay's principal
`Participation Agreement. I-lolfman opined that if Colonial
`had remitted to PNC 100% of Venetian Bay‘s principal
`repayments, then PNC would not have an outstanding
`balance today and would have been fully paid off.
`
`9 This damages l'1gnre—$ 9,0 l2,758.72—is PNC's
`outstanding loan balance today.
`
`PNC and Hoffman's theory is that PNC's damages
`are calculated by (l) determining the amount that PNC
`would have received had Colonial remitted to PNC 100%
`
`of Venetian Bay's principal repayments; 50 and (2) basing
`that calculation on the actual amount that PNC funded,
`without adjusting PNC's outstanding {**l 3] loan balance
`for the amounts that it would have funded had Colonial
`administered the loan on a LIFO basis
`from the
`
`beginning.
`
`10 After reviewing Hoffman's chart within his
`expert report detailing amounts he believed that
`Colonial should have paid to PNC. it appears that
`he did not take into consideration whether PNC
`
`would have had an outstanding balance that
`exceeded Venetian Bay's principal repayment at
`the time each principal
`repayment was made.
`(P-14, p. 5). However, under the Participation
`Agreement, PNC is only entitled to 100% of the
`Venetian Bay's principal repayments as long as
`PNC's outstanding balance exceeds the amount
`Venetian Bay remitted.
`
`account tl1e additional amounts that PNC would have
`funded if Colonial had administered the loan on a LIFO
`
`basis from the beginning) 11, Hoffman fails to properly
`account for the timing of the relevant
`transactions.
`Specifically, he fails to recognize that
`the timing of
`Venetian Bay's principal
`repayments, as well as the
`timing of PNC's funding, affect
`the amount of PNC's
`outstanding loan [**14] balance at any time, and PNC is
`only entitled to 100% of Venetian Bay's principal
`repayments when PNC has an outstanding balance that
`exceeded Venetian Bay's principal repayment.
`
`The Court will address this issue in the
`11
`Conclusions of Law section of this Order.
`
`[*1235} It appears that Hoffman merely adds up the
`amounts of principal repayments that Colonial collected
`from Venetian Bay from August 28, 2006 through
`September 23, 2008 (totaling 35 19,073,242.01) and
`compares that amount to the amount PNC actually funded
`($ l-1,865,378.87), and he determines
`that because
`Colonial collected an amount greater than the total
`amount funded by PNC, PNC‘s entire loan balance should
`have been paid off. However, as depicted in Exhibit 1 to
`this Order, when one
`actually goes
`through the
`transactions one by one to take in consideration the
`timing of each transaction, it is clear that even accepting
`PNC's theory for calculating damages, PNC would still
`have an outstanding balance of $ 1,711,346.01 today. 12
`
`12 Even PNC's Vice President, Nancy Hauprich,
`took the timing of Venetian Bay's principal
`repayments and PNC's funding into account when
`calculating the amount she believed that PNC
`should have been paid,
`[**l5] as well as PNC's
`outstanding balance,
`tluough July 2007.
`(33-11;
`l-22). She calculated PNC's outstanding balance
`through July 20, 2007 as being 3; 2,630,957.44,
`and
`the Court
`calculated
`it
`as being
`3;
`2,698,587.29. (D-ll‘,
`J—22j. Ex.
`1
`to this Order).
`While these amounts differ by more than $
`60,000,
`that
`is due in large part
`to I-lauprich
`erroneously recording the date that PNC funded S
`62,711.08 as being on February 23, 2007 instead
`of March 23, 2007. (J-22).
`
`Go(fCorrrsrz ExpgmIr't‘rrres
`
`Hoffman's analysis and opinion regarding PNC's
`damages is flawed. Even if this Court accepted PNC and
`Hoffman's damages theory (which does not take into
`
`In addition to filing suit over the aclnrjnistration of
`the parties‘ participation in the loan, PNC is also suing
`Colonial for allowing Venetian Bay to use the loan
`
`

`

`704 F. Supp. 2d 1229, ‘N235; 2010 US. Dist. LEXIS 32937, **l5
`
`Page 7
`
`proceeds to pay for golf course expenditures, which PNC
`contends was in violation of an agreement between PNC
`and Colonial. While there is evidence that Venetian Bay
`did use sotne of tlie loan proceeds to pay for the golf
`course, there is no evidence of any written agreement
`restricting Venetian Bay‘s use of the loan proceeds.
`
`the Venetian Bay
`of
`one
`Johnson,
`Jerry
`owners/developers, testified that from its inception, the
`development plan for the Venetian Bay community
`always contemplated the inclusion of a golf course. The
`evidence admitted during the [**l6] trial supports his
`testimony.
`
`Construction of the Venetian Bay community was
`done in phases. Colonial was the sole lender to Venetian
`Bay during its Phase 1A construction. Phase 1A consisted
`of Venetian Bay acquiring 850 acres of land and
`developing it
`into 294 single fainiiy residential
`lots.
`(P-4). PNC entered into the Participation Agreement with
`Colonial
`in 2006 during Venetian Bay's Phase
`IB
`construction. Phase 1B consisted of developing 352 acres
`into
`608
`single
`family
`residential
`lots
`and 310
`mutti-family units. (P-4).
`
`On June 26, 2006, Darren Sweeney, PNC's lending
`ollicer,
`recommended
`that PNC enter
`into
`the
`Participation Agreement.
`(P-6).
`In
`the
`documents
`attached
`to Sweeney's
`loan recommendation,
`the
`proposed loan is described as loan participation between
`Colonial and PNC in order "to help fund the strut of
`Phase 2 of the project." (P-6, p. 1961). Additionally, the
`loan description states that PNC‘s "participation has been
`requested to foster the continued growth of this project.
`Further advances in this participation will fund the tail
`end of Phase 1B and the start of Phase 2 development."
`(P—6, p. 1961). Phase 2 is described as golf course lots
`and condominiutns. (P-6, p. [**l7] 1963).
`
`Also in June of 2006, one or more representatives
`from PNC visited the Venetian Bay project site. (P-6, p.
`1938). At that time, construction of the golf course within
`the Venetian Bay community was underway.
`(P-7).
`Specifically, by August 9, 2006, golf course grading was
`28% compiete. (P-7).
`
`[H236] Jolm Long of PNC testified that from the
`beginning, PNC knew that a golf course was being
`constructed as part of the Venetian Bay connntuu'ty.
`However, Long contends that PNC was told that the golf
`course would be paid for by Venetian Bay's owners (Jerry
`
`Johnson, Sr. and Dipak Jobalia) out of their own pockets.
`Long testified that
`in March of 2006,
`there was an
`agreement between him and James Bange of Colonial
`that Colonial would not allow Venetian Bay to use any of
`the loan proceeds to pay for the golf course.
`
`In August of 2006, Colonial and PNC entered into
`the Participation Agreement. There
`is no express
`provision in the Participation Agreement that prohibits
`Venetian Bay from using the ioan proceeds for golf
`course expenditures. *3 (J—6). Likewise, there is no such
`restriction in the underlying loan agreernent between
`Colonial and Venetian Bay. 0-1).
`
`13 The Court notes that Paragraph 21 of [**l8]
`the Participation Agreement contains the express
`restrictions agreed to by Colonial and PNC. (I-6).
`Nowhere in this paragraph is there any express
`restriction on funding Venetian Bay's goif course
`expenditures.
`
`Long's testimony, as well as some of the emails
`admitted into evidence, support PNC's contention that
`PNC was told that none of the loan proceeds would be
`used to pay for goif course expenditures. Funhennore,
`there are some statements by Colonial in emails that were
`admitted into evidence that show that at
`least some
`peopie at Colonial were under the impression that PNC
`would reject Coionial's funding requests for golf course
`expenditures.
`
`However, even if Bange did tell Long that Venetian
`Bay could not use the loan proceeds to pay for golf
`course expenditures, such a statement could not be relied
`upon by PNC due to the language in the Participation
`Agreement.
`Specifically,
`Paragraph
`12
`of
`the
`Participation Agreement provides that Coloniai "does not
`make any express or implied warranty of any kind with
`respect to the Loan," and PNC "agrees and warrants that
`it
`.
`.
`. has not relied on any statement by {Colonial} in
`purchasing
`the
`Participation."
`(J-6). Additionally,
`Paragraph [**l9] 29 of the Participation Agreement
`provides that "[e}.\'cept as otherwise expressly provided,
`this Agreement and the other Loan Documents embody
`the entire agreement and understanding between the
`parties hereto and supersede all prior agreements and
`understandings relating to the subject matter hereof."
`(J-6).
`
`Jerry Johnson testified that Landirr, Inc. performed
`most of the work on the gotf course. Johnson testified
`
`

`

`704 F. Supp. 2d 1229, *1236; 2010 US. Dist. LEXIS 32937, **19
`
`Page 8
`
`that he and his business partner, Dipak Jobalia, paid for
`the vast majority of the golf course expenditures out of
`their own pockets, totaling approximately $ 10 to $ 12
`million, and that they only used two draws on the loan for
`golf course expenditures.
`
`However, PNC's expert, Ivan Hoffman, opined that
`Venetian Bay used at
`least
`33 5,806,592 of the loan
`proceeds to pay for the golf course. Hoffman expiained in
`his expert report (P-14) and testified at trial regarding
`how he arrived at this amount, which was based on three
`types of evidence: (1) an April 11, 2007 site inspection
`report, (2) two emails, and (3) two screen prints from
`Colonial's computers.
`
`Specifically, Hoffman opines that an April 11, 2007
`site inspection report (13-10) shows that 58 1,044,937 of
`loan proceeds was
`[**20] spent on the golf course.
`Additionally, he opincs that Colonial's representations in
`two emaiis (P-ll, I-29) show that an additional $ 1.6
`million of loan proceeds was spent on the golf course.
`Finally, he opines that screen prints from Colonial's
`computers
`(L28;
`J-51)
`show that an additional $
`3,161,655 of loan proceeds was spent on the golf course.
`However, a closer
`[H237]
`review of this evidence
`reveals that his opinions are flawed.
`
`The April 11, 2007 site inspection report shows that
`the site inspector concluded that the construction that
`occurred dining the period was valued at $ 1,044,937.
`Venetian Bay did not pay that amount, because a
`percentage for retain:-tge was withheld. Instead, the report
`shows
`that
`the
`inspector approved the
`following
`payments for this work: $ 482,456.20 to be paid to Orion
`Construction and $ 468,715.92 to be paid to Landirr, Inc.
`Since Johnson testified that Lanclirr, Inc. did most of the
`golf course construction,
`the Court finds that
`this site
`inspection report supports the conclusion that
`the $
`468,715.92 paid to Landirr,
`Inc, was for golf course
`expenses. However,
`the Court
`finds
`that Lhis
`site
`inspection report does not provide a sufficient basis for
`concluding [**21} that the $ 482,456.20 paid to Orion
`Construction was for golf course expenses. ‘4
`
`inspection report describes
`site
`The
`id
`development and construction completed on the
`project during the period. However. this Court is
`not well-versed in the terms used to describe the
`work done and cannot determine from the site
`
`report alone whether the work described therein
`was for the golf course.
`
`Hoffman also relied on two emails, which he
`believes support another 32 1.6 million in golf course
`expenditures. One of the emails, dated April 14, 2008, is
`from Michelle Fuller of Colonial, and in it she states that
`a draw was funded to pay Landirr,
`Inc. for the golf
`course.
`(P-ll). She goes on to state that
`the site
`inspector's report's approved funding of $ 1,808,795.82,
`Colonial funded $ 1.6 million of that amount, and $
`666,971.22 of the $ 1.6 million was paid to Landirr, inc.
`(P-11). The May 18, 2007 site inspectors report tracks
`these amounts.
`(P—ll). The Court views this email as
`supporting the contention that the $ 666,971.22 paid to
`Landirr, Inc. was for the golf course, but the email and
`site inspector's report do not show that the remainder of
`the S 1.6 million was used to pay for the golf course.
`
`The [’‘‘’‘‘22] other email, dated November 14, 2007,
`is from Jacques Coultiard of Colonial, and in it he states
`that the last draw "was mainly for golf course items."
`(1-29). The draw that he is refening to is Venetian Bay's
`draw of $ 1.6 million on May 21, 2007 (which is the
`same draw discussed in Fuller's April 14, 2008 email).
`However, the Court finds that his statement that the draw
`"was mainly for golf course items" is not sufficient to
`support the conclusion that the entire 39 1.6 million draw
`was used for the golf course. The Court will not make
`such an assumption. Therefore, the Court concludes that
`these two emails show that $ 666,971.22 of loan proceeds
`was used for the golf course.
`
`Next, Hoffman relied on two screen prints from
`CoEonial's computers to support his opinion that an
`additional $ 3,161,655 of loan proceeds was used to pay
`for the golf course. One of the screen prints shows that
`Colonial disbursed $ 500,000 on April 6, 2007 to
`Venetian Bay.
`(1-51). On the printout of the screen
`image, someone wrote "Portions of this draw are for golf
`conrse." (1-51).
`It
`is not ciear as to who wrote that
`statement and what information that statement was based
`on. As such,
`the Court does not View [*"‘23} that
`document as sufficient eviden