Hartley, D. and Hartley, S. v. Hynes, S. ( 2018 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
D. MICHAEL HARTLEY AND S. KENT : IN THE SUPERIOR COURT OF
HARTLEY : PENNSYLVANIA
:
:
v. :
:
:
STEPHEN J. HYNES, DOUGLAS J. :
HYNES, LESLIE A. HYNES AND : No. 1991 MDA 2017
MIDLANTIC ERECTORS, INC. :
:
Appellants :
Appeal from the Order Entered December 13, 2017
In the Court of Common Pleas of Berks County Civil Division at No(s):
16-2126
BEFORE: GANTMAN, P.J., NICHOLS, J., and FORD ELLIOTT, P.J.E.
MEMORANDUM BY NICHOLS, J.: FILED OCTOBER 19, 2018
Appellants Stephen J. Hynes, Douglas A. Hynes, Leslie A. Hynes
(collectively, the Hynes), and Midlantic Erectors, Inc. (Midlantic), appeal from
the order denying their petition to open judgment by confession in favor of
Appellees D. Michael Hartley and S. Kent Hartley (collectively, the Hartleys).1
We affirm.
As the trial court observes, the factual background of this case is
intricate but substantially undisputed by the parties.2 Metropolitan Steel
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1 We refer to the individual Hynes by their first names.
2 Nonetheless, we state the facts in the light most favorable to Appellants.
Iron Worker’s Savs. & Loan Ass’n v. IWS, Inc., 622 A.2d 367, 370 (Pa.
Super. 1993) (IWS).
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Industries, Inc. (MSI) is a steel fabrication company. MSI borrowed over $1.2
million from Wells Fargo, which was secured by a note (Wells Fargo Note)
giving Wells Fargo a lien and security interest in MSI’s assets, i.e., the
collateral for the loan. In pertinent part, the Wells Fargo Note provided that
MSI would pay the outstanding balance and interest by July 1, 2015.3 Default
under the note would occur if MSI failed to make any payment or if a guarantor
disputed the validity of any guaranty.4 R.R. at 25a (listing ten events of
default).5
To obtain the loan, each of the Hynes and Midlantic agreed to execute
a guaranty unconditionally guaranteeing payment of MSI’s loan to Wells
Fargo. In pertinent part, the guaranty provides as follows:
For good and valuable consideration, Guarantor absolutely and
unconditionally guarantees full and punctual payment and
satisfaction of Guarantor’s Share of the Indebtedness of Borrower
to Lender, and the performance and discharge of all Borrower’s
obligations under the Note and the Related Documents. This is a
guaranty of payment and performance and not of collection, so
Lender can enforce this Guaranty against Guarantor even when
Lender has not exhausted Lenders remedies against anyone else
obligated to pay the Indebtedness or against any collateral
securing the Indebtedness, this Guaranty or any other guaranty
of the Indebtedness. Guarantor will make any payments to
Lender or its order, on demand, in legal tender of the United
States of America, in same-day funds, without set-off or deduction
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3The Wells Fargo loan provided for eleven monthly payments in one set
amount, and the remainder in one “balloon” payment.
4The Wells Fargo Note referenced “Guarantor” and “Guaranty” but did not
define those terms.
5 We cite to the reproduced record for the parties’ convenience.
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or counterclaim, and will otherwise perform Borrowers obligations
under the Note and Related Documents.
R.R. at 32a, 38a, 44a, 50a.
The guaranty also explicitly waives numerous rights by the guarantor,
including any right to require the lender to “resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor [and] to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person.” Id. at 33a,
39a, 45a, 51a. Furthermore, the guaranty specifically states that the
“Guarantor also waives any and all rights or defenses based on suretyship or
impairment of collateral.” Id. The guarantor also “waives and agrees not to
assert or claim at any time any deductions to the amount guaranteed under
this Guaranty for any claim of setoff, counterclaim, counter demand,
recoupment or similar right, whether such claim, demand or right may be
asserted by the Borrower, the Guarantor, or both.” Id.
Leslie, who owned MSI’s stock, sold the stock to his sons, Stephen and
Douglas. On November 6, 2014, Stephen and Douglas subsequently entered
a stock purchase agreement to sell MSI to Steelco Acquisitions, LLC (Steelco).
Steelco is owned by the Hartleys and non-party CECTraining, LLC, a company
controlled by Charles Farris. Simply put, for a combined total of $5,000,000,
Michael and Kent each purchased 30% of MSI’s stock, and CECTraining
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purchased the remaining 40%.6 Of the $5,000,000 purchase price, $750,000
was payable at closing, with the remainder payable under a promissory note
(Hynes Promissory Note) executed by Steelco that same day.
Section 7.4 of the stock purchase agreement provided that Steelco could
offset the amount owed under the Hynes Promissory Note in accord with the
following:
In event that Purchaser should determine that that the Company
actually had (i) less collectible Accounts Receivable as of
September 30, 2014, then Purchaser shall notify the Shareholders
of the same, and the Note shall be offset by the amount of the
deficit, or (ii) greater Accounts Payable as of September 30, 2014,
then Purchaser shall notify the Shareholders of the same, and the
Note shall be offset by the amount of the excess.
R.R. at 301a.
On February 1, 2015, Steelco made an initial installment payment under
the Hynes Promissory Note. On April 29, 2015, the Hartleys and CECTraining
advised the Hynes that they would be invoking Section 7.4 and not make
payments due under the Hynes Promissory Note. Id. at 194a. They
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6 Steelco, the Hartleys, and CECTraining had executed an assignment and
assumption agreement, in which Steelco assigned its rights to purchase the
MSI stock directly to the Hartleys and CECTraining. In conjunction with the
execution of the (1) stock purchase agreement and (2) assignment and
assumption agreement, MSI, Wells Fargo, the Hynes, the Hartleys, and
CECTraining signed a consent agreement. The agreement provided that Wells
Fargo consented to the stock sale of MSI as long as the Wells Fargo loan was
paid before any other debts. The Hynes and Midlantic each signed a
reaffirmation of commercial guaranty, which confirmed their guarantor status
of the Wells Fargo loan.
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suggested that MSI had debts and accounts payable in excess of what was
represented in the stock purchase agreement. Id. at 195a. Therefore, the
Hartleys and CECTraining withheld payment. MSI failed to make a payment
under the Wells Fargo Note, including the final payment owed by July 1, 2015.7
On July 31, 2015, Wells Fargo notified all parties, including MSI, the
Hynes, and Midlantic, of the default under the Wells Fargo Note. On
September 21, 2015, the Hartleys purchased the Wells Fargo Note and the
above-mentioned guaranties under a loan sale agreement for the full value of
the then-outstanding amount owed to Wells Fargo, i.e., approximately $1.2
million. Accordingly, the Hartleys assumed the role of Wells Fargo, the lender,
in the Wells Fargo Note, and also received the Hynes Promissory Note.
Subsequently, on March 10, 2016, the Hartleys became the sole
shareholders of MSI.8 MSI continued to have financial issues, and ultimately
filed for bankruptcy on August 3, 2016. East Coast SteelFab, LLC, a company
owned by the Hartleys, offered to purchase MSI’s assets. The bankruptcy
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7 On July 24, 2015, Appellants sued Steelco, the Hartleys, CECTraining, and
Farris. That lawsuit, which is separate from the one before us, raises various
claims regarding payment under the Hynes Promissory Note and is still
ongoing. The most recent activity on the docket was on October 9, 2018,
when the Hynes and Midlantic moved to strike the objection of the Hartleys
and Steelco to a proposed third-party subpoena. Docket, No. 15-15579
(C.C.P. Berks).
8 MSI purchased CECTraining’s shares.
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trustee for MSI and the United States Bankruptcy Court for the Eastern District
of Pennsylvania approved the sale. The court’s order approving the sale noted
that the Hartleys would have a secured claim against MSI for around $1.2
million—the amount apparently owed under the Wells Fargo Note.9
On December 7, 2016, the Hartleys filed a complaint for confession of
judgment against Appellants for $1,392,547.29, which included the $1.2
million principal, interest, and counsel fees. R.R. at 6a. On January 12, 2017,
Appellants filed a petition to open the judgment, which raised several
defenses. First, Appellants argued that the Wells Fargo Note was satisfied
when East Coast SteelFab purchased MSI’s assets at the bankruptcy sale. Id.
at 140a-41a. Second, after the Hartleys purchased the Wells Fargo Note,
Appellants contended that they are entitled to a discharge because the
Hartleys impaired or otherwise failed to preserve MSI’s assets—the collateral
for the Wells Fargo Note. Id. at 142a. Third, Appellants claimed the Hartleys
acted in bad faith by intentionally or negligently mismanaging MSI by failing
to sell MSI’s assets to satisfy the Wells Fargo Note. Id. Although Appellants’
petition did not argue that the guaranties were invalid, their brief in support
argued that the guaranties’ waiver of defenses should be invalid when “the
holders of a note [i.e., Appellees,] are simultaneously in full control of the
principal obligee on the note [i.e., MSI].” Id. at 522a.
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9 Appellants’ brief did not address this particular amount.
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Following Appellees’ brief in opposition and oral argument, the parties
filed supplemental briefs addressing the validity of the guaranties’ waiver-of-
defenses clause. Appellants argued that the Pennsylvania Uniform
Commercial Code (UCC) invalidated the guaranties’ waiver of Appellants’
“impairment of collateral defense.” Id. at 576a. Appellees disagreed. Id. at
564a.
The trial court denied Appellants’ petition to open the judgment on
December 13, 2017. Appellants timely appealed and timely filed a court-
ordered Pa.R.A.P. 1925(b) statement.
Appellants raise the following questions on appeal:
1. Did the trial court err by not finding that the confessed
judgment should be opened because (1) Creditor Appellees D.
Michael Hartley and D. Kent Hartley (the “Hartleys”), who were
100 percent owners of the principal Debtor Metropolitan Steel
Industries, Inc. (“MST”), and thus owed themselves the full
amount of the Wells Fargo Loan, intentionally impaired the
collateral for the Wells Fargo Loan by refusing to pay off a single
penny of the loan or sell the company’s assets to satisfy the debt
and ultimately drove Metropolitan Steel Industries into bankruptcy
knowing they would just pursue the Hynes Defendants instead,
and (2) the waiver of defenses contained in the commercial
guaranties provided by the Hynes Defendants is void and
unenforceable to the extent that it conflicts with the provisions of
the Uniform Commercial Code, as adopted and codified in
Pennsylvania, that require creditors to use reasonable care to
preserve collateral, as set forth in 13 Pa. C.S.A. § 9207(a)?
2. Did the trial court err by not finding that principles of equity
required that the confessed judgment be opened because the
Hartleys had acted in bad faith by deliberately, or at the very least
grossly negligently, mismanaging MSI into bankruptcy and
destroying the value of its assets while holding the Wells Fargo
Loan, before purchasing the company’s assets out of bankruptcy
free of all liens and encumbrances?
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Appellants’ Brief at 6-7.
We summarize Appellants’ arguments for both of their issues together.
Appellants begin by asserting that under 13 Pa.C.S. § 9207(a), a “secured
party shall use reasonable care in the custody and preservation of collateral
in [its] possession.” Id. at 23 (quoting 13 Pa.C.S. § 9207(a)) (brackets in
original and internal quotation marks omitted); id. at 23-24 (citing caselaw
recognizing the defense of impairment of collateral). Appellants concede that
a guarantor may waive such a defense, but maintain that any such waiver
would violate the anti-waiver provisions of the Pennsylvania UCC. Id. at 24-
25 (citing Ford Motor Credit Co. v. Lotosky, 549 F. Supp. 996 (E.D. Pa.
1982)).10 Appellants claim that no Pennsylvania state court has addressed
the “waivability of a creditor’s duty to use reasonable care to preserve
collateral” but assert that several states have held that such a duty is not
waivable. Id. at 26-27. Appellants then argue that the record establishes
that the Hartleys impaired MSI’s collateral. Id. at 28-29. Appellants fault the
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10We recognize that “federal court decisions do not control the determinations
of the Superior Court. Our law clearly states that, absent a United States
Supreme Court pronouncement, the decisions of federal courts are not binding
on Pennsylvania state courts, even when a federal question is involved.”
NASDAQ OMX PHLX, Inc. v. PennMont Secs., 52 A.3d 296, 303 (Pa.
Super. 2012) (citation omitted). In any event, as explained below, Ford
Motor Credit construed 13 Pa.C.S. § 9501, which was subsequently replaced
and renumbered. Appellants elected to waive any argument addressing the
applicability, if any, of section 9501’s statutory successor.
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trial court for not reviewing the guaranties against that backdrop. Id. at 31.
Appellants similarly suggest that their failure to object to the guaranty’s
waiver clause at the time of execution was not a waiver because a clause that
violates public policy is void. Id. at 31-32.
Appellants also assert that they are entitled to equitable relief given the
Hartleys’ actions in purchasing MSI, causing MSI to file for bankruptcy, and
then entering confessed judgments. Id. at 34. Appellants suggest that the
bankruptcy court’s approval of the sale of MSI’s assets to the Hartleys did not
prevent them from challenging the confession of judgment based on the
Hartleys’ bad faith. Id. at 36.
We review an order denying a petition to open a confessed judgment
for an abuse of discretion. IWS, 622 A.2d at 370. The IWS Court provides
as follows:
Traditionally, a confessed judgment will be opened in only a
limited number of circumstances, and only when the person
seeking to open acts promptly, alleges a meritorious defense and
presents sufficient evidence of that defense to require submission
of the issues to the jury. In making such a determination, the
court employs the same standard as that of the directed verdict—
viewing all the evidence in the light most favorable to the
petitioner and accepting as true all evidence and proper inferences
therefrom supporting the defense while rejecting adverse
allegations of the party obtaining the judgment.
Id. (citations and quotation marks omitted). “Equitable considerations are
generally no longer relevant unless related to a particular defense asserted.”
Bell Fed. Sav. & Loan Ass’n of Bellevue v. Laura Lanes, Inc., 435 A.2d
1285, 1286 (Pa. Super. 1981) (Bellevue) (citation, quotation marks, and
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alteration in original omitted); accord Homart Dev. Co. v. Sgrenci, 662
A.2d 1092, 1097 (Pa. Super. 1995). Equity must follow the law. Murray v.
Willistown Twp., 169 A.3d 84, 94 (Pa. Super. 2017).
Pennsylvania Rule of Civil Procedure 2959 addresses the opening of a
judgment.
The court shall dispose of the rule on petition and answer, and on
any testimony, depositions, admissions and other evidence. The
court for cause shown may stay proceedings on the petition
insofar as it seeks to open the judgment pending disposition of
the application to strike off the judgment. If evidence is produced
which in a jury trial would require the issues to be submitted to
the jury the court shall open the judgment.
Pa.R.Civ.P. 2959(e).11
Before quoting the relevant Pennsylvania UCC statutes, we state the
rules of statutory construction, which are well-settled:
The Statutory Construction Act, 1 Pa.C.S. §§ 1901–1991, sets
forth principles of statutory construction to guide a court’s efforts
with respect to statutory interpretation. In so doing, however, the
Act expressly limits the use of its construction principles. The
purpose of statutory interpretation is to ascertain the General
Assembly’s intent and to give it effect. In discerning that intent,
courts first look to the language of the statute itself. If the
language of the statute clearly and unambiguously sets forth the
legislative intent, it is the duty of the court to apply that intent
and not look beyond the statutory language to ascertain its
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11 Rule 2959(c) provides that a “party waives all defenses and objections
which are not included in the petition or answer.” Pa.R.Civ.P. 2959(c). Here,
Appellants did not challenge the validity of the guaranties’ waiver-of-defenses
clause until oral argument, during which the trial court apparently ordered
supplemental briefs on this particular argument. Because the trial court did
not find waiver, we similarly decline. Indeed, we note that the trial court
quoted Rule 2959(c) without further discussion. Trial Ct. Op. at 4.
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meaning. Courts may apply the rules of statutory construction
only when the statutory language is not explicit or is ambiguous.
. . . We must read all sections of a statute together and in
conjunction with each other, construing them with reference to
the entire statute. When construing one section of a statute,
courts must read that section not by itself, but with reference to,
and in light of, the other sections. Statutory language must be
read in context, together and in conjunction with the remaining
statutory language.
Every statute shall be construed, if possible, to give effect to all
its provisions. We presume the legislature did not intend a result
that is absurd, impossible, or unreasonable, and that it intends
the entire statute to be effective and certain. When evaluating
the interplay of several statutory provisions, we recognize that
statutes that relate to the same class of persons are in pari
materia and should be construed together, if possible, as one
statute.
Retina Assocs. of Greater Phila., Ltd. v. Retinovitreous Assocs., Ltd.,
176 A.3d 263, 270 (Pa. Super. 2017) (citations and internal quotation marks
omitted) (Retina). “In construing a statute, the court must ascertain and
give effect to the legislative intention as expressed in the language of the
statute, and cannot, under its powers of construction, supply omissions in a
statute, especially where it appears that the matter may have been
intentionally omitted.” In re T.S., ___ A.3d ___, 2018 WL 4001825, *11 (Pa.
2018) (citation and brackets omitted).
With regard to whether a contract or a particular contractual clause
violates public policy, the Pennsylvania Supreme Court has stated:
Public policy is more than a vague goal which may be used to
circumvent the plain meaning of a statute. . . .
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Public policy is to be ascertained by reference to the laws
and legal precedents and not from general considerations of
supposed public interest. As the term “public policy” is
vague, there must be found definite indications in the law of
the sovereignty to justify the invalidation of a contract as
contrary to that policy. Only dominant public policy would
justify such action. In the absence of a plain indication of
that policy through long governmental practice or statutory
enactments, or of violations of obvious ethical or moral
standards, the Court should not assume to declare contracts
contrary to public policy. The courts must be content to
await legislative action.
It is only when a given policy is so obviously for or against
the public health, safety, morals or welfare that there is a
virtual unanimity of opinion in regard to it, that a court may
constitute itself the voice of the community in so declaring.
There must be a positive, well-defined, universal public
sentiment, deeply integrated in the customs and beliefs of
the people and in their conviction of what is just and right
and in the interests of the public weal. Only in the clearest
cases, therefore, may a court make an alleged public policy
the basis of judicial decision.
Hall v. Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994) (citations and
ellipses in original omitted); see also Seebold v. Prison Health Servs.,
Inc., 57 A.3d 1232, 1245 n.19 (Pa. 2012) (stating it “is the Legislature’s chief
function to set public policy and the courts’ role to enforce that policy, subject
to constitutional limitations” (citation omitted)).
Section 3605 of the Pennsylvania UCC, Article 3, Negotiable
Instruments, states that a party may not assert a defense of impairment of
collateral if that party waived such a defense either generally or specifically:
(i) Other limitations on discharge.—A party is not discharged
under this section if:
* * *
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(2) the instrument or a separate agreement of the party
provides for waiver of discharge under this section either
specifically or by general language indicating that parties waive
defenses based on suretyship or impairment of collateral.
13 Pa.C.S. § 3605(i)(2).12
Section 9207 of the Pennsylvania UCC, Division 9, Secured Transactions,
imposes a duty of care upon a secured party in possession of collateral:
(a) Duty of care when secured party in possession.—Except
as otherwise provided in subsection (d),[13] a secured party shall
use reasonable care in the custody and preservation of collateral
in the secured party’s possession. In the case of chattel paper or
an instrument, reasonable care includes taking necessary steps to
preserve rights against prior parties unless otherwise agreed.
(b) Expenses, risks, duties and rights when secured party
in possession.—Except as otherwise provided in subsection (d),
if a secured party has possession of collateral:
* * *
(4) The secured party may use or operate the collateral:
(iii) except in the case of consumer goods, in the manner
and to the extent agreed by the debtor.
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12No party, however, explicitly addressed whether the guaranties at issue are
negotiable instruments under article 3, qualify as “separate agreements”
under 13 Pa.C.S. § 3605(i)(2), or are secured transactions under article 9. All
parties have seemingly construed the guaranties as subject under both
articles.
13Subsection (d) addresses when “the secured party is a buyer of accounts,
chattel paper, payment intangibles or promissory notes or a consignor.” 13
Pa.C.S. § 9207(d).
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13 Pa.C.S. § 9207(a), (b)(4)(iii).
Section 9602 lists the rights and duties that cannot be waived by a
debtor or obligor:
Except as otherwise provided in section 9624 (relating to
waiver),[14] to the extent that they give rights to a debtor or
obligor and impose duties on a secured party, the debtor or obligor
may not waive or vary the rules stated in:
(1) section 9207(b)(4)(iii) (relating to expenses, risks, duties
and rights when secured party in possession) . . . .
13 Pa.C.S. § 9602(1). Comment 2 to section 9602 states that the “specified
rights of the debtor and duties of the secured party may not be waived or
varied except as stated.” Id. cmt. 2. Comment 3 similarly states that section
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14 Section 9624 follows:
(a) Waiver of disposition notification.—A debtor or secondary
obligor may waive the right to notification of disposition of
collateral under section 9611 (relating to notification before
disposition of collateral) only by an agreement to that effect
entered into and authenticated after default.
(b) Waiver of mandatory disposition.—A debtor may waive
the right to require disposition of collateral under section 9620(e)
(relating to mandatory disposition of consumer goods) only by an
agreement to that effect entered into and authenticated after
default.
(c) Waiver of redemption right.—Except in a consumer-goods
transaction, a debtor or secondary obligor may waive the right to
redeem collateral under section 9623 (relating to right to redeem
collateral) only by an agreement to that effect entered into and
authenticated after default.
13 Pa.C.S. § 9624.
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9602 “provides generally that the specified rights and duties ‘may not be
waived or varied.’” Id. cmt. 3. Section 9207(a) is not in the list of sections
that cannot be waived under section 9602.
In Lotosky, a federal district court was tasked with construing a prior
version of the Pennsylvania UCC, specifically 13 Pa.C.S. § 9501(c), which
provided as follows:
(c) Limitation on waiver of certain provisions.—To the extent
that they gave rights to the debtor and impose duties on the
secured party, the rules stated in the following provisions of this
title may not be waived or varied except as provided with respect
to compulsory disposition of collateral (Section 9505(a)) and with
respect to redemption of collateral (section 9506) but the parties
may by agreement determine the standards by which the
fulfillment of these rights and duties is to be measured if such
standards are not manifestly unreasonable.
(1) Section 9502(b) and section 9404(b) insofar as they require
accounting for surplus proceeds of collateral.
(2) Section 9504(c) and section 9505(a) which deal with
disposition of collateral.
(3) Section 9505(b) which deals with acceptance of collateral as
discharge of obligation.
(4) Section 9506 which deals with redemption of collateral.
(5) Section 9507(a) which deals with the liability of [a] secured
party for failure to comply with this chapter.
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Lotosky, 549 F. Supp. at 999 n.16 (quoting 13 Pa.C.S. § 9501(c) (repealed
2001)).15 According to the court in Lotosky, a comment to section 9501
codified
this long standing and deeply rooted attitude: the specified
rights of the debtor and duties of the secured party may not
be waived or varied except as stated.
13 Pa.Con.Stat.Ann. § 9501 comment 4 . . . . Thus, the statute
and comments unequivocally declare that as a matter of public
policy a creditor’s duty to use reasonable care in the custody and
preservation of collateral and upon default to dispose of the
collateral in a commercially reasonable manner is not subject to
waiver or modification by agreement.
Id. at 1001 (emphases and footnotes omitted).
Initially, section 3605 explicitly permits a separate agreement of a party
to waive the defense of impairment of collateral. See 13 Pa.C.S. § 3605(i)(2).
Appellants signed separate agreements—the guaranties—explicitly waiving
“any and all rights or defenses based on suretyship or impairment of
collateral.” See R.R. at 33a, 39a, 45a, 51a. Appellants have not argued they
are not parties. Accordingly, after construing the plain language of the
statute, as we must, Retina, 176 A.3d at 270, because Appellants signed
separate agreements providing for waiver, section 3605 does not permit
Appellants recourse. See 13 Pa.C.S. § 3605(i)(2).
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15 As noted above, Lotosky construed the then-existing version of the
Pennsylvania UCC.
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Appellants, however, argue that their waiver—notwithstanding the
language of section 3605—violates the Pennsylvania UCC’s anti-waiver
provisions. In support, Appellants cite Lotosky, which construed an older
version of Article 9 and did not address section 3605. Appellants, however,
have not presented any argument addressing the present version of Article
9 and any pertinent anti-waiver provisions. Absent any such argument, it
would be inappropriate for us to adopt the reasoning of Lotosky.16
Regardless, assuming that section 9602 applies, whether in addition to
or independently of section 3605, section 9602 lists the rights that may not
be waived. See 13 Pa.C.S. § 9602. Section 9207(a), which imposes a duty
of care upon a secured party in possession of collateral, is not among the
rights listed in section 9602. See id. (omitting section 9207(a) from the list
of rights and duties that cannot be waived). Appellants have not articulated
how section 9602 may be construed to preserve the rights set forth in section
9207(a). See generally Retina, 176 A.3d at 270. Further, if the legislature
intended to preserve any such right, then it could have been explicitly listed
in section 9602. See In re T.S., ___ A.3d at ___, 2018 WL 4001825 at *11.
The legislature did not, and Appellants have not referred this Court to long-
standing Pennsylvania jurisprudence or some other signal that this
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16In any event, Lotosky does not bind this Court. See NASDAQ OMX PHLX,
52 A.3d at 303.
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Commonwealth rejects the waiver of a defense of impairment of collateral.
See generally Seebold, 57 A.3d at 1245 n.19; Hall, 648 A.2d at 760.17
Thus, we decline to address whether Appellants’ waivers are void on the basis
of public policy.18
As for Appellants’ arguments that they are entitled to equitable relief,
we cannot consider the Hartleys’ purported actions to the extent they do not
relate to Appellants’ alleged impairment of collateral defense. See Bellevue,
435 A.2d at 1286-87. To the degree the Hartleys’ purported actions relate to
their defense, we have previously held that such a defense was unavailable to
Appellants as a matter of law and thus does not provide a basis for relief. See
Murray, 169 A.3d at 94 (stating equity must give way to the law). In sum,
we discern no abuse of discretion in the trial court’s holding that Appellants
have failed to demonstrate a meritorious defense. See IWS, 622 A.2d at
370.
Order affirmed.
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17As Appellees pointed out, a party may waive the defense of impairment of
collateral under Article 3. See 13 Pa.C.S. § 3605.
18 Without a statutory basis to void their waiver, we need not address
Appellants’ argument that the record established the Hartleys impaired MSI’s
collateral.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/19/2018
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