Yacht company wins round in suit over PNC prepayment fee

A Baltimore-based yacht services company can sue to recover a $116,000 prepayment fee on a $7 million loan it repaid this year, a federal judge has ruled.

U.S. District Judge James K. Bredar denied PNC Bank N.A.’s motion to dismiss the action by Tidewater Yacht Service Center Inc., ruling that the contracts drafted by the bank were “not so clear and unambiguous … that the court can dismiss Plaintiffs’ claims as a matter of law at this early stage of litigation.”

Both sides can use the pretrial discovery process and other evidence to show what they agreed to under their initial loan contract and a forbearance agreement they reached after Tidewater missed a payment, Bredar said.

“[D]iscovery and the introduction of extrinsic evidence may shed light on whether the Prepayment Provision was even considered during the drafting of the Forbearance Agreement and if so what the parties intended regarding its continued application,” the judge wrote.

Tidewater’s attorney, George F. Ritchie, praised the judge’s ruling.

“We are pleased with Judge Bredar’s decision to deny PNC Bank’s motion to dismiss our claims for breach of contract and unjust enrichment,” said Ritchie, of Gordon Feinblatt LLC in Baltimore. “We look forward to pursuing our claims in this matter and we are confident in the eventual outcome.”

PNC’s attorney, James T. Heidelbach, declined to comment, citing the bank’s policy of not speaking publicly on pending litigation. He is with Gebhardt & Smith LLP in Baltimore

In June 2005, Tidewater took out three loans totaling $7 million from Mercantile Bank, PNC’s predecessor.

The loans were consolidated into a promissory note. The contract on the note provided that Tidewater would be assessed a prepayment fee if the company paid the note before its maturity date of Oct. 31, 2025, according to Bredar’s memorandum.

When Tidewater defaulted on the note in April 2011, the lender and bank agreed to refinance the loan via a Forbearance Agreement. That agreement set a new maturity date of June 30, 2014.

Tidewater repaid the loan on Feb. 21 after asking PNC for the payoff amount. The bank’s figure included a prepayment fee of $116,462.84. Tidewater paid the fee “under protest,” retaining its right to sue to get it back, Bredar stated.

Tidewater filed suit on July 7 in U.S. District Court in Baltimore, alleging PNC breached the contract in assessing the fee. PNC moved to dismiss the suit, saying Tidewater had failed to state a plausible claim to relief because its obligation to pay the prepayment fee was “clearly set forth in the loan documents.”

But Bredar denied PNC’s motion, saying the initial contract and Forbearance Agreement “do not clearly and unambiguously entitle Defendant to the Prepayment Premium.”

Bredar said the meaning of “prepay” itself is unclear under the circumstances, since the forbearance agreement changed the maturity date from 2025 to 2014.

“[A] reasonably prudent person may understand the term prepay to mean ‘to pay before the maturity date’” — but that date was later accelerated in the forbearance agreement, Bredar wrote.

“If the Forbearance Agreement truly did not alter the prepayment premium provision, Plaintiffs’ adherence to the new terms would have necessarily triggered the premium,” the judge said. “That is to say, the advanced maturity date placed plaintiffs in the precarious position where they were forced to repay their loans either too early — in relation to the original maturity date, and thus triggering the Prepayment Provision — or too late — in relation to the advanced maturity date, and thus breaching the Forbearance Agreement.”

PNC can attempt to clarify these ambiguities at trial, Bredar added.

Tidewater filed the lawsuit in federal court based on an amount in controversy exceeding $75,000 and the diversity of citizenship between the Maryland-based company and the Pennsylvania-based bank.

The case is Tidewater Yacht Service Center Inc. v. PNC Bank, N.A., 1:14-cv-02170-JKB.