Article

Note: B. Levy and Sons (Borrower), an American shoe wholesaler and retailer, financed its operations with a revolving line of credit issued by the Third National Bank and Trust Co. of Scranton, Pennsylvania (Lender). Under this line of credit, Borrower used commercial LCs to provide payment for inventory orders from foreign manufacturers. Lender was acquired by Corestates Bank, N.A., and eventually merged with Wachovia Bank, N.A. (Successor Lender). After Lender was acquired by Successor Lender, Successor Lender required Borrower to liquidate its retail business in order for Lender to continue to issue LCs. After Borrower began the liquidation process, Successor Lender declared that Borrower was in breach of the lending agreement and refused to renew the line of credit or issue additional LCs. After Successor Lender declared the default, Borrower provided Successor Lender with financial information in an attempt to negotiate with Successor Lender to issue LCs, but Successor Lender refused to do so. Borrower attempted to obtain LCs from other sources, but was unsuccessful because Successor Lender "insisted on having the first lien security interest in any accounts receivable and inventory created by or purchased with the new [LCs]." As a result of Successor Lender's refusal to issue LCs, Borrower were unable to attain LCs to purchase inventory for their wholesale division.

Borrower sued Successor Lender for breach of contract and violation of its duty of good faith, fraudulent and negligent misrepresentation, and breach of fiduciary duty. After a jury trial, Borrower was awarded US$10,300,000 in compensatory damages and US$7,000,000 damages. Successor Lender moved for post-trial relief and Borrower moved for prejudgment and post-verdict interest. The Pennsylvania Court of Common Pleas, Nealon, J., denied Successor Lender's motion and granted Borrower's motion.

The appellate court ruled that Borrower's tort claims were not based on an existing contract, and that Successor Lender's actions in becoming involved with Borrower's operations gave rise to tort liability. The court also ruled that the Successor Lender's actions of entering into oral negotiations with Borrower without intending to issue LCs and in preventing Borrower from obtaining LCs from other sources was sufficient evidence to support a jury verdict for fraudulent and negligent misrepresentation and the finding that Successor Lender breached its fiduciary duty by becoming involved in Borrower's daily operations. Finally, the court found sufficient evidence to support a jury verdict that Successor Lender breached the contract by declaring Borrower to be in default when Borrower had acted on Successor Lender's recommendation to liquidate its retail division.

[JEB/al]

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