                                                                 NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 _____________

                                     No. 11-2407
                                    _____________

                           INTERVEST NATIONAL BANK

                                           v.

                                 ROBERT WELCH;
                               ROBERT B. WELCH, JR.,
                                    Appellants
                                  _____________

                      Appeal from the United States District Court
                        for the Eastern District of Pennsylvania
                             (D.C. Civil No. 2-10-cv-03119)
                      District Judge: Honorable Timothy J. Savage
                                     _____________

                      Submitted Under Third Circuit LAR 34.1(a)
                                    July 9, 2012

               Before: RENDELL, SMITH and BARRY, Circuit Judges

                            (Opinion Filed: August 8, 2012)
                                   _____________

                              OPINION OF THE COURT
                                  _____________

RENDELL, Circuit Judge.

      In this case, a bank sued two individuals to enforce a guaranty agreement and

moved for summary judgment. The District Court granted summary judgment,

concluding that the defendants were collaterally estopped from challenging the validity
and amount of the underlying debt, and that the guaranty was unambiguous and

enforceable. We will affirm the District Court’s judgment.

                                       I. Background

       In June 2005, Fron-DJW, L.P. (“Fron L.P.”), a Pennsylvania limited partnership,

borrowed $4.21 million dollars from Intervest National Bank in order to acquire two

parcels of land in Maryland for development. Fron-DJW GP, LLC (“Fron GP”) was Fron

L.P.’s general partner. According to its organizational documents, Fron GP was managed

by Robert B. Welch. Fron L.P. also had limited partners.

       As part of the loan, Fron L.P. executed a promissory note and mortgaged the

properties to Intervest. Earlier drafts of the promissory note mistakenly listed the

promisor as Fron-DJW, LLC, which is a non-existent entity, rather than Fron L.P., the

actual promisor. The error was corrected in many places, but the signature block of the

signed promissory note mistakenly identified the maker of the note as Fron-DJW, LLC.

       In August 2005, Robert B. Welch and his father Robert G. Welch executed a

guaranty agreement on the loan.

       The property development plan failed and Fron L.P. defaulted on the loan.

Intervest filed an action in strict foreclosure in the state circuit court for Cecil County,

Maryland in June 2008, naming Fron L.P. as defendant. The Welches contend that at

some point thereafter, Robert G. Welch took over management of Fron GP from Robert

B. Welch. Fron L.P. appeared at the foreclosure action and, along with Intervest, filed a

joint motion for an order directing sale of the properties. In that joint motion, Fron L.P.



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acknowledged that it executed a note and mortgage in favor of Intervest, that it defaulted,

and that it consented to a judicial sale of the properties.

       The properties were sold at auction on September 29, 2009. Intervest, the only

bidder, purchased the properties for $500,000. The record shows that the properties had

been appraised at various times between 2005 and 2009 from $2.1 million to $7.6

million. On April 20, 2010, the Maryland court entered an order ratifying and confirming

the foreclosure sale.

       On June 15, 2010, Intervest demanded that the Welches, pursuant to the August

2005 guaranty agreement, pay 50% of Fron L.P.’s then outstanding indebtedness to

Intervest.

       On November 22, 2010, Fron L.P. filed exceptions to an auditor’s report in the

Maryland case, arguing, inter alia, that the sale price was artificially low and thus should

not be used to determine Fron L.P.’s remaining indebtedness to Intervest. In a

memorandum and order dated February 18, 2011, the Maryland state court rejected that

argument, saying that it should have been made before the foreclosure sale was ratified

and that Maryland courts rarely grant such exceptions.

       When the Welches failed to make payment under the guaranty agreement,

Intervest sued them in Federal District Court for the Eastern District of Pennsylvania.

Intervest moved for summary judgment, arguing that the validity of the promissory note

and the amount owed thereunder were established in the Maryland lawsuit and that the

Welches were collaterally estopped from challenging those determinations. Furthermore,



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it argued that there was no genuine issue regarding the validity of the guaranty or the

amount owed thereunder.

       The Welches contested summary judgment. They argued that they could not be

bound by the Maryland court’s determination of the validity of the note and the amount

owed because they were not parties to, nor in privity with, the defendant in the Maryland

case. They argued that the note is unenforceable because of Intervest’s unilateral drafting

mistake: listing Fron-DJW, LLC in the note’s signature block, rather than Fron L.P.

Furthermore, the Welches argued that an ambiguity in the guaranty agreement—as to

whether they guaranteed all of Fron L.P.’s debts or only 50% of them—created a genuine

dispute of material fact, precluding a grant of summary judgment.

       The District Court rejected these arguments and granted Intervest’s motion for

summary judgment. Although noting that the Welches were not themselves parties to the

Maryland court proceeding, the District Court held that their relationship with Fron L.P.

in the Maryland proceeding was sufficiently close that they are bound by the Maryland

judgment. Furthermore, the District Court held that the error in the promissory note—

listing Fron-DJW, LLC in the signature block instead of Fron L.P.—was a mutual

mistake that could be reformed by the court. Therefore, it held as a matter of law that the

promissory note was valid. In addition, the District Court found that the guaranty

agreement unambiguously required the Welches to personally guarantee 50% of Fron

L.P.’s indebtedness. Thus finding no dispute over any material fact, the District Court

entered an order against the Welches for $2,260,951.44.



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                                       II. Discussion 1

                                              A.

       The Welches argue that the District Court erred in finding that they could be

bound by the decision in the Maryland foreclosure action. This is an issue of collateral

estoppel, also known as issue preclusion. Maryland law determines the preclusive weight

of the prior Maryland court decision. Parsons Steel, Inc. v. First Ala. Bank, 474 U.S.

518, 523 (1986) (“[U]nder the Full Faith and Credit Act [28 U.S.C. § 1738] a federal

court must give the same preclusive effect to a state-court judgment as another court of

that State would give.”).

       Under Maryland law, four elements must exist for collateral estoppel to apply: (1)

the fact or issue decided in the prior litigation is identical to the one presented in the

subsequent litigation; (2) the fact or issue decided was essential to the prior judgment; (3)

there was a final judgment on the merits; and (4) the party against whom collateral

estoppel is asserted was a party or was in privity with a party to the prior litigation. Pope

v. Bd. of Sch. Comm’rs, 665 A.2d 713, 721 (Md. Ct. Spec. App. 1995). Only the fourth

element, privity, is at issue here. In Maryland, a person is in privity for preclusion

purposes if he “ha[d] a direct interest in the subject matter of the [earlier] suit, and ha[d] a

right to control the proceedings, make defense, examine the witnesses, and appeal if an

appeal lies.” Ugast v. La Fontaine, 55 A.2d 705, 708 (Md. 1947).



1
 The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction
pursuant to 28 U.S.C. § 1291. We exercise plenary review over a district court’s grant of
summary judgment. Reichley v. Pa. Dep’t of Agric., 427 F.3d 236, 244 (3d Cir. 2005).
                                               5
       The record demonstrates that both Robert B. Welch and Robert G. Welch were in

privity with Fron L.P. and therefore were rightly precluded from relitigating issues

resolved against Fron L.P. in the earlier Maryland foreclosure action. Robert G. Welch

does not dispute that he controlled Fron L.P.’s defense in the Maryland lawsuit. His

argument that his personal interests as guarantor did not align with Fron L.P.’s interests is

insupportable. Robert B. Welch, as the manager of Fron GP—which was the general

partner of Fron L.P.—had the right to control the earlier Maryland action. That fact,

along with his direct interest in the earlier proceeding, suffices to establish privity under

Maryland law. Ugast, 55 A.2d at 708. Furthermore, although there are constitutional

limits on the application of state privity rules to preclude litigants from their day in court,

Richards v. Jefferson Cnty., Ala., 517 U.S. 793, 798 (1996), we see nothing about the

application of issue preclusion to these parties that violates their constitutional right to

due process of law.

                                              B.

       The Welches also argue that the misidentification of the borrower in the final draft

of the promissory note was Intervest’s unilateral error, which cannot, under Maryland

law, be judicially reformed. We disagree. It was the clear intention of both Fron L.P.

and Intervest that Intervest would loan money to Fron L.P. in exchange for Fron L.P.’s

promises to Intervest. All the other closing documents refer to Fron L.P., not Fron-DJW,

LLC, and the actions of Fron L.P. and the Welches further confirm the parties’ mutual

intent. The District Court correctly identified this as a mutual mistake that can be

corrected by the court. See Hoffman v. Chapman, 34 A.2d 438, 439 (Md. 1943) (“It is a

                                               6
settled principle that a court of equity will reform a written instrument to make it conform

to the real intention of the parties, when the evidence is so clear, strong and convincing as

to leave no reasonable doubt that a mutual mistake was made in the instrument contrary

to their agreement.”).

                                             C.

       The Welches further argue that there is an ambiguity in the guaranty agreement as

to how much of Fron L.P.’s debt they were guaranteeing, thus nullifying their obligation

altogether. While paragraph 1 of the guaranty agreement says that the Welches guarantee

“[u]p to 50% of the obligations of Borrower,” paragraph 2 says that if the borrower is in

default of its obligations, the Welches will assume “all responsibility for Borrower’s

Obligations.” (722a-723a.) They say that a reasonable finder of fact could conclude that

this ambiguity renders the guaranty agreement unenforceable and that summary judgment

was thus inappropriate. Additionally, they argue that the term “Borrower’s Obligations,”

which was not defined in the guaranty agreement, could be interpreted by a reasonable

jury as referring only to Fron L.P.’s obligation to pay insurance premiums and taxes on

the property, not to repay the loan itself. Again, we disagree.

       It is absurd to take a purported uncertainty about whether the Welches guaranteed

50% of Fron L.P.’s debt or 100% and turn that into a jury issue as to whether the Welches

guaranteed any of the debt. It is also unreasonable to interpret the term “Borrower’s

Obligations” to exclude the obligation to repay the debt, which is the primary obligation

of any borrower. There is no genuine dispute about the enforceability of the guaranty



                                             7
agreement. The District Court correctly construed it as a matter of law and properly

granted summary judgment to Intervest.

      For these reasons, the District Court did not err in granting summary judgment to

Intervest. We will therefore affirm.




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