J-A19019-14


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

CITIZENS BANK OF PENNSYLVANIA,                  IN THE SUPERIOR COURT OF
                                                      PENNSYLVANIA
                         Appellant

                    v.

FINE CAPITAL ASSOCIATES, L.P., AND
FFC PARTNERSHIP, L.P.,

                         Appellees                  No. 1367 WDA 2013


              Appeal from the Order Entered August 5, 2013
            In the Court of Common Pleas of Allegheny County
                   Civil Division at No(s): GD-10-018621


BEFORE: BENDER, P.J.E., OLSON and FITZGERALD,* JJ.

MEMORANDUM BY OLSON, J.:                        FILED NOVEMBER 25, 2014

      Appellant, Citizens Bank of Pennsylvania, appeals from the order

entered on August 5, 2013, which granted the motion for summary

judgment filed on behalf of Appellees, Fine Capital Associates, L.P. and FFC

Partnership, L.P. (hereinafter “the Guarantors”), implicitly denied Appellant’s

cross-motion for summary judgment, and dismissed Appellant’s complaint

against the Guarantors with prejudice.         After careful review, we are

constrained to vacate the learned trial court’s order in part and remand.

                                Introduction

      By way of overview, this case arose from a lending relationship

between Appellant, the Guarantors, and the following entities: BPP Illinois,

LLC, BPP Iowa, LLC, BPP Michigan, LLC, BPP Minnesota, LLC, BPP Texas, LLC,

and BPP Wisconsin, LLC (hereinafter “the Debtors”).            Briefly stated,


* Former Justice specially assigned to the Superior Court.
J-A19019-14



Appellant loaned the Debtors a substantial sum of money, so that the

Debtors could develop certain hotel properties, and the Guarantors promised

to be the Debtors’ surety on the loan obligations.          The promises and

obligations of the parties were memorialized in a credit facility (between

Appellant and the Debtors) and in a Guaranty and Suretyship Agreement

(between Appellant and the Guarantors).

      Appellant claimed that the Debtors and the Guarantors defaulted

under the respective agreements; and, as a result of the default, Appellant

accelerated the loan.   When neither the Debtors nor the Guarantors paid

Appellant’s demand, Appellant filed suit against the Debtors and Guarantors

in the Court of Common Pleas of Allegheny County, claiming breach of

contract.

      While the lawsuit was pending in the trial court, the Debtors filed for

bankruptcy protection under Chapter 11 of the Bankruptcy Code. The trial

court then stayed the entire underlying lawsuit pending the bankruptcy

proceedings.

      In the Bankruptcy Court, the Debtors’ Confirmed Plan declared that,

“in full and final satisfaction” of Appellant’s claim, the Debtors were required

to sell all of their hotel properties and provide Appellant with the proceeds

from the sales. The Confirmed Plan also required that the Debtors execute

and provide Appellant with amended loan documents, which restructured the

loan. The Confirmed Plan then incorporated, into the Plan, the obligations

contained in the restructured loan documents.

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       Following the discharge of the Debtors, Appellant’s litigation against

the Guarantors continued in the trial court. There, the Guarantors promptly

filed a motion for summary judgment, claiming that the restructured loan

documents – that Appellant and the Debtors had executed in the Bankruptcy

Court and in accordance with the Confirmed Plan – had “cured” the

Guarantors’ earlier default under the Guaranty and Suretyship Agreement.

The Guarantors also claimed that the restructured loan documents had

materially modified their obligations as a surety, and that the Guarantors

were thus relieved of any liability under the Guaranty and Suretyship

Agreement.

       The trial court granted the Guarantors’ summary judgment motion and

dismissed Appellant’s complaint against the Guarantors.       Appellant filed a

notice of appeal.

                                          Facts

       On October 4, 2010, Appellant commenced the instant suit by filing a

complaint against the Guarantors and the Debtors.1,   2
                                                          As Appellant averred,

on February 8, 2008, Appellant agreed to loan the Debtors $66,000,000.00
____________________________________________


1
   The complaint declared that each of the Debtors is a single-purpose,
limited liability company, whose sole material asset is the ownership of one
or more hotel. Appellant’s Complaint, 10/4/10, at ¶¶ 2-7.
2
  Appellant claimed that the Guarantors and the Debtors “are all owned and
controlled, through a number of corporate intermediaries, [by an individual
named] Milton Fine.” Appellant’s Complaint, 10/4/10, at 3-4.




                                           -3-
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(hereinafter “the Loan”), so that the Debtors could renovate, reflag,

purchase real property for, and operate the 22 hotels that the Debtors

owned.3 Appellant’s Complaint, 10/4/10, at ¶ 13. The Loan was secured by

mortgages on the 22 hotels and by a February 8, 2008 Security Agreement

between Appellant and the Debtors. Id. at ¶ 19.

       The terms of the Loan were governed by a Credit Agreement, which

Appellant and the Debtors executed on February 8, 2008.           The Credit

Agreement defined an “Event of Default” as including the failure of the

Debtors to pay the principal or interest on the Loan within 15 days of the

amounts becoming due. Credit Agreement, 2/8/08, at ¶ 8.1.1. Under the

Credit Agreement, if such an Event of Default occurred:

         [Appellant] shall be under no further obligation to make
         Loans and [Appellant] may by written notice to [the
         Debtors], declare the unpaid principal amount of the Notes
         then outstanding and all interest accrued thereon, any fees
         and all other Indebtedness of [the Debtors] to [Appellant]
         hereunder and thereunder to be forthwith due and payable,
         and the same thereon become and be immediately due and
         payable to [Appellant] without presentment, demand,
         protest or any other notice of any kind, all of which are
         hereby expressly waived.

Id. at ¶ 8.2.1.


____________________________________________


3
  Appellant averred that “[a]ll of the [hotels] are owned by a [Debtor] in fee
simple, with the exception of the Super 8 [Hotel] located in Wauwatosa,
Wisconsin, which BPP Wisconsin holds as a leasehold.”              Appellant’s
Complaint, 10/4/10, at ¶ 14. Yet, for ease and clarity of explanation, we will
simply refer to the Debtors as the “owners” of the hotels.



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       Moreover, pursuant to the terms of the Credit Agreement and in

consideration of the credit that was to be granted the Debtors, Appellant and

the Guarantors entered into a separate Guaranty and Suretyship Agreement.

See Credit Agreement, 2/8/08, at ¶ 6.1.3 (“conditions of lending”);

Guaranty and Suretyship Agreement, 2/8/08, at 1. Under the Guaranty and

Suretyship Agreement, the Guarantors agreed to become the “absolute and

unconditional guarantors and sureties as though they were primary obligors

to [Appellant]” of, among other things:          1) “the prompt payment and

performance when due” of a stated portion of the Debtors’ principal payment

obligations; and 2) the payment of all interest under the Loan and the

payment of all expenses Appellant might incur in enforcing its rights or

collecting under either the Guaranty and Suretyship Agreement or the Loan

Documents.4 Guaranty and Suretyship Agreement, 2/8/08, at ¶ 1.
____________________________________________


4
 The Credit Agreement defined the term “Loan Documents” in the following
manner:

         Loan Documents shall mean [the Credit Agreement], the
         Guaranty Agreement, the Environmental Indemnity, the
         Lease Assignments, the Mortgages, the Notes, the Security
         Agreement, the Collateral Assignments, agreements related
         to Bank-Provided Hedges and any other instruments,
         certificates or documents delivered or contemplated to be
         delivered hereunder or thereunder or in connection herewith
         or therewith, as the same may be supplemented or
         amended from time to time in accordance herewith or
         therewith, and Loan Document shall mean any of the Loan
         Documents.

Credit Agreement, 2/8/08, at ¶ 1.1.



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       The Guaranty and Suretyship Agreement between Appellant and the

Guarantors further provided:            that Appellant may, at its sole option,

exchange or release any collateral security held by Appellant for any of the

“Debtor Liabilities;”5 that Appellant may, at its sole option, “renew, extend,

modify, supplement, amend, release, alter or compromise the terms of any

or all of the Debtor Liabilities;” that the Guaranty and Suretyship Agreement

was a continuing agreement and remained in force until “all Debtor Liabilities

and all other amounts payable under the Loan Documents have been paid

and performed in full;” that the Guarantors’ liability under the Guaranty and

Suretyship Agreement “is absolute and unconditional for the aggregate of

the Debtor Liabilities;” that the Guarantors waived all notice with respect to

the present existence or future incurrence of any Debtor Liabilities, including

“the amount, terms[,] and conditions thereof;” and, that the Guarantors

waived “any defense arising by reason of any disability or other defense

whatsoever to the liability of any Debtor.” See id. at ¶¶ 2, 4, 11, 12, 13,
____________________________________________


5
   Under the Guaranty and Suretyship Agreement, the term “Debtor
Liabilities” included the “Principal Payment Liabilities” and the “Cost Payment
Liabilities.” In short, the “Principal Payment Liabilities” are the Debtors’
existing and future liabilities and obligations with respect to the payment of
the Loan principal (including “any extensions, modifications, . . . and
substitutions therefor . . . of any nature whatsoever”); the “Cost Payment
Liabilities” are the Debtors’ existing and future liabilities and obligations with
respect to the payment of the Loan interest and the cost of enforcing the
agreements or collecting on the obligations (including “any extensions,
modifications, . . . and substitutions therefor . . . of any nature
whatsoever”). Guaranty and Suretyship Agreement, 2/8/08, at ¶ 1.




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J-A19019-14



15, and 18. With respect to the Debtors’ possible bankruptcy, the Guaranty

and Suretyship Agreement specifically declared:

         16.     BANKRUPTCY OF THE DEBTOR.               Neither the
         Guarantors’ obligations to make payment in accordance
         with the terms of [the Guaranty and Suretyship] Agreement
         nor any remedy for the enforcement hereof shall be
         impaired, modified, changed, released or limited in any
         manner whatsoever by any Debtor’s bankruptcy or by any
         impairment, modification, change, release or limitation of (i)
         the liability of any Debtor, any Person assuming the
         obligations of any Debtor under any of the Loan Documents
         or such Debtor’s estate in bankruptcy. . . .

Id. at ¶ 16.

       Further, the Guaranty and Suretyship Agreement declared:

         20. ACCELERATION OF THE GUARANTORS’ LIABILITIES.
         Upon the occurrence of an Event of Default,[6] all of the
         Debtor Liabilities shall, at [Appellant’s] sole option, be
         deemed to be forthwith due and payable for the purposes of
         this Agreement and for determining the liability of the
         Guarantors hereunder, whether or not [Appellant] has any
         such rights against any other Obligor, and whether or not
         [Appellant] elects to exercise any rights or remedies against
         any other Person or property including, without limitation,
         any other Obligor.

____________________________________________


6
  The Guaranty and Suretyship Agreement defined an “Event of Default” as
including the following occurrences: 1) “[t]he Guarantors shall fail to pay
any principal of any Loan (including scheduled installments, mandatory
prepayments or the payment due at maturity) or shall fail to pay any
interest on any Loan or any other amount owing hereunder or under the
other Loan Documents within ten (10) days after such principal, interest or
other amount becomes due in accordance with the terms hereof or thereof
(whether at stated maturity, by acceleration or otherwise)” and 2) “[a]n
‘Event of Default’ shall occur under any other Loan Document.” Guaranty
and Suretyship Agreement, 2/8/08, at ¶¶ 19.1 and 19.4.



                                           -7-
J-A19019-14



Id. at ¶ 20.

      As Appellant averred, the Debtors borrowed a total principal amount of

$65,815,728.44 from Appellant, in accordance with the above agreements.

Appellant’s Complaint, 10/4/10, at ¶ 42.

      Appellant further averred that, on March 22, 2010, it provided the

Debtors and the Guarantors with written notice that Events of Default under

the Credit Agreement had occurred.     These Events of Default included the

failure of the Debtors and the Guarantors to make scheduled interest

payments on the Loan. Id. at ¶ 26; Letter, 3/22/10, at 1-3. As a result of

the default, Appellant informed the Debtors and the Guarantors that it was

declaring the entire principal amount of the Loan and all interest, unpaid

fees, and indebtedness to be “forthwith due and payable.” Letter, 3/22/10,

at 2; Appellant’s Complaint, 10/4/10, at ¶ 26.

      When neither the Debtors nor the Guarantors paid what was

demanded, Appellant filed its two-count complaint, wherein Appellant

claimed breach of contract against the Debtors and breach of guaranty

against the Guarantors. Appellant’s Complaint, 10/4/10, at ¶¶ 41-48.

      The Debtors and the Guarantors filed responsive pleadings to

Appellant’s complaint and both sets of defendants denied liability.    Within

the Guarantors’ answer and new matter, the Guarantors essentially claimed

that they were not liable under the Guaranty and Suretyship Agreement

because Appellant “orally modified the obligation underlying the Guaranty by

consenting to the non-payment of interest” and, in the alternative, that their

                                    -8-
J-A19019-14



obligations under the guaranty were discharged because Appellant impaired

the value of the collateral.   See, e.g., The Guarantors’ Answer and New

Matter, 11/1/10, at ¶ 20.

      On December 21, 2010, the Debtors each filed voluntary petitions for

relief under Chapter 11 of the Bankruptcy Code. The trial court thus stayed

Appellant’s action against the Debtors, in accordance with Section 362(a) of

the Bankruptcy Code. See 11 U.S.C. § 362 (“Automatic stay”). However,

given that “it is universally acknowledged that an automatic stay of

proceedings accorded by § 362 may not [normally] be invoked by entities

such as sureties, guarantors, co-obligors, or others with a similar legal or

factual nexus to the debtor,” Appellant filed a motion in the trial court,

requesting that the trial court sever its claims against the non-debtor

Guarantors and allow the litigation on those claims to proceed. McCartney

v. Integra Nat’l Bank N., 106 F.3d 506, 509-510 (3rd Cir. 1997) (internal

quotations, citations, and corrections omitted); Appellant’s Motion to Sever,

1/24/11, at 1-8 (declaring that, although it might be legally unnecessary, “it

has   become    conventional   practice    in   many   jurisdictions,   including

Pennsylvania, to sever claims against non-debtor defendants to promote

efficiency and procedural clarity going forward”).

      The Guarantors filed a response to Appellant’s motion and argued that

the trial court must deny the severance request because the Debtors “are []




                                     -9-
J-A19019-14



indispensable parties to the instant litigation” and because Appellant’s

contract action could not proceed without the Debtors’ participation.7        The

Guarantors’ Response, 2/14/11, at 3. Further, the Guarantors filed a motion

to stay the state court proceedings, again arguing that the Debtors were

indispensable parties to the litigation.8          The Guarantors’ Motion to Stay,

2/14/11, at 5.

       On July 13, 2011, over Appellant’s objection, the trial court entered an

order granting the Guarantors’ motion to stay; the trial court ordered that

the action was stayed in its entirety, pending a final resolution of the

bankruptcy proceeding. Trial Court Order, 7/13/11, at 1.




____________________________________________


7
 But see Read v. Pa. Co. for Ins. on Lives and Granting Annuities, 12
A.2d 925, 927 (Pa. 1940) (“it is the law that a creditor may enforce his claim
against the surety without first having proceeded against the principal”).
8
  But see McCartney, 106 F.3d at 509-511 (courts may extend an
automatic stay to non-debtor third parties only in “unusual circumstances,”
such as where “there is such identity between the debtor and the third-party
defendant that the debtor may be said to be the real party defendant and
that a judgment against the third-party defendant will in effect be a
judgment or finding against the debtor” and where the stay protection “is
essential to the debtor[’s] efforts [at] reorganization”); see also Credit
Alliance Corp. v. Williams, 851 F.2d 119, 122 (4th Cir. 1988) (“[t]he very
purpose of a guaranty is to assure the creditor that in the event the debtor
defaults, the creditor will have someone to look to for reimbursement. The
purpose of the guaranty would be frustrated by interpreting [11 U.S.C.
§ 362] so as to stay [the creditor’s] action against the non-bankrupt
guarantor when the defaulting debtor petitioned for bankruptcy”) (internal
quotations, citations, and corrections omitted).



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J-A19019-14



       On September 27, 2011, the Debtors executed their Second Amended

Modified Joint Consolidated Plan of Reorganization (hereinafter “the Plan”) in

the United States Bankruptcy Court for the Eastern District of Texas. The

Plan declared that Appellant was allowed a secured claim in the amount of

$67,400,835.06.9       The Plan, 9/27/11, at ¶ 4.3.1.         According to the Plan,

“[i]n full and final satisfaction, discharge, and release” of Appellant’s

$67,400,835.06 secured claim, the Debtors would sell all of their hotels and

then pay Appellant the proceeds from the sales. Id. at ¶ 4.3.3(i). Further,

and as a condition of the discharge, the Plan required that the Debtors

execute and then deliver to Appellant a number of documents, including: an

amended and restated credit agreement (hereinafter “Amended Credit

Agreement”),      an    amended       and      restated   non-revolving   credit   note

(hereinafter “Amended Note”), and an omnibus amendment and ratification

agreement. Id. at ¶ 4.3.3(vii) and “Schedule A.” As the Plan declared, the

execution and delivery of the above documents was “a condition precedent

to the occurrence of the Effective Date” and the Plan incorporated the

obligations that were stated in the documents.                Id. at ¶ 4.3.3(vii) and

“Schedule A.” Specifically, the Plan declared:

         The Reorganized Debtors shall execute, and shall deliver to
         [Appellant] no later than five [] Business Days following the
____________________________________________


9
 The Plan refers to Appellant’s $67,400,835.06 secured claim as the “Lender
Secured Claim.” The Plan, 9/27/11, at 14.




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J-A19019-14


         entry of the Confirmation Order, the documents listed at
         Schedule A[10] attached hereto duly executed as
         appropriate. The execution and delivery of the same is a
         condition precedent to the occurrence of the Effective Date.
         Upon such delivery, the Reorganized Debtors shall comply
         with all obligations stated therein, including any reporting
         requirements, even if any such obligation is not specifically
         referenced in this Plan, in which case such obligation shall
         be deemed to be an obligation under this Plan. . . .

Id. at ¶ 4.3.3(vii) and “Schedule A.”

       The   Amended Credit Agreement,             Amended Note, and omnibus

amendment and ratification agreement were amended loan documents

concerning Appellant’s Loan to the Debtors; the documents, in essence,

restructured the Loan in order to effectuate the terms of the Plan. As the

trial court succinctly explained, the documents provided for an amended

“note in an amount greater than the amount of the original note, . . .

included numerous material modifications to the financial terms and

[covenants] governing the creditor-debtor relationship[,] . . . forced [the

Debtors] to liquidate their assets in a relatively short time frame, and

[declared that] the Debtors agreed to waive all defenses such as the right to

seek bankruptcy relief.” Trial Court Opinion, 11/15/13, at 6.

       With respect to Appellant’s claims against the Guarantors, the Plan

explicitly declared:


____________________________________________


10
    “Schedule A” is attached to the Plan and lists the Amended Credit
Agreement, the Amended Note, and the omnibus amendment and
ratification agreement. The Plan, 9/27/11, at “Schedule A.”



                                          - 12 -
J-A19019-14


        9.8 No Discharge of Guarantors. For the avoidance of
        doubt, nothing in this Plan and nothing in the Confirmation
        Order serves or will serve to discharge any claim, cause of
        action, or right that any creditor or person has against any
        third person or guarantor for or on account of a claim
        against one or more of the Debtors, including, without
        limitation, any claim that [Appellant] may have against the
        Guarantors. . . .

The Plan, 9/27/11, at ¶ 9.8.

      On October 4, 2011, the Bankruptcy Court entered an order of

confirmation (hereinafter “Confirmation Order”), which confirmed the Plan

and declared that, except as otherwise provided in the Plan, the Debtors

were discharged pursuant to section 1141(d)(1)(A) of the Bankruptcy Code.

Confirmation Order, 10/4/11, at 6-7. The Confirmation Order declared that,

henceforth, “all [p]roperty of the Debtors and their Estates vest[s] in the

Reorganized Debtors.” Id. at 7. Moreover, the Confirmation Order declared

that the Debtors’ discharge did not affect the liability of the Guarantors. The

order declared:

        the Plan and [the Confirmation] Order are wholly without
        prejudice to all claims, causes of action, defenses, and
        rights of [Appellant] as against the Guarantors . . .
        including, without limitation . . . all matters asserted or
        assertable in Case Number GD 10-18621 pending in the
        Civil Division, Court of Common Pleas of Allegheny County,
        Pennsylvania.

Id. at 9.

      Finally, the Confirmation Order declared that the restructuring of the

Loan was simply a “modification and amendment” of the Lender Secured




                                    - 13 -
J-A19019-14



Claim and was not a “new extension of credit.” With respect to this issue,

the Confirmation Order declared:

         that the credit facility described in the Credit Agreement is a
         modification and amendment of the Lender Secured Claim
         pursuant to and as defined in the Plan and is not in any way
         a new extension of credit, an accord and satisfaction, or
         other arrangement that would impair in any way
         [Appellant’s] right to assert claims against any non-Debtor
         party as to the Lender Secured Claim, nor would it or this
         Order impair in any way any non-Debtor’s right to assert
         any defense thereto, including, without limitation, any
         defense relating to or arising from the modification and
         amendment of the Lender Secured Claim[.]

Id. at 8.

       On February 13, 2012, the trial court issued an order dissolving the

stay with respect to Appellant’s case against the Guarantors; the trial court

order also declared that the parties were permitted to file dispositive

motions on the issue of the Guarantors’ liability.11        Trial Court Order,

2/10/12, at 1.

       In response to the trial court’s order, Appellant and the Guarantors

filed cross-motions for summary judgment.          Within Appellant’s summary

judgment motion, Appellant claimed that it was entitled to summary

judgment, in its favor, with respect to the Guarantors’ liability. According to

Appellant, the principals of the Guarantors had admitted that, as of March
____________________________________________


11
  On October 20, 2011, Appellant filed a praecipe with the Allegheny County
Department of Court Records (hereinafter “ACDCR”), requesting that the
ACDCR discontinue the action against the Debtors with prejudice.
Appellant’s Praecipe to Discontinue, 10/20/11, at 1.



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23, 2010, the Guarantors “had not made their most recently required

interest payments and swap payments.”         Appellant’s Brief in Support,

3/30/12, at 11.    Since this constituted a default under the Guaranty and

Suretyship Agreement and since this default caused Appellant to accelerate

the Loan and demand that the Guarantors pay their obligation in full,

Appellant claimed that it was entitled to a judgment as a matter of law with

respect to the Guarantors’ liability. Id.

      Further, Appellant claimed that the Guarantors had no defense to the

breach of guaranty claim.      Appellant noted that, within the Guarantors’

answer and new matter, the Guarantors had claimed that Appellant “orally

modified the obligation underlying the Guaranty by consenting to the non-

payment of interest” and that Appellant impaired the value of the collateral.

See, e.g., The Guarantors’ Answer and New Matter, 11/1/10, at ¶ 20.

Appellant, however, claimed that these two defenses failed as a matter of

law. With respect to the alleged forbearance agreement, Appellant claimed

that this defense failed because the alleged oral forbearance: is barred by

the statute of frauds; is unenforceable because it was not supported by any

consideration; is unenforceable because the Credit Agreement contains a “no

oral modification” clause; is not a valid agreement; does not discharge the

Guarantors because the alleged oral forbearance occurred after the

Guarantors’ default; does not discharge the Guarantors because the alleged

modification was not a material change that substantially increased the

Guarantors’ risk; and, was consented to by the Guarantors. Appellant’s Brief

                                     - 15 -
J-A19019-14



in Support of Motion for Summary Judgment, 3/30/12, at 12-23. Further,

with respect to the “impairment of collateral” defense, Appellant claimed

that this defense failed because the Guarantors signed an unconditional

guaranty and thus “waived the right to participate in [Appellant’s]

collateral.” Id. at 23-25.

      Therefore, Appellant claimed that since the Guarantors admitted to

being in default and since the Guarantors’ defenses failed as a matter of law,

Appellant was entitled to summary judgment in its favor. Id.

      The   Guarantors   responded    to   Appellant’s   motion   for   summary

judgment and primarily argued that the Debtors’ bankruptcy – and the

resulting Plan, amended loan agreements, and Confirmation Order – had

“cured” the Guarantors’ original default. The Guarantors argued:

        the Debtors filed bankruptcy petitions[,] a Confirmation
        Order confirming a “consensual” Plan was entered[,] and
        the Debtors and [Appellant] entered into [an Amended
        Credit] Agreement and executed the New Loan Documents
        to memorialize their agreement. As a matter of law, the
        Original Loan has been replaced and no longer exists. The
        Guaranty provides that the [Guarantors] originally were
        liable “as though they were primary obligors to [Appellant].”
        Since [the Guarantors] . . . stand in the shoes of the
        Debtors, when the Debtors’ primary liability went away, so
        did the alleged liability of the [Guarantors].

The Guarantors’ Response, 5/7/12, at 7.

      Moreover, the Guarantors argued that: they never admitted that they

were in default of the Guaranty and Suretyship Agreement; the Bankruptcy

Court already determined that there was a valid forbearance agreement and



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J-A19019-14



Appellant is collaterally estopped from claiming otherwise; the forbearance

agreement is otherwise enforceable; and, the Guaranty and Suretyship

Agreement does not permit the impairment of collateral.       Id. at 8-11 and

18-23.

      The Guarantors also filed a cross-motion for summary judgment and

claimed that they were entitled to a judgment as a matter of law because

“the Plan, the [Amended] Credit Agreement[,] and the New Note modify and

restate the Original Credit Agreement and Original Note in their entirety,

such that nothing of the Original Loan Documents remain[].”                The

Guarantors’ Motion for Summary Judgment, 3/30/12, at 7. According to the

Guarantors, since the Debtors were no longer liable under the Original Loan

Documents, the Guarantors also could not be liable.         Id.   Further, the

Guarantors claimed that they could not be liable under the Amended Credit

Agreement, as the new contractual terms “materially increased [the

Guarantors’] risk” – thus discharging their obligations as surety. Id. at 8;

see McIntyre Square Assoc.’s v. Evans, 827 A.2d 446, 452 (Pa. Super.

2003) (“Where, without the surety's consent, there has been a material

modification in the creditor-debtor relationship, a . . . compensated surety is

discharged [] if, without the surety’s consent, there has been a material

modification in the creditor-debtor relationship and said modification has

substantially increased the surety’s risk”).

      On August 5, 2013, following extensive briefing and oral argument,

the esteemed trial court judge entered an order that granted the Guarantors’

                                     - 17 -
J-A19019-14



motion for summary judgment, implicitly denied Appellant’s cross-motion for

summary judgment, and dismissed Appellant’s complaint against the

Guarantors with prejudice. The trial court reasoned:

        The Bankruptcy agreement essentially restructured and
        reorganized the creditor-debtor relationship, and effectively
        discharged the Debtors as they stood under the Original
        Credit Agreement[.      T]he consent agreement in the
        bankruptcy action [thus] renders the Original Credit
        Agreement null and void. As [the Guarantors’ were] not []
        part[ies] to the [Amended] Credit Agreement, and since the
        Original Credit Agreement no longer exists, any liability to
        the [G]uarantors for default events under the Original Credit
        Agreement [is] extinguished.

Trial Court Opinion, 11/15/13, at 9.

      Appellant filed a timely notice of appeal and now raises the following

claims to this Court:

        1. Whether modifications to the loan entered into under a
        confirmed plan of reorganization in federal bankruptcy
        proceeding discharged the [Guarantors’] obligations under
        the guaranty?

        2. Whether the [Guarantors] consented to modifications to
        the loan relationship contained in the plan and amended
        and restated credit agreement pursuant to the clear and
        unambiguous advance consents and waivers of suretyship
        defenses in the guaranty?

        3. Whether the bankruptcy plan and amended and restated
        credit agreement constituted (1) material modifications to
        the debtor-creditor relationship, (2) which substantially
        increased the risk to the [Guarantors], and (3) to which the
        [Guarantors] did not consent (or were not deemed to have
        consented) such that the [Guarantors’] guaranty was
        discharged?




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J-A19019-14


        4. Whether the amended and restated credit agreement is a
        single integrated document that precludes enforcement of
        the [Guarantors’] guaranty?

        5. Whether the [Guarantors’] guaranty was discharged as to
        the existing obligations of the [Debtors] under the plan and
        amended and restated credit agreement where the guaranty
        expressly guarantees all present and future liabilities of [the
        Debtors] to Appellant?

Appellant’s Brief at 4-5.

                                   Analysis

      Initially, we conclude that Appellant waived any potential claim that

the trial court erred when it implicitly denied Appellant’s cross-motion for

summary judgment.       Within Appellant’s brief to this Court, Appellant has

focused its attention on the specific portion of the trial court’s order that

granted the Guarantors’ summary judgment motion. Moreover, even though

Appellant declares that we should direct that summary judgment be entered

in its favor, Appellant has done so in conclusory fashion and has failed to

establish that there are no genuine issues of material fact with respect to the

claims raised in its own summary judgment motion. In particular, Appellant

has not made any argument that the Guarantors’ actual default has been

established as a matter of law or that the Guarantors’ stated defenses to the

alleged default fail as a matter of law.       See, e.g., Appellant’s Brief in

Support of Motion for Summary Judgment, 3/30/12, at 11-25.            Therefore,

Appellant has waived any such claim on appeal. Wirth v. Commonwealth,

95 A.3d 822, 837 (Pa. 2014) (“[w]here an appellate brief fails to provide any

discussion of a claim with citation to relevant authority or fails to develop the


                                     - 19 -
J-A19019-14



issue in any other meaningful fashion capable of review, that claim is

waived. It is not the obligation of an appellate court to formulate appellant’s

arguments”) (internal quotations, citations, and corrections omitted).

        Nevertheless, we conclude that Appellant’s first claim on appeal

entitles Appellant to relief. Specifically, we hold that the loan modifications

entered into by the Debtors pursuant to the confirmed reorganization plan in

the federal bankruptcy proceedings (and Appellant’s consent thereto) do not

relieve the Guarantors of their obligations under the Guaranty and

Suretyship Agreement.         We thus vacate the trial court’s order in part and

remand.12

        In the case at bar, the trial court granted the Guarantors’ motion for

summary judgment and dismissed Appellant’s complaint. We note:

          Our scope of review of a trial court’s order granting or
          denying summary judgment is plenary, and our standard of
          review is clear: the trial court’s order will be reversed only
          where it is established that the court committed an error of
          law or abused its discretion.

          Summary judgment is appropriate only when the record
          clearly shows that there is no genuine issue of material fact
          and that the moving party is entitled to judgment as a
          matter of law. The reviewing court must view the record in
          the light most favorable to the nonmoving party and resolve
          all doubts as to the existence of a genuine issue of material
          fact against the moving party. Only when the facts are so
          clear that reasonable minds could not differ can a trial court
          properly enter summary judgment.

____________________________________________


12
     Given our disposition, we need not address Appellant’s remaining issues.



                                          - 20 -
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Englert v. Fazio Mech. Serv.’s, Inc., 932 A.2d 122, 124 (Pa. Super. 2007)

(internal citations omitted).

      In granting the Guarantors’ summary judgment motion, the trial court

essentially ruled that the Debtors’ bankruptcy – and the resulting Plan,

amended loan agreements, and Confirmation Order – cured the Guarantors’

original, alleged default under the Guaranty and Suretyship Agreement.

According to the trial court, since Appellant and the Debtors executed

amended loan documents during the bankruptcy proceeding, the “Original

Credit Agreement no longer exists [and] any liability to the [G]uarantors for

default events under the Original Credit Agreement are extinguished.” Trial

Court Opinion, 11/15/13, at 9.

      We respectfully disagree with the trial court’s conclusion.   While we

acknowledge the hard work and thoughtful consideration invested by the

trial court in this case, our own review of the issues raised on appeal begins

with, and focuses upon, the independent obligations of the Guarantors under

their agreement with Appellant.     As we develop in greater detail below,

although Pennsylvania law is silent on the issue, we conclude that the

restructuring of the Debtors’ loan in bankruptcy – and the Debtors’ resulting

discharge – neither cured the Guarantors’ earlier default nor defeated the

Guarantors’ promises on their own underlying obligations.

      Section 524(e) of the Bankruptcy Code generally provides that the

“discharge of the debtor does not affect the liability of any other entity on,

or the property of any other entity for, such debt.”     11 U.S.C. § 524(e).

                                    - 21 -
J-A19019-14



Hence, ordinarily, the “discharge of the principal debtor in bankruptcy will

not discharge the liabilities of co-debtors[, sureties,] or guarantors.”13 In re

American Hardwoods, Inc., 885 F.2d 621, 625 (9th Cir. 1989) (internal

____________________________________________


13
   We note that the Restatement (Third) of Suretyship and Guaranty defines
a “guarantor” and a “surety” in the following manner:

         if the parties to a contract identify one party as a
         “guarantor” or the contract as a “guaranty,” the party so
         identified is a secondary obligor and the secondary
         obligation is, upon default of the principal obligor on the
         underlying obligation, to satisfy the obligee's claim with
         respect to the underlying obligation

                                           ...

         if the parties to a contract to which the principal obligor and
         secondary obligor are both parties identify one party as a
         “surety,” or the contract as a “suretyship” contract, the
         party so identified is a secondary obligor who is subject to a
         secondary obligation pursuant to which the secondary
         obligor is jointly and severally liable with the principal
         obligor to perform the obligation set forth in that contract

Restatement (Third) of Suretyship and Guaranty § 15(a) (1996).

Pennsylvania has, however, largely eliminated the distinction between a
guaranty and a suretyship agreement; it has done so by mandating that,
unless otherwise specified, every such contract is a contract of suretyship.
See 8 P.S. § 1 (“Every written agreement hereafter made by one person to
answer for the default of another shall subject such person to the liabilities
of suretyship, and shall confer upon him the rights incident thereto, unless
such agreement shall contain in substance the words: ‘This is not intended
to be a contract of suretyship,’ or unless each portion of such agreement
intended to modify the rights and liabilities of suretyship shall contain in
substance the words: ‘This portion of the agreement is not intended to
impose the liability of suretyship’”).




                                          - 22 -
J-A19019-14



quotations and citations omitted).             Rather, the “discharge in bankruptcy

does not extinguish the debt itself, but merely releases the debtor from

personal liability for the debt[; thus,] . . . the debt still exists and can be

collected from any other entity that might be liable.”                  Matter of

Edgeworth, 993 F.2d 51, 53 (5th Cir. 1993).

       Moreover, the vast majority of courts who have confronted the issue

have also held that, when a debtor’s loan is restructured in bankruptcy, the

restructuring of the loan neither releases the non-debtor surety nor “cures”

the surety’s own default.14         For example, in United States v. Stribling

Flying Service, Inc., the Small Business Administration extended a loan to
____________________________________________


14
   Within the Guarantors’ brief to this Court, the Guarantors continuously
refer to the restructured Loan as a “new” loan.            The Guarantors’
characterization of the restructured Loan as a “new” loan is, however,
contrary to the explicit terms of the Bankruptcy Court’s Confirmation Order.
Indeed, the Confirmation Order declares:

         ORDERED that the credit facility described in the Credit
         Agreement is a modification and amendment of the
         Lender Secured Claim pursuant to and as defined in the
         Plan and is not in any way a new extension of credit,
         an accord and satisfaction, or other arrangement that would
         impair in any way [Appellant’s] right to assert claims
         against any non-Debtor party as to the Lender Secured
         Claim, nor would it or this Order impair in any way any non-
         Debtor’s right to assert any defense thereto, including,
         without limitation, any defense relating to or arising from
         the modification and amendment of the Lender Secured
         Claim[.]

Confirmation Order, 10/4/11, at 8 (emphasis added).




                                          - 23 -
J-A19019-14



a corporation, with payment for the loan secured by the unconditional

personal guaranties of Donald and Frances Kimball.       After the corporation

defaulted on the note and the Kimballs defaulted on the guaranty, the

United States agency accelerated the debt and then filed suit against the

corporation and the Kimballs for breach of contract.        United States v.

Stribling Flying Serv., Inc., 734 F.2d 221, 222-223 (5th Cir. 1984). The

corporation filed a bankruptcy petition under Chapter 11 of the Bankruptcy

Code and the bankruptcy court confirmed the corporation’s plan of

reorganization, wherein the corporation’s loan was restructured and the

corporate debt owed on the note was reduced. Id.

      Following confirmation of the corporation’s plan, the Kimballs claimed

in court that the confirmed bankruptcy plan had affected their own

obligations as guarantors of the debt. Of relevance to the case at bar, the

Kimballs claimed that “the confirmation of the plan cured the default on the

previously accelerated corporate debt, so that their guaranties [now only]

guarant[eed] the restructured and reduced debt” and that “the confirmation

order act[ed] as collateral estoppel or res judicata as to any claim that might

be brought . . . against the individual guarantors of the corporate debt.” Id.

The Fifth Circuit rejected both claims and held that the “the obligation[s] of

. . . unconditional guarantors of [a] corporate obligation [are] not affected

by confirmation of [a] reorganization plan by which the corporate debt was

restructured and reduced.”     Id. at 223-224.      Rather, the court held, a

restructuring under the Bankruptcy Code “does not affect the responsibility

                                     - 24 -
J-A19019-14



of the [corporation’s] guarantors to make good on the unpaid portion of the

guaranteed debts that remain after the arrangement is completed.” Id. at

223 (internal quotations, citations, and corrections omitted). Thus, the court

held that the Kimballs were liable for “the entire original corporate debt that

was guaranteed by” them. Id. at 224.

      Results similar to that reached by the Stribling Flying Service Court

are found throughout the courts of the United States.      See J & B Inv.’s,

LLC v. Surti, 258 S.W.3d 127, 130 (Tenn. Ct. App. 2007) (the confirmed

plan declared that, if the debtor were to pay off its reduced and restructured

debt, the debtor’s default would be cured and the payment would be “in full

satisfaction of the obligation owed to [the creditor]”; nevertheless, the court

held that “the discharge of [the debtors] in bankruptcy did not alter the

liability of the [g]uarantors”); Austin Hardwoods, Inc. v. Vanden

Berghe, 917 S.W.2d 320, 326 (Tex.App. 1995) (“modification of a corporate

debt through a confirmed reorganization in bankruptcy does not constitute a

material alteration of the underlying obligation so as to release a

guarantor”); F.D.I.C. v. Lapierre, 144 B.R. 581, 584 (D.Me. 1992) (“the

fact that under the reorganization plan the debtor may have been relieved

from the consequences of its default does not mean that a default does not

exist”); R.I.D.C. Indus. Dev. Fund v. Snyder, 539 F.2d 487, 492 (5th Cir.

1976) (“bankruptcy courts may have jurisdiction over secured creditors in

Chapter XI proceedings and, if the debt owed the secured creditor is altered

by a Chapter XI arrangement, the secured creditor's guarantee is insulated

                                    - 25 -
J-A19019-14



by § 16 of the Bankruptcy Act [(which has been rewritten and codified at 11

U.S.C. § 524(e))]”); In re Nine N. Church St., 82 F.2d 186 (9th Cir. 1936)

(“By its guaranty, [the guarantor] promised to meet certain obligations and

these are not affected by reorganization of this debtor. Any modification of

[the debtor’s contract with the creditor] can only be justified by the

bankruptcy power which extends only to the relief of insolvent or hard

pressed debtors. If [the guarantor] is in that class, it must come into court

and establish the fact.          It [cannot] modify its obligations by the

reorganization of other insolvents”).

      We conclude that, if confronted with the issue, our Supreme Court

would hold consistent with the above cases and declare that, when a debt or

loan has been restructured in bankruptcy, the restructuring does not affect

the liability of a non-debtor surety or guarantor.          One reason for our

conclusion is because, as a bankruptcy court has explained, “a discharge is

an involuntary release by operation of law of asserted and non-asserted

claims by a creditor against any entity who has filed a petition under the

Bankruptcy Code and who has abided by its rules.”            In re Yellowstone

Mountain Club, LLC, 460 B.R. 254, 268 n.4 (Bkrtcy.D.Mont. 2011)

(emphasis added).       Thus, since “[a] bankruptcy discharge arises by

operation of federal bankruptcy law, not by contractual consent of the

creditors[, a] creditor’s approval of the plan cannot be deemed an act of

assent   having   significance    beyond   the   confines    of   the    bankruptcy

proceedings.”     In   re   Arrowmill Dev.       Corp.,     211   B.R.   497,   506

                                      - 26 -
J-A19019-14



(Bkrtcy.D.N.J.     1997)     (internal    quotations,   citations,   and   corrections

omitted).

       Further, any other result would cause our state courts to intrude upon

federal bankruptcy law. Initially, if we were to hold that the restructuring of

a loan under a bankruptcy plan implicitly released a non-debtor surety of

its liability under a separate guaranty and suretyship agreement, our holding

would very likely directly contravene 11 U.S.C. § 524(e).                  11 U.S.C.

§ 524(e) (the “discharge of the debtor does not affect the liability of any

other entity on, or the property of any other entity for, such debt”).15

       Additionally, and as Appellant has rightly explained, if we were to hold

that the loan restructuring in the case at bar released the Guarantors:

         No lender or creditor, whether they are the largest or
         smallest in a bankruptcy case, [would] negotiate with a
         bankruptcy debtor, let alone vote in favor of a plan, unless
         their guarantor participates in the bankruptcy and
         affirmatively “consents” to the deal. Imagine the leverage a
         guarantor and borrower could obtain in bankruptcy
         negotiations by having the guarantor threaten not to
         consent to plan modifications negotiated by the borrower
         and lender? A lender would be faced with a no-win situation
         of risking loss of its guaranty or ceding to the demands of
         its guarantor in exchange for consent.

____________________________________________


15
   Certainly, some courts and federal circuits hold that 11 U.S.C. § 524(e)
prohibits a bankruptcy court from approving a reorganization plan that
explicitly and knowingly releases claims against a non-debtor. See In re
W. Real Estate Fund, Inc., 922 F.2d 592 (10th Cir. 1990); Matter of Zale
Corp., 62 F.3d 746 (5th Cir. 1995); In re Lowenschuss, 67 F.3d 1394 (9th
Cir. 1995).




                                          - 27 -
J-A19019-14



Appellant’s Brief at 3.

        Such a result would greatly harm debtors and creditors alike and it

would greatly impair a bankruptcy court’s ability to restructure contracts as

part of the reorganization process, at least where a non-debtor surety or

guarantor exists. See 11 U.S.C. § 1123 (“a plan shall . . . provide adequate

means for the plan’s implementation, such as . . . curing or waiving of any

default [and] extension of a maturity date or a change in an interest rate or

other term of outstanding securities”); see also 11 U.S.C. § 1124 note

(“Curing of the default and the assumption of the debt in accordance with its

terms is an important reorganization technique for dealing with a particular

class of claims, especially secured claims.”)

        Moreover, if we were to hold that a loan restructuring in bankruptcy

affects the liability of a non-debtor surety or guarantor, we would encourage

sharp    practices   in   bankruptcy   proceedings.   Certainly,   sureties   and

guarantors are often closely related to the borrower under the primary

contract. Thus, if a borrower under the primary contract defaults and then

declares bankruptcy, the borrower would have an incentive to restructure a

loan under almost unachievable terms so that it could shield the guarantor

from liability. Stated another way, even if the debtor-borrower has a belief

that the terms of the loan will force it into liquidation, the debtor-borrower

might still restructure its loan in such a manner, simply because it knows

that the action will cure its individual surety or guarantor of liability under

the suretyship or guaranty agreement.

                                       - 28 -
J-A19019-14



      Finally, any other result would destroy one of the primary purposes of

having a surety or guarantor. Indeed, with respect to a guarantor, the Ninth

Circuit has explained:

           By its guaranty, [the guarantor] promised to meet certain
           obligations and these are not affected by reorganization of
           this debtor. . . . To allow a guaranty to be modified every
           time the principal debtor found itself in financial difficulties
           would be to make a guarantor’s obligation nominal only.
           The very purpose of, and only value in, a guaranty is as a
           protection against the principal’s inability to pay. Without a
           reorganization of the guarantor and a showing that its
           financial conditions justify relief from its obligations, the
           contract between the obligees and the guarantor is
           inviolate.

In re Nine N. Church St., 82 F.2d at 188.

      In the case at bar, the Guarantors allegedly defaulted under the

Guaranty and Suretyship Agreement in March 2010 – well before the

underlying loan and credit facility were restructured, in bankruptcy, in

October 2011.       Further, and as a result of the alleged default, Appellant

accelerated the Loan and declared the entire principal amount of the Loan

and all interest, unpaid fees, and indebtedness to be “forthwith due and

payable.” Letter, 3/22/10, at 2; Appellant’s Complaint, 10/4/10, at ¶ 26. It

was at this point that the Guarantors became liable, under the Guaranty and

Suretyship Agreement, for the entirety of their agreed upon indebtedness –

and the Debtors’ subsequent bankruptcy filing does not affect Appellant’s

ability to seek and obtain a judgment against the Guarantors for the alleged

default.



                                       - 29 -
J-A19019-14



        Moreover, even though Appellant and the Debtors restructured their

Loan in the bankruptcy proceedings, the restructured loan documents

neither released the Guarantors from their already-established liability nor

cured    the   Guarantor’s       default   under    the   Guaranty   and   Suretyship

Agreement. Indeed, both the Plan and the Confirmation Order declared that

the Guarantors were not released as a result of the Debtors’ discharge. The

Plan, 9/27/11, at ¶ 9.8; Confirmation Order, 10/4/11, at 8-9.

        Finally, our result is not changed by the mere fact that the Loan was

restructured in documents that exist outside of the four corners of the Plan.

To be sure, the Plan specifically declared that the execution and delivery of

the Loan restructuring documents were a “condition precedent to the

occurrence of the Effective Date” and that obligations under the restructured

Loan documents were incorporated into the Plan. The Plan, 9/27/11, at

¶ 4.3.3(vii) and “Schedule A.”             Therefore, since the restructured Loan

documents are a part of the Plan, the restructuring did not affect Appellant’s

liability under the Guaranty and Suretyship Agreement or cure Appellant’s

alleged default of that agreement.16
____________________________________________


16
   The Guarantors claim that Appellant entered into a voluntary settlement
agreement with the Debtors and, in doing so, voluntarily altered the terms
of the Loan documents. See the Guarantors’ Brief, at 24; see also In re
Arrowmill Dev. Corp., 211 B.R. at 503-507 (“When a release of liability of
a nondebtor is a consensual provision . . . , agreed to by the effected
creditor, it is no different from any other settlement or contract and does not
implicate 11 U.S.C. § 524(e). A voluntary, consensual release is not a
discharge in bankruptcy”). According to the Guarantors, since Appellant
(Footnote Continued Next Page)


                                           - 30 -
J-A19019-14



      Hence, we vacate the trial court’s order in part and remand for further

proceedings.

      Order vacated in part. Case remanded. Jurisdiction relinquished.




                       _______________________
(Footnote Continued)

“voluntarily agreed with the Debtors to extinguish the Debtor Liabilities
under the Original Loan Documents and replace and substitute them with
materially modified liabilities under the New Agreement,” the Debtors were
not “discharged” under the Bankruptcy Code. The Guarantors further claim
that, as a result of Appellant’s voluntary action, the Guarantors’ obligations
under the Guaranty and Suretyship Agreement have been extinguished. The
Guarantors’ Brief at 21; see also Food Lion, Inc. v. S.L. Nusbaum Ins.
Agency, Inc., 202 F.3d 223 (4th Cir. 2000) (“a release of the principal
debtor by the creditor, by an absolute release of the debt, or by an
obligatory extension of the time of payment, without the consent of the
surety, releases the surety in toto. . . .      [Therefore, when the debtors
entered into a voluntary settlement with the creditor, releasing the debtors
from the creditor’s claims, the creditor’s] release of [the debtors] bar[red]
any claim against [the surety] . . . [b]ecause [the creditor] ha[d] no claim
against [the debtors]”).

The Guarantors’ claim is incorrect, as the Plan demanded the execution and
delivery of the Loan documents as a “condition precedent to the occurrence
of the Effective Date,” the Plan incorporated the obligations that were
contained in the Loan restructuring agreements, and the Bankruptcy Court
clearly discharged the Debtors pursuant to Section 1141(d)(1)(A) of the
Bankruptcy Code. Thus, the restructured Loan documents do not constitute
a “voluntary settlement” of Appellant’s underlying claims against the
Debtors. Rather, the restructured Loan documents are part and parcel of
the Plan itself.




                                           - 31 -
J-A19019-14




Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 11/25/2014




                          - 32 -
