Secondary Mortgage Loan Law
BOTTOM LINE: The Secondary Mortgage Loan Law does not restrict a mortgage lender to a single loan origination fee, as long as the aggregate fees charged and collected do not exceed the statutory maximum set forth in CL §12–405 and lenders are only required by the SMLL to provide a disclosure form to borrowers who intend to use the proceeds of their secondary mortgage loans for commercial purposes.
CASE: Polek v. J.P. Morgan Chase Bank, N.A., Nos. 24, 25, 26, 38 and 80, Sept. Term, 2011 (filed Jan. 24, 2012) (Judges Bell, HARRELL, Battaglia, Greene, Adkins, Barbera & Eldridge (retired, specially assigned)). RecordFax No. 12-0124-20, 36 pages.
FACTS: Between 1996 and 2009, Michael and Linda Polek, Richard and Concetta Dinnis, John and Denise Kinsey, Jr., Frank J. Schultz, Jr., and Elizabeth and Alric Moore (collectively, the Borrowers), each obtained a secondary mortgage loan, secured by their primary residence.
Several years after obtaining the loan, each of the Borrowers, in separate complaints, sued their respective mortgage companies (assignees of the original lenders) (collectively, the Lenders), alleging violations of the Maryland Secondary Mortgage Loan Law (SMLL), the Maryland Consumer Protection Act (CPA), and common law breach of contract.
The Poleks and the Kinseys argued that CL §12–405 of the SMLL allows only a single loan origination fee, rather than the multiple identified individual fees they were charged at their closings. All of the Borrowers maintained also that they were not provided at closing a mandatory disclosure form required by CL §12–407.1
The Dinnises, Schultz, and the Moores, who did not retain copies of their loan or closing documents, alleged breach of contract, violation of the CPA, and a claim in accounting when their respective mortgage companies refused to provide them with copies of the documents.
The circuit court dismissed each of the complaints. The Court of Appeals issued a writ of certiorari prior to any proceedings before the Court of Special Appeals.
The Court of Appeals affirmed the judgments of the circuit courts.
LAW: The SMLL provides that “a lender may collect a loan origination fee for making a loan.” CL §12–405(a)(1). “The aggregate amount of the loan origination fee, when combined with any finder’s fee, may not exceed the greater of: (i) $500 or 10 percent of the net proceeds of a commercial loan of $75,000 or less; or (ii) $250 or 10 percent of the net proceeds of any other loan.” §12–405(a)(2). Furthermore, a lender is prohibited from collecting any other commission, finder’s fee, or point for obtaining, procuring, or placing a loan. §12–405(a)(3).
Interpretation of this provision of the SMLL is an issue of first impression for the Court; however, similar issues were addressed by the district court. In Hafford v. Equity One, Inc., 2008 U.S. Dist. LEXIS 31964, at *13 (D.Md.2008), borrower-plaintiffs filed complaints against lender-defendants for violations of §12–405. A subset of the plaintiffs each were charged a labeled “loan origination fee,” but all plaintiffs were charged a variety of other itemized fees, such as “tax service fees,” “flood service fees,” and “document preparation.” Hafford, 2008 U.S. Dist. LEXIS, at *7. The “loan origination fee” and other named fees charged in each of the secondary mortgages, when aggregated, did not exceed the statutory 10% cap. Hafford, 2008 U.S. Dist. LEXIS, at *17.
The court reviewed the legislative history of the relevant amendments to §12–405 and concluded that “the legislature’s main objective was to establish a statutory cap.” Hafford, 2008 U.S. Dist. LEXIS, at *24. The court concluded that the term “loan origination fee does not necessarily denote a single fee and instead means fees associated with the cost of originating the loan.” Id. The court upheld the multiple fees charged by the borrowers, noting also that Maryland lenders are subject also to the Real Estate Settlement Procedure Act (RESPA), which requires lenders to “conspicuously and clearly itemize all charges imposed on the borrower.” Hafford, 2008 U.S. Dist. LEXIS, at *28–30 (citing 12 U.S.C. §2603 (2006)). See also Miller v. Pac. Shore Funding, 224 F.Supp.2d 977 (D.Md.2002).
The language of §12–405 is patently ambiguous and subject to more than one reasonable interpretation, requiring an examination of the legislative history.
In 1997, the General Assembly convened a task force to examine the mortgage lending business in Maryland, including specifically a “cap” on secondary mortgage fees. The Task Force noted that a combined cap on secondary mortgage fees would help the consumer understand what they were being charged. Thus, based on recommendations from the Task Force, the General Assembly adopted a bill that “alters the regulation of the mortgage lending business by restricting to 10 the total points mortgage brokers and mortgage lenders may charge on secondary mortgages.”
The term “loan origination fee” is not defined in the SMLL, in the Commercial Law Article or in any cases. The online HUD glossary defines origination fee as “the charge for originating a loan; is usually calculated in the form of points and paid at closing.” “Origination” is defined as “the process of preparing, submitting, and evaluating a loan application.”
Section 12–405(a)(2) states that it is the aggregate amount of the loan origination fee, “when combined with any finder’s fee imposed,” that may not exceed the statutory cap. “Aggregate” implies that there are multiple components within an overall “loan origination fee.” “When combined” means that the “loan origination fee” is added to the authorized finder’s fee and then compared against the 10% cap of the net proceeds of the loan to determine statutory compliance.
Section 12–405(a)(3), prohibiting “any other commission, finder’s fee, or point for obtaining, procuring, or placing a loan” does not prohibit itemized fees because those fees are components of the “loan origination fee” referenced in §12–405(a)(2).
Thus, in light of the legislative purpose of §12–405, to cap the amount of the fees, the industry understanding of the term “loan origination fee,” and the reference to “aggregate amount of the loan origination fee,” the various itemized fees charged on the settlement sheets at the closing were not prohibited, so long as they do not exceed the 10% cap when aggregated.
Section 12–407.1 of the SMLL requires the Commissioner of Financial Regulation to develop a form “that each lender shall furnish to an applicant for a secondary mortgage loan.”
The entirety of §12–407.1 is focused on providing borrowers who indicate an intention to use the proceeds of a loan for commercial purposes explicit disclosure of the rights they are waiving by using the proceeds of a secondary mortgage loan for commercial purposes, instead of borrowing the money through another type of loan. See §12–407.1(a)(2). Those who do not use the loan proceeds for commercial purposes, like the Borrowers, do not forfeit anything and, therefore, lenders have nothing to disclose to them.
Thus, §12–407.1 did not apply to the Borrowers who did not indicate they intended to use their loan proceeds for commercial purposes.
COMMENTARY: The Dinnises, Schultz, and the Moores maintained the Lenders’ refusal to provide them with copies of all documents relating to the secondary mortgage loan transaction gave rise to a cause of action under contract law, the CPA, and for common law accounting.
A plaintiff alleging a breach of contract “must of necessity allege with certainty and definiteness facts showing a contractual obligation owed by the defendant to the plaintiff and a breach of that obligation by defendant.” Cont’l Masonry Co. v. Verdel Constr. Co., 279 Md. 476, 480, 369 A.2d 566, 569 (1977).
Maryland law recognizes an implied duty of good faith and fair dealing as applied to the “performance and enforcement” of the contract itself. Blondell v. Littlepage, 413 Md. 96, 113 (2010). The duty of good faith and fair dealing is “simply prohibit[ing] one party to a contract from acting in such a manner as to prevent the other party from performing his obligations under the contract.” Parker v. Columbia Bank, 91 Md.App. 346, 367 (1992). Absent special circumstances, however, no new obligations on the parties are imposed, where the contract is silent, by the implied covenant of good faith and fair dealing. Blondell, 413 Md. at 114.
When the Lenders recorded the certificates of satisfaction, the underlying mortgages or deeds of trust were released and the contractual obligations of the parties concluded. Furthermore, there was no continuing duty for the Lenders to perform obligations under the contract.
Even if there were a continuing contractual relationship, the implied duty of good faith and fair dealing may not be stretched to embrace a new obligation that requires specific record keeping and document production for all original lenders or their assignees of secondary mortgage loans.
There was no contractual obligation on behalf of the Lenders to provide documents to the Dinnises, Schultz, or the Moores and the contract counts were dismissed properly.
Under the CPA, “a person may not engage in any unfair or deceptive trade practice” while engaged in: the sale, offer for sale, lease, rental, loan, or bailment of “any consumer goods, consumer realty, or consumer services”; the “extension of consumer credit”; or “the collection of consumer debts.” CL §13–303. The Lenders were not engaged in any of the covered activities in §13–303 when the documents were requested.
Section 13–301(3) prohibits failure “to state a material fact if the failure deceives or tends to deceive.” The refusal to provide additional copies of loan documents to the Dinnises, Schultz, and the Moores had no tendency to deceive as the Lenders believed their contractual obligations were fulfilled.
The complaints also failed also to allege that the Lenders had any intention that the Dinnises, Schultz, and the Moores would rely on any “knowing concealment, suppression, or omission” of material facts, as required by CL §13–301(9).
Furthermore, the Dinnises, Schultz, and the Moores failed show “they were actually injured” by the Lenders’ violation of the CPA. See DeReggis Constr. Co. v. Mate, 130 Md.App. 648, 665 (2000).
Therefore, the CPA counts were dismissed properly.
A claim for an accounting is available when “one party is under obligation to pay money to another based on facts and records that are known and kept exclusively by the party to whom the obligation is owed, or where there is a fiduciary relationship between the parties.” P.V. Props., Inc. v. Rock Creek Village Assocs. Ltd. P’ship, 77 Md App. 77, 89 (1988).
The complaints did not allege that the Dinnises, Schultz, and the Moores did not receive copies of the loan documents at closing. They simply did not retain the documents they sought later. There is no requirement, as a matter of law, that assignees of secondary mortgage loans provide a record-keeping service for many years after the contractual obligation to pay money has been concluded, simply because borrowers failed to maintain their own records.
Furthermore, a fiduciary relationship did not exist here. See Parker v. Columbia Bank, 91 Md.App. 346, 367 (1992).
Accordingly, the claims for an accounting were dismissed properly.
PRACTICE TIPS: Claims under the SMLL are a statutory specialty and, therefore, entitled to a 12–year statute of limitations. See Master Fin. Inc. v. Crowder, 409 Md. 51 (2009).
Motion to correct illegal sentence
BOTTOM LINE: Where the defendant’s claim was not about alleged illegal sentences, but rather concerned an alleged procedural error, defendant’s complaint was not cognizable under Rule 4–345(a).
CASE: Tshiwala v. State, No. 108, Sept. Term, 2009 (filed Jan. 23, 2012) (Judges Bell, Harrell, Battaglia, Greene, Murphy, Adkins & ELDRIDGE (retried, specially assigned)). RecordFax No. 12-0123-20, 23 pages.
FACTS: Benoit Tshiwala was charged in the circuit court with a multitude of criminal offenses. In three separate trials held between August 1999 and February 2000, a jury found Tshiwala guilty of those offenses. The same circuit judge, Vincent E. Ferretti, presided over all three trials. Judge Ferretti sentenced Tshiwala to an aggregate of 70 years in prison.
The Court of Special Appeals affirmed the circuit court’s judgments. Tshiwala’s petitions for a writ of certiorari filed in the Court of Appeals and the United States Supreme Court were both denied.
Tshiwala then filed in the circuit court an application for relief under the Maryland Uniform Post-conviction Procedure Act, CP §7–101. After a hearing, the circuit court granted to Tshiwala the right to file a belated application for review of sentence pursuant to CP §§8–101 through 8–109 and Rule 4–344.
Tshiwala filed an application for review of his sentences, and a three-judge panel of the 6th Circuit (which includes Montgomery County) was convened to review the sentences. The panel consisted of Circuit Administrative Judge Harrington as panel chairperson, Circuit Judge Mason and Circuit Judge Debelius.
The panel reduced the particular sentences for several of Tshiwala’s convictions, so that the total period of imprisonment was reduced from 70 years to 39 years. Thus, the re-imposed sentences totaling 39 years became the only sentences for Tshiwala’s 1999 and 2000 convictions.
On April 26, 2007, Tshiwala filed in the circuit court, pursuant to Rule 4–345(e), a motion for reconsideration of sentence. He sought a modification of the sentences imposed by the review panel. This motion was denied by the same three judges that were on the three-judge review panel.
In November 2008, Tshiwala instituted the present action by filing in the circuit court a motion to correct illegal sentence pursuant to Rule 4–345(a). The purported legal basis for this motion was that the three judges who denied reconsideration were acting in their capacity as a sentence review panel under CP §8–101 and that the sentence review panel lacked jurisdiction to rule on the motion for reconsideration of sentence. Administrative Judge Harrington denied Tshiwala’s motion to correct illegal sentence.”
Tshiwala appealed to the Court of Special Appeals from the order denying his Rule 4–345(a) motion to correct an illegal sentence, and the Court of Appeals issued a writ of certiorari prior to any further proceedings in the Court of Special Appeals.
The Court of Appeals affirmed.
LAW: “[A] Rule 4–345(a) motion to correct an illegal sentence is not appropriate where the alleged illegality ‘did not inhere in [the defendant’s] sentence.’ A motion to correct an illegal sentence ordinarily can be granted only where there is some illegality in the sentence itself or where no sentence should have been imposed. On the other hand, a trial court error during the sentencing proceeding is not ordinarily cognizable under Rule 4–345(a) where the resulting sentence or sanction is itself lawful. Moreover, where the sentence imposed is not inherently illegal, and where the matter complained of is a procedural error, the complaint does not concern an illegal sentence for purposes of Rule 4–345(a).” Montgomery v. State, 405 Md. 67, 74 (2008). See also Taylor v. State, 407 Md. 137, 141 n. 4 (2009); Chaney v. State, 397 Md. 460, 466 (2007).
Tshiwala’s complaint was not cognizable under Rule 4–345(a). His complaint was not that the sentences totaling 39 years, imposed by the review panel, were in any manner illegal. Instead, his complaint was aimed at a procedural matter occurring after the imposition of the 39–year sentences, namely the circuit court’s handling of his Rule 4–345(e) motion for reconsideration. Tshiwala’s complaint was that the motion should not have been assigned to Judges Harrington, Mason and Debelius. Assuming arguendo that this assignment was improper, a sentence does not become illegal “because of some arguable procedural flaw,” State v. Wilkins, 393 Md. 269, 273 (2006). This is particularly true when the alleged “procedural flaw” occurred after sentencing and related to a motion for reconsideration.
Tshiwala has phrased his argument in terms of “jurisdiction,” contending that Judges Harrington, Mason and Debelius lacked jurisdiction to rule on the motion for reconsideration of the sentence. If it constituted error for these three judges to rule on the motion, this would not mean that they lacked subject matter jurisdiction or, as it is often called, “fundamental jurisdiction.” There is a difference between a court or judge lacking “fundamental jurisdiction” and improperly “exercising jurisdiction.” Because a court or judge is unauthorized to take particular action or is erroneously exercising jurisdiction, does not mean that the court or judge does not have basic subject matter jurisdiction.
In the leading case of First Federated Commodity Trust Corp. v. Commissioner, 272 Md. 329 (1974), the appellant argued that a decree of the circuit court was inconsistent with a statute and that, therefore, the circuit court lacked subject matter jurisdiction.
The Court stated: “‘Juridically, jurisdiction refers to two quite distinct concepts: (i) the power of a court to render a valid decree, and (ii) the propriety of granting the relief sought.’” Id. at 335 (quoting Moore v. McAllister, 216 Md. 497, 507 (1958)).
In holding that the violation of the statute did not deprive the circuit court of subject matter jurisdiction, the Court set out the definition of subject matter jurisdiction: “If by that law which defines the authority of the court, a judicial body is given the power to render a judgment over that class of cases within which a particular one falls, then its action cannot be assailed for want of subject matter jurisdiction.” First Federated Commodity Trust Corp. 272 Md. at 335.
Furthermore, “where a trial court…has jurisdiction over the subject matter, but where a statute directs the court…, under certain circumstances, to exercise its jurisdiction in a particular way,…and the tribunal erroneously refuses to do so…, the matter did not concern the subject matter jurisdiction of the trial court.” Board of License Comm. v. Corridor, 361 Md. 403, 417–418 (2000).
Thus, the denial of Tshiwala’s motion for reconsideration, whether or not an erroneous exercise of jurisdiction, was not beyond the circuit court’s subject matter jurisdiction.
Finally, even if there had been a “jurisdictional” problem with the order denying reconsideration, it would not affect the legality of the 39–year sentences. Tshiwala had not suggested any illegality in those sentences. Therefore, he had no cause of action under Rule 4–345(a).
Easements over unimproved land
BOTTOM LINE: Where the public’s use of the beach on defendants’ property was presumptively permissive and the plaintiffs failed to produce sufficient evidence to demonstrate that such use was adverse, plaintiffs failed to establish a public prescriptive easement.
CASE: Clickner v. Magothy River Association, Inc., No. 13, Sept. Term, 2011 (filed Jan. 20. 2012) (Judges Bell, Harrell, Battaglia, GREENE, Adkins, Barbera & Murphy (retired, specially assigned)). RecordFax No. 12-0120-20, 42 pages.
FACTS: David and Diana Clickner owned Dobbins Island, a seven-acre parcel of land surrounded by the Magothy River. The Clickners purchased the island in 2003, with plans to build a home on the property.
Prior to purchasing the island, the Clickners were aware that for many years, the island has been used by the public for recreational purposes, such as picnicking, mooring, sunbathing, and swimming. After the Clickners became aware of its extensive public use, they posted “No Trespassing” signs along the perimeter and, in May 2006, were granted a building permit from Anne Arundel County to erect a 1,200 foot fence along the shoreline above mean-high tide. The fence included 13 pilings placed along the beach and strung together with cable.
In reaction to the fence installation, six individuals and the Magothy River Association, Inc. (collectively, the Association) filed a complaint in the circuit court seeking to establish their rights to continue to use the island on behalf of themselves and the general public and to have the fence removed or relocated. An amended complaint added two new parties as well as assertions of an easement by implied dedication and public custom.
The six individually named plaintiffs, as well as the president of the Magothy River Association, and an expert in the use of tidal data as it relates to coastal boundary disputes, testified at the trial. The Association presented evidence to establish the long, historical use of the island beach.
Each individually named plaintiff recounted his or her life-long affinity for and interaction with the beach, each using it from long memory for recreational purposes, such as picnicking, mooring, sunbathing, and swimming. While many witnesses explained their historic use of the entire island, counsel clarified that the Association were asserting a claim only to the dry sand portion of the beach. Several witnesses also described the extensive public use of the area during summer months, estimating that approximately 75 to 100 persons would be on the beach on any given day.
The testimony revealed that the witnesses were never given individual permission to use Dobbins Island and that they did not necessarily know who owned the island. Further, the witnesses did not think of themselves as trespassers but instead assumed the land was open for public use because it was common practice for members of the public to use the island for recreation and they did not see “no trespassing” signs on the property.
The trial judge held that the public had not gained an easement through either implied dedication, custom, or public trust, but ultimately that the public had, in fact, met the requirements necessary to establish a prescriptive easement. In order to allow for use of the newly recognized public easement, the trial court also ordered that the cables between the pilings creating the shoreline fence be removed.
Prior to any proceedings in the intermediate appellate court, the Court of Appeals issued a writ of certiorari on its initiative and reversed.
LAW: The State of Maryland owns in public trust, for the benefit of its citizens, the navigable water of the Magothy River surrounding Dobbins Island and the subject beach up to the mean high water line. See EN §16–101(o); Anne Arundel County v. City of Annapolis, 352 Md. 117, 132–33 (1998). Therefore, the mean high water line marks the division between state and private ownership of the shoreline. When the tide is high, the water of the Magothy extends to the Clickners’ pilings, leaving little or no visible sand below the fence and thereby precluding public use of the beach on Dobbins Island.
Accordingly, the Association asserted a right to use the area above mean high tide, the dry sand portion of the beach, currently fenced off by the Clickners. In order for the public to have a right to use and enjoy this portion of the beach, the Association had to demonstrate a property right in the form of an easement, a non-possessory interest in the real property of another that can arise either by express grant or implication. Boucher v. Boyer, 301 Md. 679 (1984).
“In order to establish an easement by prescription a person must make an adverse, exclusive, and uninterrupted use of another’s real property for twenty years.” Banks v. Pusey, 393 Md. 688, 699 (2006). In asserting prescriptive rights, “[t]he burden of proof is on the claimant of the use to show that it has had the character and is of the duration required by the law.” Dalton v. Real Estate & Improvement Co. of Baltimore City, 201 Md. 34, 41 (1952).
Continuous public use of the beach on Dobbins Island for the statutory period was uncontested.
A use is adverse if it occurs without license or permission. Kirby, 347 Md. at 392. “As a general rule, permissive use can never ripen into a prescriptive easement.” Kirby, 347 Md. at 393. When a person has used a right of way openly, continuously, and without explanation for twenty years, it is presumed that the use has been adverse under a claim of right. Cox v. Forrest, 60 Md. 74 (1883). The burden then shifts to the landowner to prove that the use was, in fact, permissive. Id. at 80. There are circumstances, however, where the presumption is reversed, and the burden falls on the claimant to demonstrate that the use was under a claim of right. See Banks, 393 Md. at 712–13.
When an easement is claimed on land that is unimproved or in a general state of nature, there is a legal presumption that the use is by permission of the owner. This is called the “wood-lands exception.” Day v. Allender, 22 Md. 511 (1865).
In Forrester v. Kiler, 98 Md.App. 481 (1993), the intermediate appellate court applied the woodlands exception to the use of a right of way through an area it described as “wooded, unenclosed land,” that connected two parcels of property. “[W]hen unenclosed and unimproved wildlands or woodlands are involved, the presumption is that the use was permissive, and the burden of proving that the use was adverse or under a claim of right is upon the one asserting these rights.” Id. at 485.
Under the woodlands exception, the long history of public use of the beach would be considered to have been presumptively permissive under the law.
Department of Natural Resources v. Cropper, 274 Md. 25 (1975), involved a claimed public prescriptive right to the dry sand portion of an Ocean City beach. The Court of Appeals affirmed the trial court’s judgment that the evidence failed to demonstrate “a continuous and uninterrupted adverse use by the general public for a period of 20 years,” but that it merely established “a miscellaneous and promiscuous use of land in a general state of nature.” Id. at 28.
Cropper was instructive in the determination that the beach on Dobbins Island is properly characterized as being “in a general state of nature.” See Cropper, 274 Md. at 28. It was undisputed that the beach is attached to an uninhabited, uncultivated, and undeveloped island.
The visibility of the use is one rationale which guided the common-law development of the woodlands exception. See Leekley v. Dewing, 217 Md. 54, 59 (1958). Another rationale, of particular importance in the instant case, is that owners of unimproved lands ordinarily suffer no deprivation of their rights of use and enjoyment by allowing others access to their property. See Leekley, 217 Md. at 59; Forrester, 98 Md.App. at 485.
“As a general rule, permissive use can never ripen into a prescriptive easement.” Kirby, 347 Md. at 393. As such, use that is originally permissive “is presumed to continue, and there must be affirmative evidence of [a] change to adverse use.” Feldstein v. Segall, 198 Md. 285, 295 (1951).
Because the public’s use of the privately owned, dry sand portion of the beach on Dobbins Island was presumptively permissive, the Association had the burden to show that the use was, in fact, adverse from the outset, or that its character became adverse at a point in time sufficient to meet the twenty-year prescriptive requirement. The Association failed to overcome the presumption of permission, as there was insufficient affirmative evidence to demonstrate that use of the beach was ever claimed adversely as a matter of right. Banks, 393 Md. at 709. Therefore, the public’s historic use of the beach on Dobbins Island was under a license, now properly subject to revocation by the Clickners. See Millson v. Laughlin, 217 Md. 576, 583 (1958).
Thus, it was error for the trial judge to apply the general presumption of adversity to the public’s use of the beach on Dobbins Island, as the beach was unimproved property in a general state of nature. The proper presumption to be applied was that public use was by permission of the owners. Because there was no public prescriptive easement established, as a matter of law, the trial court’s judgment was reversed.
COMMENTARY: The parties disputed whether Maryland law allows for a public easement to be established on a beach located along an inland waterway.
Thomas v. Ford, 63 Md. 346 (1885), involved an action for trespass, wherein the plaintiff alleged that the defendant had deprived him of his right to use and enjoy his property located along the shore of the Patuxent River by encumbering the land with a large quantity of wood. The defendant argued that he had not trespassed because the public had acquired a prescriptive easement over the land, as the property had been used for many years by the general population for shipping wood and other freight, a use that was known, but not objected to by the owner. The Thomas Court held that no prescriptive easement had been established under its facts.
Rather than being a bar to prescriptive easements along the shores of inland waterways, Thomas reflects the Court’s jurisprudence that, as a general rule, permissive use of another’s land cannot ripen into an adverse right. Kirby, 347 Md. at 393; Cox, 60 Md. at 79–80. Thomas also suggests a rationale underlying the presumption of permissive use that often attaches to the use of land that is unimproved or “in a general state of nature.” Wilson v. Waters, 192 Md. 221, 228 (1949).
Even assuming that Thomas could be construed to have raised a policy bar to public prescriptive easements along the shoreline, that precedent was modified by Department of Natural Resources v. Ocean City, 274 Md. 1 (1975), in which the Court of Appeals noted that a prescriptive easement could be acquired by the public on privately held littoral property above mean high tide under appropriate circumstances. There is no meaningful distinction between ocean and inland beaches sufficient to allow public prescriptive rights to accrue on one type of beach and not the other. To the contrary, just as the ownership of all navigable waterways and their foreshores is governed by the public trust doctrine, the dry sand portions of the attached beaches should be subject to the same principles of prescription without distinction as to the character of the water hitting the sand.
Thus, a prescriptive easement may be acquired by the public along inland shores.
PRACTICE TIPS: Generally, to establish a personal easement by prescription the use must have been exclusive. However, the standard for exclusivity with respect to a public easement differs and requires that “all persons must have an equal right to the use and that it must be in common, upon the same terms, however few the number who avail themselves to it. The law is well settled that a public road is a public highway regardless of the number of people who use it if everyone who desires may lawfully use it, as it is the right of public travel and not the exercise of the right which constitutes a road a public highway.” Garrett v. Gray, 258 Md. 363, 378 (1970).
BOTTOM LINE: It was an abuse of discretion for trustees to impose a fee which required the purchaser at a foreclosure sale to pay additional legal fees incurred by the trustees since it was not in conformance with state or local rules and was against public policy.
CASE: Maddox v. Cohn, No. 55, Sept. Term 2011 (filed Jan. 24, 2012) (Judges Bell, Harrell, Battaglia, Greene, Adkins, Barbera, CATHELL & Dale (retired, specially assigned)). RecordFax No. 12-0124-22, 25 pages.
FACTS: This case arose out of a mortgage foreclosure proceeding involving a residential home. In the advertisement for the sale, the trustees included an additional condition, not found in the mortgage documents or authorized by the Maryland Rules, that any successful purchaser at the sale would be required to pay the legal fees of attorneys who would be utilized to review the documents on behalf of the trustees by which they would hold settlement and ultimately convey title. This additional charge would not be included as a cost in the foreclosure proceeding and would not normally be subject to court review or audit.
The homeowner opposed the ratification of the sale by excepting to the Report of Sale on the ground that the imposition of a fee not provided for by the Maryland Rules or local rule and not subject to audit was improper and caused the sale not to be “fairly and properly” made.
The trial court found that the imposition of the fee was improper. Nonetheless, the trial court found that the imposition of the fee did not make the sale unfair or improper and ratified the sale. The trial court ordered a stay of the order of ratification pending appeal. The Court of Special Appeals affirmed.
The homeowner appealed to the Court of Appeals, which reversed.
LAW: The trustees created an extra condition, i.e., the requirement that the purchaser at a foreclosure sale must pay additional legal fees incurred by the trustees for which the trustees are already being compensated consistent with the rules applicable to foreclosure sales. The trustees were attempting to “contract out” a requirement not contemplated by the rules or statutes. See Simard v. White, 383 Md. 257 (2004).
Trustees acting under a power of sale contained in a deed of trust have discretion to outline the manner and terms of sale, providing their actions are consistent with the deed of trust and the goal of securing the best obtainable price. However, that discretion is not unlimited. “When a sale is attacked, it must be shown that the trustee did not abuse the discretion reposed in him, and that the sale was made under such circumstances as may be fairly calculated to bring the best obtainable price.” Id. at 312.
There was no provision in the mortgage documents between the mortgagor and mortgagee providing for the imposition of the legal fee at issue. Nor is such an added legal fee provided for in the Maryland Rules or statutes.
Since Simard and the beginning of the contemporary foreclosure crisis, the Legislature has enacted several new statutes, or amended statutes, to further protect the interests of mortgagors relating to foreclosures, especially foreclosures of residential properties. The newly enacted statutes are now codified as RP §§7–301, 7–302, 7–310, 7–312.
The Court of Appeals has adopted, responsively, amendments to its rules relating to those statutes and foreclosure issues generally. Additionally, in 2009, bills were passed that attempted to better define the term “residential” and granted power to local governments to pass ordinances requiring that they receive notice of foreclosures in their jurisdictions.
In 2010, a bill was passed that required that a mediation process be required before a lender could commence or continue with a foreclosure of residential property.
The Acts of 2011 include another provision designed to limit the practices of foreclosure mills. It concerns imposing additional requirements on persons attempting to use Lost Note Affidavits in lieu of the actual instruments of indebtedness.
These new legislative acts are primarily designed to afford additional protections to mortgagors/homeowners by slowing down the foreclosure process to provide opportunities for homeowners to avoid foreclosure. They also provide requirements that lessen the impact of foreclosures on local governments.
The Court of Appeals has amended its rules to ensure that the Rules are compatible with the Acts. See Rules 14–201, 14–204, 14–205, 14–207.1, 14–212, 14–214, 14–215, and 14–216. For the most part, these rules afforded additional protection for mortgagors involved in foreclosure actions.
It is clear that the legislative process relating to mortgage foreclosures of the last several years has been designed to slow down the mortgage foreclosure practices to limit the abuses of past years and to provide additional protections to homeowners. The Legislature has effectively changed Maryland’s slanted in favor of secured parties foreclosure practices to one requiring compliance with much stricter standards, tipping the playing field to protect debtors.
The trustees’ attempt to shift legal fees to prospective purchasers in a manner having no relation to the trustees’ duty to maximize sums at such sales is contrary to the thrust of the new policies as created by the Legislature and is another example of the abuses that have caused these types of problems in the first instance.
There are no Maryland cases involving the type of alleged advertisement abuse as in this case. The Court discussed some of the cases in which there are allegations that trustees abused their discretion in respect to the time and/or manner of such sales.
In Wells Fargo Home Mortgage, Inc. v. Neal, 398 Md. 705, 726 (2007), the Court of Appeals discussed the general nature of judicial sales (in that case a foreclosure under a power of sale). “This ‘power of sale’ foreclosure is ‘intended to be a summary, in rem proceeding’ which carries out ‘the policy of Maryland to expedite mortgage foreclosures.’ We, however, do not construe the Rule governing power of sale foreclosures to prohibit mortgagors from raising viable defenses to a foreclosure to which the mortgagee is not entitled.” Id. at 726.
In Pizza v. Walter, 345 Md. 664 (1997), two of the exceptions taken to the sale were that the property was not sufficiently advertised and that the trustee “was not an independent officer of the court and had loyalties adverse to the owner of the property and to the exceptant.” Id. at 672.
In discussing supersedeas bond requirements, the Court of Appeals noted: “This Court has recognized two exceptions to this general rule protecting a bona fide purchaser from reversal of the ratification of the sale in the absence of a supersedeas bond. First, a bona fide purchaser may be affected by a reversal of ratification when ‘there is unfairness or collusion by the purchaser in the making of the sale by the trustee.’ Second, the rule does not apply when a mortgagee purchases at the foreclosure sale and exceptions are taken to the sale.” Id. at 674, 675.
The Court discussed the trustee’s duties further: The trustee has a duty to protect the interest of all concerned persons to the foreclosure sale and to use reasonable diligence in producing the largest revenue possible for the mortgaged property. The trustee’s duty extends to the mortgagor and persons claiming under or through the mortgagor to exercise the same degree of care that a prudent person of ordinary business judgment would use when selling property to see that the best price is obtained at the sale. The Trustee in this case failed to fulfill her obligation to ensure that the sale was conducted so as to maximize the price received for the property.” Id. at 680–681.
The attempt to impose an additional legal fee by a unilateral imposition in an advertisement of sale is not only unauthorized by rule, statute, or agreement, its actual effect is the opposite of maximizing the sums bid at the sale. While the fee attempted to be imposed was relatively minor, it was not subject to the audit process or direct court approval in the foreclosure process and the reasonableness of such fees depends only upon the judgment of the attorneys and the lenders attempting to impose them. The imposition of such additional fees operates contrary to the duties of trustees to maximize the sums bid at sales.
Thus, in the absence of specific authority in the contract of indebtedness or contained in statute or court rule, it was an impermissible abuse of discretion for trustees to include the demand for additional legal fees for the benefit of the Trustees in the advertisement of sale, or in any other way, in that it is contrary to the duty of trustees to maximize the proceeds of the sales and, moreover, was not in conformance with state or local rules and is against public policy.
COMMENTARY: It was highly unlikely that the trustees would collect such a fee from the lender who appointed them and who became the successful bidder at the sale. However, it was a legal fee that, even if valid, would not have been due until the documents of settlement and conveyance were required. That would only be after the sale was ratified.
An appeal was taken from the order of ratification and the trial court stayed the order of ratification pending the appeal. Accordingly, the Court of Special Appeals’ position that the mortgagee lacked standing to appeal based upon the fact that the fee was not charged is incorrect. The time for the imposition of the fee had not yet occurred.
More important, the key issue was whether in arbitrarily requiring the fee, the trustees were taking an action that would generate the highest price for the property. By requiring a buyer to pay other sums outside of the foreclosure process, the trustees were taking an action that was not designed to maximize the sums bid at such a sale.
PRACTICE TIPS: Mediation and other new requirements create additional costs. Although some of the charges for services now required by statute must be advanced by the mortgagees, they may ultimately be borne by the mortgagors as costs of foreclosure and be reflected in lesser surpluses or greater deficiencies.
Foreclosure purchaser’s liability
BOTTOM LINE: Absent special circumstances, a defaulting purchaser at a foreclosure sale of property is liable, under Rule 14–305(g), for only the one resale resulting from his or her default.
CASE: Burson v. Simard, No. 35, Sept. Term, 2011 (filed Jan. 23, 2012) (Judges Bell, Harrell, Battaglia, Greene, ADKINS, Barbera & Eldridge (retired, specially assigned)). RecordFax No. 12-0123-22, 15 pages.
FACTS: On February 28, 2007, David Simard submitted the high bid at a foreclosure sale. He then defaulted by failing to go to settlement. The circuit court ordered that the property be resold at the risk and expense of Simard.
At the second auction (first resale), the property was resold to Stan Zimmerman, but Zimmerman defaulted as well. The court then ordered that the property be resold once again, this time at the risk and expense of Zimmerman. JBJ Real Estate, LLC, purchased the property (second resale), and proceeded to settlement.
Pursuant to Rule 14–305(f), the circuit court referred the final sale for an audit. The audit found that Simard was liable for the difference between the price that he originally agreed to pay for the property ($192,000) and the price for which it ultimately sold ($130,000). It also found him liable for expenses relating to the first and second resales. The audit found Stan Zimmerman liable for expenses relating to the second resale and the price differential between the first and second resales.
After the circuit court ratified the audit, Simard filed a motion for reconsideration, arguing that he was not liable for expenses or losses occurring after the first resale. The court denied his motion, holding that he was liable under Rule 14–305(g) for consequential damages relating to both resales. The Court of Special Appeals reversed.
The Trustees of the property appealed to the Court of Appeals, which affirmed the judgment of Court of Special Appeals.
LAW: Rule 14–305(g) reads: “If the purchaser defaults, the court…may order a resale at the risk and expense of the purchaser or may take any other appropriate action.” The language of the rule, by referring to “a resale,” would seem to indicate that each defaulting purchaser is liable for one resale, not multiple resales. This interpretation is consonant with the treatment in treatises on mortgage foreclosures. See Wiltsie on Mortgage Foreclosure (1939), §773, §735. However, Rule 1–201(d) provides that “[w]ords in the singular include the plural and words in any gender include all genders except as necessary implication requires.”
In Davis v. State, 196 Md.App. 81 (2010), the Court of Special Appeals applied the last clause of Rule 1–201(d) and held that the word “judge” in Rule 4–243(c) did not include the plural “judges.” “The ‘necessary implication’ of the language of Rule 4–243 require[d] a singular construction not only because of the procedural process contemplated by the rule…but because of the practical impossibility” of effectuating the rule with a plural interpretation. Id. at 98.
Thus, Rule 14–305(g), although not ambiguous on its face, allows room for interpretation as to whether a court may order that subsequent sales be held at the expense and liability of the original bidder.
Principles of contract law guide the interpretation, because a judicial sale of property creates a contract with the court. McCann v. McGinnis, 257 Md. 499, 505–06 (1970). When a contract is breached in Maryland, “the damages for a breach of contract should be such as may fairly and reasonably be considered, either as arising naturally, i.e. according to the usual course of things from such breach of the contract itself; or such as may reasonably be supposed to have been in contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.” Lloyd v. Gen. Motors Corp., 397 Md. 108, 162 n. 25 (2007).
The terms “general damages” and “special damages” have been used to describe this rule. Addressograph–Multigraph Corp. v. Zink, 273 Md. 277, 286 (1974). “Special damages” are sometimes called “consequential damages,” see Hinkle v. Rockville Motor Co., 262 Md. 502, 510–511 (1971), and courts may award “incidental damages” as well. Lloyd, 397 Md. at 162.
In the case of a purchaser’s breach of a contract for sale of land, general damages are “the difference between the contract price and the fair market value at the time of breach.” Kasten Constr. Co., Inc. v. Jolles, 262 Md. 527, 531 (1971). “The injured vendor may introduce evidence of a resale of the property as an alternative means of establishing damages, [b]ut in such a case, the burden is upon the seller to establish that the sale was fairly made within a reasonable time after breach.” Id. at 531–32.
The remedy of resale at the defaulting buyer’s expense has been viewed in several ways. See Dobbs, Dobbs Law of Remedies §12.17(3), at 400. Resale can be seen as a way to determine the amount of these benefit of the bargain damages. See id. The theory is that a sale conducted shortly after the first sale, on the same terms, will yield bids equal to the fair market value of the property. Once that is determined, the original purchaser is liable for the difference between the amount he bid and the amount bid at the second sale so that if his bid is higher than the second sale, he gives the seller the benefit of their bargain. These would be general damages. The defaulting purchaser is also liable for any consequential damages, which would include the cost and expense of conducting the second sale.
The question was not whether Simard was able to show cause why additional damages should not attach, but whether the default by Zimmerman constituted either benefit of the bargain damages or consequential damages for which Simard was liable. In averring Simard’s liability for these claimed damages, the Trustees do not argue that the purchase price at the second resale represents the fair market value of the property at the original sale eight months earlier, a showing required for benefit of the bargain damages. Accordingly, they were analyzed as possible consequential damages.
A resale is a remedy chosen by the vendor, with the approval by the court, for the purpose of defining and limiting consequential damages. The defaulting purchaser at a judicial sale is not a guarantor that all future sales contracts, entered by the trustees for that property, will be performed. Such a defaulting purchaser is not liable for losses “caused by the conduct of other persons beyond the power of the purchaser to control or ameliorate.” Cf. Baltrotsky v. Kugler, 395 Md. 468, 478, 480–81 (2006).
Rule 14–305 was crafted with the common law conceptions of consequential damages in mind. The language “may order a resale at the risk and expense of the purchaser” was intended to mean that the risk and expense shall be limited to one resale—the most likely method to define the damage caused by the original purchaser’s default. If the Court were to hold that whenever a second resale occurs, prior defaulting purchasers become liable for that resale, wasteful litigation would likely ensue between purchasers over how to allocate costs. See Exxon Valdez v. Exxon Mobil Corp., 568 F.3d 1077, 1082 (9th Cir.2009). Additionally, to hold the original foreclosure purchaser liable for all subsequent defaults by other purchasers would expose defaulting purchasers to an unreasonable amount of damages. See Tauber v. Johnson, 8 Ill.App.3d 789 (1972).
This result is consistent with the parties’ reasonable expectations as shown by the record in this case. The Trustees’ petition for the second resale requested that it be “resold at the risk and expense of the defaulting purchaser, STAN ZIMMERMAN[.]” If the parties had intended that Simard be liable for the second resale, it is only reasonable to conclude that they would have said so in their petition.
Absent special circumstances, a defaulting purchaser at a judicial sale of property is liable, under Rule 14–305(g), for only the one resale resulting from his or her default. Thus, Simard was not liable, under Rule 14–305(g), for the risk and expense of the second resale.
COMMENTARY: The Trustees relied on equitable arguments to support their assertion that a defaulting purchaser should be liable for the risk and expense of all subsequent purchasers’ defaults. They argued that the mortgagor’s claim that the first defaulting purchaser should be responsible for the difference between his bid and the ultimate sale price is at least as equitable as is a defaulting purchaser’s claim that his liability should be limited to the difference between his bid and the second defaulting purchaser’s bid.
The equities do not work exclusively to the benefit of mortgagors and mortgagees. Rule 14–305(g) and the precedents make it clear that a defaulting purchaser exposes himself to a significant degree of liability for the expenses and losses caused by his default. See generally Simard v. White, 383 Md. 257 (2010). But nothing in the rule or precedents suggests that a defaulting purchaser should be liable for all losses and expenses incurred throughout the remainder of the foreclosure proceeding. Indeed, it is generally inequitable to hold a person liable for losses that he or she did not cause. See, e.g., S.F. Police Officers’ Assoc. v. San Francisco, 869 F.2d 1182, 1184 (9th Cir.1988).
PRACTICE TIPS: A resale can “conclusively fix the amount of the damages” so long as it is “made within a reasonable time after the breach, upon as favorable terms and under as favorable circumstances as the original sale, and the property must be the same and the title as good as that first sold.” Definite Contract Bldg. & Loan Ass’n v. Tumin, 164 S.E. 562, 566–67 (Va.1932).
Defamation and false light
BOTTOM LINE: Defendants were entitled to summary judgment on plaintiff’s claims of defamation and false light, where the statements published by defendants were protected by the fair reporting and fair comment privileges.
CASE: Piscatelli v. Smith, No. 18, Sept. Term, 2011 (filed Jan. 23, 2012) (Judges Bell, HARRELL, Battaglia, Greene, Adkins, Barbara & Eldridge (retired, specially assigned)). RecordFax No. 12-0123-21, 21 pages.
FACTS: In 2006 and 2007, Van Smith, a reporter, wrote two articles which were published by CEGW, Inc., owner of the Baltimore-based City Paper. The first article, entitled “Late Discovery,” was published on December 6, 2006, and the second, entitled “The Lonely Killer,” was published on June 20, 2007. The articles revisited the 2003 murders of Jason Convertino and Sean Wisniewski and the trial of Anthony Miller for those crimes. Both articles more than hinted that Nicholas Piscatelli may have been involved in the murders.
Convertino and Wisniewski were murdered in April 2003. Prior to his death, Convertino worked for Redwood Trust, a Baltimore nightclub located in a former bank building, managing and procuring music acts for the club. Wisniewski worked also for Redwood Trust, as well as for a nightlife promotions company that held events at Redwood Trust occasionally. Piscatelli owned Redwood Trust.
Two years after the murders, a police investigation concluded that Miller committed the crimes. Miller was tried and found guilty of two counts of second-degree murder and sentenced to two consecutive 30-year prison terms.
Smith highlighted in his articles two particular aspects of the Miller trial. First, in October 2006, the State’s Attorney provided to Miller’s defense counsel a memorandum containing supplemental discovery responses. The memorandum contained a summary of a conversation Convertino’s mother, Pam Morgan, had with police detectives investigating the murders. The summary stated that Morgan told police that about a month after the killings, a benefit was held to raise money for Convertino’s young daughter. About 500 people showed up, and while it was going on, Morgan says she was approached by a man who advised her that Piscatelli was behind her son’s murder, he covered his tracks and hired someone to kill him. This memorandum became part of the criminal case file and the public record, although it was not offered in evidence at Miller’s trial.
The second feature of the newspaper reporting relevant to Piscatelli was that Miller’s defense counsel and the prosecutor examined Piscatelli as a witness during Miller’s trial. The prosecutor asked Piscatelli bluntly if he had anything to do with the murder of Convertino; Piscatelli responded that he did not. Piscatelli testified also that: Convertino had been planning to leave Redwood Trust for a similar position with a rival nightclub; Convertino planned to switch Sean “P. Diddy” Combs, a popular musician at that time, from performing at Redwood Trust to the rival nightclub; and, Piscatelli suspected Convertino of taking larger commissions than he was due during his employment at Redwood Trust.
Smith reported the statement from the supplemental discovery memorandum in both articles and Piscatelli’s trial testimony in the June 20, 2007 article.
Based on these articles, Piscatelli sued Smith and CEGW in the circuit court advancing counts of defamation and false light. Smith and CEGW filed a motion for summary judgment, which the trial judge granted. The Court of Special Appeals affirmed.
Piscatelli appealed to the Court of Appeals, which affirmed.
LAW: An allegation of false light must meet the same legal standards as an allegation of defamation. Harnish v. Herald–Mail Co., 264 Md. 326, 337 (1972). In order to plead properly a defamation claim under Maryland law, a plaintiff must allege specific facts establishing four elements to the satisfaction of the fact-finder: “‘(1) that the defendant made a defamatory statement to a third person, (2) that the statement was false, (3) that the defendant was legally at fault in making the statement, and (4) that the plaintiff thereby suffered harm.’” Indep. Newspapers, Inc. v. Brodie, 407 Md. 415, 441 (2009) (quoting Offen v. Brenner, 402 Md. 191, 198 (2007)).
A “defamatory statement” is one that tends to expose a person to “‘public scorn, hatred, contempt, or ridicule,’” which, as a consequence, discourages “‘others in the community from having a good opinion of, or associating with, that person.’” Brodie, 407 Md. at 441 (quoting Offen, 402 Md. at 198–99). A “false” statement is one “that is not substantially correct.” Batson v. Shiflett, 325 Md. 684, 726 (1992). The plaintiff carries the burden to prove falsity. Id.
In some circumstances, an absolute or qualified privilege defeats a claim of defamation, if the defendant did not abuse that privilege. Hanrahan v. Kelly, 269 Md. 21, 29–30 (1973). “‘An absolute privilege is distinguished from a qualified privilege in that the former provides immunity regardless of the purpose or motive of the defendant, or the reasonableness of his conduct, while the latter is conditioned upon the absence of malice and is forfeited if it is abused.’” Smith v. Danielczyk, 400 Md. 98, 117 (2007) (quoting Di Blasio v. Kolodner, 233 Md. 512, 522 (1964)).
Once a prima facie case for a privilege is adduced, the plaintiff must produce facts, admissible in evidence, demonstrating the defendant abused the privilege, in order to generate a triable issue for the fact-finder. Hanrahan, 269 Md. at 29. To demonstrate abuse of the privilege, the plaintiff must demonstrate that the defendant made his or her statements with malice, defined as “a person’s actual knowledge that his [or her] statement is false, coupled with his [or her] intent to deceive another by means of that statement.” Ellerin v. Fairfax Sav. F.S.B., 337 Md. 216, 240 (1995).
The fair reporting privilege is a qualified privilege to report legal and official proceedings that are, in and of themselves defamatory, so long as the account is “fair and substantially accurate.” Chesapeake Publ’g Corp. v. Williams, 339 Md. 285, 296 (1995). The privilege arises from the public’s interest in having access to information about official proceedings and public meetings. Restatement (Second) of Torts §611 cmt. a (1977).
A defendant abuses his or her fair reporting privilege, not upon a showing of actual malice, but when the defendant’s account “fails the test of fairness and accuracy.” Chesapeake Publ’g Corp., 339 Md. at 297. Fairness and accuracy is satisfied when the reports are substantially correct, impartial, coherent, and bona fide. Batson, 325 Md. at 727. Although whether a report is fair and accurate is ordinarily a question of fact for the fact-finder, Batson, 325 Md. at 727, summary judgment is appropriate where the plaintiff fails to point to evidence of unfairness and inaccuracy. See Rosenberg v. Helinski, 328 Md. 664 (1992).
As to the supplemental discovery memorandum, the statements by Morgan in that memorandum fell within the purview of the fair reporting privilege. The supplemental discovery memorandum was part of the Miller criminal case file and, despite not being offered in evidence at trial, was a public record that may be reported without liability for defamation, so long as the report is fair and accurate. See Chesapeake Publishing Corp., 339 Md. at 302.
Smith’s reports of the supplemental discovery memorandum were fair and accurate. The first paragraph of the relevant passage that reported about the memorandum was an exact quotation from the memorandum. The second and third paragraphs detailed Morgan’s recollection of the events that precipitated the response in the memorandum. Her recollection was consistent with the contents of the memorandum and did not add additional details or allegations See Rosenberg, 328 Md. at 684.
Piscatelli did not adduce facts tending to show that the report was unfair and inaccurate; therefore, no abuse of the fair reporting privilege was presented to be judged by a fact-finder.
The fair reporting privilege also embraces post-trial recounts of trial testimony. See Rosenberg, 328 Md. at 680–81.
Smith summarized in the 2007 City Paper article Piscatelli’s testimony at Miller’s trial. The report of Piscatelli’s testimony was fair and accurate. Piscatelli’s testimony spanned 13 pages of transcript from Miller’s trial. The summary of those 13 pages was a reasonable abbreviation of Piscatelli’s entire testimony. See Rosenberg, 328 Md. at 683–84. Further, Piscatelli conceded during his discovery deposition in the present litigation that this paragraph was a truthful — and therefore accurate — summary of his testimony.
Smith’s report about Piscatelli’s testimony was also fair: it “did not result in a materially misleading account of the hearing.” Rosenberg, 328 Md. at 682. The article explained that the details of Piscatelli’s relationship with Convertino arose during Piscatelli’s direct testimony when called as a State’s witness. The article recounted also how the defense attorney cross-examined Piscatelli, demonstrating that it was Miller’s defense attorney who attempted to suggest that Piscatelli had a motive to kill Convertino, thus seeking to divert the focus from Miller.
There was no triable issue for a jury as to abuse of the fair reporting privilege regarding the supplemental discovery memorandum or Piscatelli’s testimony. Thus, the circuit court properly granted Smith’s and CEGW’s motion for summary judgment regarding this conditional privilege defense.
COMMENTARY: Maryland recognizes that, under the fair comment privilege, “a newspaper like any member of the community may, without liability, honestly express a fair and reasonable opinion or comment on matters of legitimate public interest.” A.S. Abell Co. v. Kirby, 227 Md. 267, 272 (1961).
Whether a particular publication comes within the purview of this privilege “often turns on whether or not it contains misstatements of fact as distinguished from expression of opinion.” Kirby, 227 Md. at 273. The test for determining whether a published statement is a fact or opinion is, “Would an ordinary person, reading the matter complained of, be likely to understand it as an expression of the writer’s opinion or as a declaration of an existing fact?” Kirby, 227 Md. at 274. The fair comment privilege protects an opinion only where “‘the facts on which it is based are truly stated or privileged or otherwise known either because the facts are of common knowledge or because, though perhaps unknown to a particular recipient of the communication, they are readily accessible to him.’” Kirby, 227 Md. at 279–80 (quoting 1 Harper and James, The Law of Torts § 5.28 (1954)). Conversely, an opinion based on undisclosed facts, or that permits the inference of an undisclosed factual basis, is not privileged. Kirby, 227 Md. at 274.
Derogatory opinions based on false and defamatory or undisclosed facts are not privileged. Kirby, 227 Md. at 272–74. These are called mixed opinions. Restatement (Second) of Torts §566 cmt. b. Derogatory opinions based on non-defamatory facts, true facts, privileged facts, or facts assumed mutually by the opinion-maker and recipient are privileged. Kirby, 227 Md. at 272–74. These are labeled simple or pure opinions. Restatement (Second) §566 cmt. b.
Smith’s reporting of the memorandum and Piscatelli’s trial testimony were privileged as fair reporting. The articles included privileged reports on the memorandum and Piscatelli’s testimony as bases for its opinions, enabling readers to judge for themselves the quality of the opinions. “[T]herefore, what would otherwise have been an allegation of fact becomes merely a comment,” or a simple opinion, which the fair comment privilege declaws of its defamatory expression. Kirby, 227 Md. at 280.
Smith expressed in the articles simple opinions based on disclosed, privileged statements. Therefore, those opinions were themselves privileged as fair comment.
PRACTICE TIPS: Ordinarily, whether the plaintiff is a public or private figure dictates whether a plaintiff must prove his or her defamation claim on a negligence or malice basis. Compare Chesapeake Publ’g. Corp. v. Williams, 339 Md. 285 (1995) with Hearst Corp. v. Hughes, 297 Md. 112 (1983). However, “in a case where a common law conditional privilege is found to exist, the negligence standard of Gertz is logically subsumed in the higher standard for proving malice … and therefore becomes irrelevant to the trial of the case. Were the plaintiff who is confronted with a conditional privilege incapable of proving the malice necessary to overcome that hurdle, it would be of no consequence that he might have met the lesser standard of negligence.” Jacron Sales Co. v. Sindorf, 276 Md. 580, 600 (1976).