Waiver of right to counsel
BOTTOM LINE: Where trial court failed to determine and announce on the record that defendant “knowingly and voluntarily” waived his right to counsel, defendant’s discharge of counsel was not in accordance with the Maryland Rule of Criminal Procedure governing discharge of counsel, and defendant’s conviction was accordingly reversed.
CASE: Westray v. State, No. 1836, Sept. Term, 2012 (filed June 25, 2014) (Judges Krauser, Berger & KENNEY (Retired, Specially Assigned)). RecordFax No. 14-0625-03, 26 pages.
FACTS: William Westray was charged in the circuit court with multiple offenses, including burglary, theft, and attempted first-degree burglary. On May 15, 2012, Westray appeared before the circuit court for a hearing to address assigned counsel’s concern that had had had difficulty speaking with Westray. Reminding Westray that an August trial date had been scheduled, the trial judge cautioned Westray and indicated that he sought to make sure that Westray was well represented.
Westray quickly voiced his dissatisfaction with assigned counsel, calling him an “idiot.” The trial court determined that Westray’s reasons for discharging counsel lacked merit. However, Westray persisted in his complaints, demanding to represent himself. The court then asked assigned counsel for additional details regarding his representation of Westray. Assigned counsel told the court that he had met with Westray on Feburary 28, 2012, and that Westray had refused to engage with him, causing assigned counsel to wonder about Westray’s competency. Assigned counsel also stated, in response to the court’s inquiry, that he had never to his knowledge failed to do anything that Westray asked of him.
Assigned counsel’s concerns about the failure to engage with Westray prompted him to request the presence of the District Public Defender for Montgomery County. At the hearing before the circuit court, assigned counsel asked the District Public Defender to explain to Mr. Westray how the requests to discharge counsel were treated by the Public Defender. The District Public Defender explained that the Public Defender’s Office could not simply assign any lawyer of a defendant’s choosing. Westray responded that he “could find” private counsel and that he would “get money and find one.”
The circuit court then reviewed the charges and warned Westray that the charges exposed him to substantial penalties. The judge emphasized the importance of having an attorney and advised Westray that an attorney could be of assistance to him at trial. The trial judge reiterated that if Westray was dissatisfied with his counsel from the Public Defender, it was against the Public Defender’s policy to assign him new counsel from the Public Defender. The judge instructed Westray that, in the 30 days before the next scheduled hearing, Westray should consider whether he wanted to hire new private counsel or represent himself.
At the subsequent hearing on June 8, Westray appeared before the circuit court and reiterated his wish to discharge assigned counsel. The circuit court warned him that “firing the Public Defender’s Office” meant that Westray would either be defending himself of retaining private counsel. The court indicated that self-representation was ill-advised, and that his reasons for discharging counsel were without merit, but granted Westray’s wish to discharge counsel. The court then confirmed the upcoming trial date of August 21.
Before the trial on August 21, the court took up Westray’s previously filed motion for the appointment of pro bono counsel. The judge reiterated that he had told Westray that if he obtained new counsel and that new counsel had a trial conflict, the court would consider postponing the matter. After Westray responded in the affirmative to the court’s question regarding a postponement, the court denied Westray’s motion for continuance. Westray stated that he was representing himself.
At the conclusion of a jury trial, Westray was convicted of nine counts of first degree burglary, ten counts of theft, and two counts of attempted first degree burglary. The trial court imposed an aggregate sentence of 60 years’ incarceration. Westray appealed to the Court of Special Appeals, which reversed the judgment of the trial court and remanded the case.
LAW: To protect a criminal defendant’s right to counsel, courts indulge every reasonable presumption against a waiver of the right to counsel. Parren v. State, 309 Md. at 263. Hence, any decision to proceed without the representation of counsel necessitates a meaningful inquiry into whether an accused has knowingly and voluntarily waived the assistance of counsel. See id. at 272-73. The duty to conduct a waiver inquiry cannot be discharged as though it were a mere procedural formality. Von Moltke v. Gillies, 332 U.S. 708, 722 (1948).
Maryland Rule 4-215(e) was drafted and implemented to protect both the right to the assistance of counsel and the right to self-representation. Pinkney v. State, 427 Md. 77, 92 (2012). Embodied within the Rule, however, is the principle that an unmeritorious discharge of counsel and request for new counsel, in an apparent effort to delay the trial, may constitute a waiver of the right to counsel. Fowlkes v. State, 311 Md. 586, 603 (1988). To protect both the constitutional guarantees of the right to counsel and the right to proceed without representation, Maryland Rule 4-215 imposes an “order of procedure” to be followed by which the right to counsel may be waived by those defendants wishing to represent themselves, the modalities by which a trial judge may find that a criminal defendant waived implicitly his or her right to counsel and the necessary litany of advisements that must be given to all criminal defendants before any finding of express or implied waiver of the right to be represented by counsel may be valid. Broadwater v. State, 401 Md. 175, 180 (2007).
The requirements of Md. Rule 4-215 are mandatory and must be complied with, irrespective of the gravity of the crime charged, the type of plea entered, or the lack of an affirmative showing of prejudice to the accused. Broadwater, 401 Md. at 182. In the present case, as discussed, on May 15, 2012, Westray expressed disappointment with appointed counsel, but counsel was not discharged during that appearance. On June 8, 2012, Westray appeared in court and reiterated his wish to discharge counsel.
At that time, the court granted the discharge after finding Westray’s reasons for doing so not to be meritorious and the discharge ill advised. The court advised the Westray of the scheduled trial date and encouraged him to obtain counsel, indicating that if new counsel had a “genuine reason” why he or she could not be present, the court would consider a postponement. On August 21, at the beginning of trial, the court addressed Westray’s motion for the appointment of pro bono counsel and a postponement of the trial. The court denied the motion.
The discharge of counsel on June 8 would invoke the provisions of Rule 4-215(e), which states that if a defendant appears in circuit court without counsel on the date set for hearing or trial, indicates a desire to have counsel, and the record shows compliance with section (a) of the Rule, the court shall permit the defendant to explain the appearance without counsel. If the court finds that there is a meritorious reason for the defendant’s appearance without counsel, the court shall continue the action to a later time and advise the defendant that if counsel does not enter an appearance by that time, the action will proceed to trial with the defendant unrepresented by counsel. If the court finds that there is no meritorious reason for the defendant’s appearance without counsel, the court may determine that the defendant has waived counsel by failing or refusing to obtain counsel and may proceed with the hearing or trial.
Here, the record did not reflect a determination or an announcement during the various proceedings or even substantial compliance through the use of synonyms for “knowingly” or “voluntarily.” More importantly, there was not even a pointed inquiry directed at that aspect of the Rule. Westray was not clearly informed, in accordance with section (e), that the trial would proceed as scheduled without him being represented if, after a non-meritorious discharge of counsel, he did not engage new counsel. Md. Rule 4-215(e). Even an implied waiver of the right to counsel that is triggered by the discharge of a particular counsel should be grounded in a clear understanding of the consequences attendant to appearing in court for trial without counsel and the court’s inquiry and determination in that regard be reflected on the record.
Westray initially had counsel, whom he discharged for reasons found to be without merit. At the hearing he indicated that he would find private counsel. When he later appeared in circuit court before trial he was clearly indicating a desire to have counsel” and seeking the appointment of pro bono counsel and a continuance. When the court denied his request for appointed counsel and asked Westray if he still wanted to postpone the case, Westray responded he did “need” an attorney. The fact that when the court denied his request, he proceeded without counsel did not indicate a voluntary decision to proceed without counsel or that he discharged counsel with full knowledge of the possible consequences. On its face and in context, Westray did little more than acknowledge that the trial would proceed.
In sum, the requirement of a determination and announcement on the record of a knowing and voluntary waiver of counsel is no less essential than it is in the case of a jury trial waiver. The “determine and announce” provision added to the waiver of counsel provisions in Rule 4-215(b) serves the same purpose, and thus requires no less compliance than the language did in Rule 4-246(b). See generally Valonis v. State, 431 Md. at 569. The trial court erred in failing to comply with the requirements of this provision.
Accordingly, the judgment of the circuit court was reversed and the case remanded.
COMMENTARY: Because the issue might arise in the event of a retrial, the Court addressed Westray’s challenge to the trial court’s refusal to appoint a panel attorney or pro bono counsel. However, once Westray discharged his assigned public defender without a meritorious reason, he limited his options to hiring private counsel or representing himself. As such, the trial court did not abuse its discretion in refusing to appoint a panel attorney or pro bono counsel.
PRACTICE TIPS: Where a challenge to a search warrant is not raised via a formal suppression motion, such a challenge may be raised in the event of a new trial, but it is not preserved for appellate review.
BOTTOM LINE: The homeowner failed to show any irregularities in the process by which any interested party learned about the extent of the debt, the initiation of the foreclosure proceedings, or the notice of the foreclosure sale itself; and the trustees were entitled to reject an eleventh-hour offer, the legitimacy of which could properly have been questioned at the time.
CASE: Johnson v. Nadel, No. 1863, Sept. Term, 2012 (filed June 25, 2014) (Judges Graeff, Kehoe & SHARER (Retired, Specially Assigned)). RecordFax No. 14-0625-04, 18 pages.
FACTS: In 2007, John Johnson purchased improved property in Silver Spring. To effect this transaction, Johnson borrowed $696,500, as shown by a promissory note in favor of the lender, Guaranteed Rate, Inc. This promissory note was in turn secured by a purchase money Deed of Trust and Note, dated April 30, 2007.
The Deed of Trust contained a power-of-sale provision. On October 27, 2011, the Note and Deed of Trust were assigned to U.S. Bank Trust, N.A. On October 31, 2011, the current substitute trustees were appointed. Johnson defaulted under the Note and the Deed of Trust in early 2010, and on November 28, 2011, the substitute trustees initiated a residential foreclosure action by filing an Order to Docket Foreclosure in the circuit court.
On December 26, 2011, Johnson requested foreclosure mediation. This process appeared to bear fruit, for the parties agreed to stay the foreclosure action for 60 days to permit Johnson to secure a purchaser. By agreement, the lender placed the foreclosure “on an internal hold for 60 days to allow the Borrower to pursue a short sale and other loss mitigation options.” After this interval passed without an accord, however, the substitute trustees invoked the power-of-sale provision of the Deed of Trust and scheduled the foreclosure sale for June 18, 2012.
On June 15, Johnson moved to stay, or, in the alternative, to dismiss, the foreclosure action. Johnson’s motion for a stay was driven by the presence of two proposed contracts of sale. The first, submitted on June 9, 2012, offered $601,000. The offer required that the sale was to be free and clear of “liens and encumbrances.” The second proposed contract, in the amount of $550,000, also required that the property be “free of liens except for any loans assumed by Purchaser.” Both of these proposals were executed by Johnson, but had not been approved by the lender. Although each proposal insisted that the sale must be free and clear of any encumbrance, neither proposal mentioned approval by a junior lienholder or the existence of an Internal Revenue Service tax lien.
The circuit court denied Johnson’s motion as untimely, and the foreclosure sale was held on June 18, 2012, as scheduled. The property was sold to the lender, the “highest and successful” bidder, for $617,605, an amount in excess of Johnson’s first two “offers.” On June 27, 2012 the substitute trustees filed their Report of Sale. Johnson sought to overturn the sale, and on July 25, 2012, noted exceptions to the sale and report pursuant to Md. Rule 14-305(d), claiming for the first time that he had secured yet a third proposed contract for a short sale of the property, with an offer in the amount of $650,000.
This late offer had been submitted on June 13, 2012, but was not brought to the attention of the substitute trustees until after the sale. As with the other bids, this proposed contract also required that the property be free and clear of liens, and gave the offeror the right to withdraw the contract if this condition were unmet. The offeror on this third contract was the same individual who had presented the first ($601,000) offer. Similarly, the third offer did not provide for the IRS lien, the presence of a second deed of trust, or any other encumbrances. Moreover, this offeror failed to demonstrate that he had the funds to provide the down payment.
Although Johnson’s lawyer was present at the sale, the offeror responsible for the offer was not present. At the exceptions hearing, Johnson’s counsel acknowledged that the price was inadequate and that the notice was deficient, but averred that the trustees had the duty to obtain the best possible price, even if that meant withdrawing the property from the foreclosure sale.
The circuit court rejected Johnson’s challenge to the sale. Johnson appealed to the Court of Special Appeals, which affirmed the judgment of the circuit court.
LAW: A trustee is bound, for the protection of the interests of all the parties concerned, to bring the property into the market as to obtain a fair market price. Carroll v. Hutton, 88 Md. 676, 679 (1898). The trustee should exercise the same degree of judgment and prudence that a careful owner would exercise in the sale of his own property. Id.
The trustees, acting under a power of sale, must comply with certain duties and equitable principles in order for the sale to be ratified and the contract formed. Simard v. White, 383 Md. 257, 312 (2004), aff’g 152 Md. App. 229 (2003). Trustees acting under a power of sale contained in a deed of trust have discretion to outline the manner and terms of sale, provided their actions are consistent with the deed of trust and the goal of securing the best obtainable price. White v. Simard, 152 Md. App. 229, 241 (2003). The trustee not only represents the holder of the note secured by the deed of trust, but also the owners of the property, who would be entitled to any surplus remaining after the payment of expenses and the note secured by the deed of trust. Waters v. Prettyman, 165 Md. 70, 75 (1933).
The power of sale is derived from the contract of the parties contained in the deed of trust, but the report of the sale must be made to and ratified by the court and the purchase price paid before a deed for the property is given by the trustee to the purchaser. Upon the sale being reported to the court, it assumes jurisdiction and permits those interested in the sale or the proceeds thereof to file objections to its ratification. Upon such being filed, it is the duty of the court, in order to ratify the sale, to ascertain that it was fairly made and under such circumstances and conditions as might be reasonably expected to have produced the largest price obtainable. White v. Simard, 152 Md. App. at 241-42.
In performing their obligations, trustees have discretion to outline the manner and terms of the sale, provided their actions are consistent with the deed of trust and the goal of securing the best obtainable price. s court. Fagnani v. Fisher, 418 Md. 371, 384-85 (2011). In short, a trustee on a deed of trust is a fiduciary for all parties. Thus, the question here was whether the submission of the final offer of $650,000 should have compelled the trustees to halt the sale or reopen it once they learned of the existence of the latest offer.
On this record, the trustees were not bound either to halt, or even to reschedule, the foreclosure sale, even if they learned of an offer just prior to the sale. There were no assurances that the bid would hold up. Moreover, the bidder did not appear at the sale; Johnson’s counsel did not attempt to alert the trustees, pre-sale, to the existence of the bid, or, if so, alleviate any concerns the trustees might have as to the bona fides of the offer; and the offer did not account for the tax lien or junior mortgage on the property. Given the presumption in favor of the regularity of the sale, the lack of any challenge to the notice and description of property, the lack of any demonstration that the amount offered was firm and the bidder capable of appearing at the sale to close a deal, and, finally, the fact that the trustees had not learned of the high bid until after the hammer had fallen on the only bid advanced at the sale, the circuit court did not err by rejecting Johnson’s exceptions to the sale and report.
The court will ordinarily ratify a sale made by a trustee in the absence of fraud or improper dealing or a clear inadequacy of price as of the time the sale was made. D’Aoust v. Diamond, 424 Md. 549, 584 (2012).
Here, the foreclosure sale and the conduct of the substitute trustees passed muster. There was nothing in the record to support a conclusion that the trustees failed to exercise an appropriate degree of prudence, care, diligence, and judgment. In sum, the challenge to the trustees’ actions in the conduct of the foreclosure sale was without merit not only because Johnson failed to show any irregularities in the process by which any interested party learned about the extent of the debt, the initiation of the foreclosure proceedings, or the notice of the foreclosure sale itself, but also because the substitute trustees were entitled to reject an eleventh-hour offer, the legitimacy of which could properly have been questioned at the time.
Accordingly, the judgment of the circuit court was affirmed.
COMMENTARY: As a preliminary matter, it was necessary to consider whether Johnson’s challenge to the circuit court’s ruling was properly before the Court of Special Appeals. When a mortgagor is unsuccessful in attempting to halt a foreclosure sale, or fails to seek a proper pre-sale injunction, the mortgagor’s next recourse is to file exceptions to the sale pursuant to Md. Rule 14-305(d). See Jones v. Rosenberg, 178 Md. App. 54, 68, cert. denied, 405 Md. 64 (2008). Md. Rule 14-305 governs post-sale procedures, and relevantly provides at Rule 14-305(d) that, in an action to foreclose a lien, the holder of a subordinate interest in the property subject to the lien, may file exceptions to the sale.
“Procedural irregularities” are the focus of Rule 14-305(d) exceptions. The procedural irregularities might include allegations that the advertisement of sale was insufficient or misdescribed the property or that the creditor committed a fraud by preventing someone from bidding or by chilling the bidding, or challenging the price as unconscionable. There is a presumption in favor of the validity of a judicial sale, and the burden is on the exceptant to establish to the contrary. Jones v. Rosenberg, 178 Md. App. at 69.
Here, Johnson’s complaint that the trustees breached their fiduciary duties in connection with the sale fell within the ambit of those procedural irregularities that are the focus of Md. Rule 14-305(d). The allegation that a “better offer” was ignored at the time of the sale constituted an “irregularity” that might be considered by the exceptions court. See Fagnani v. Fisher, 418 Md. at 391. A trustee’s alleged decision to overlook or ignore a putative higher bid is not conceptually different from those actions that have been recognized as procedural irregularities, such as preventing someone from bidding or chilling the bidding. Jones v. Rosenberg, 178 Md. App. at 69. Because Johnson challenged the procedures by which the trustee overlooked or ignored the higher contract bid, this argument was within the ambit of Rule 14-305(d).
PRACTICE TIPS: A trustee in a foreclosure mediation is not bound to accept every bid. He is necessarily clothed with a prudent and sound discretion, and the court will always sustain him in refusing bids which would manifestly defeat and frustrate the very object and purpose of a sale. A trustee is also entitled to exercise personal judgment when determining the price to accept for the sale of the property.
BOTTOM LINE: Defendant financial adviser was entitled to summary judgment on conversion claim by plaintiffs who alleged the defendant’s failure to forward them notices substantially reduced the value of a life insurance policy they purchased on their parents, with cash from their parents; although plaintiffs were theoretically the policy “owners,” the parents were actually in full control, defendant did not convert any specific funds and there was no unauthorized transfer of a tangible document.
CASE: UBS Financial Services, Inc. v. Thompson, No. 0352, Sept. Term, 2013 (filed June 25, 2014) (Judges Graeff, Kehoe & HOTTEN). RecordFax No. 14-0625-02, 38 pages.
FACTS: On September 28, 1990, parents Albert and Nancy Thompson purchased a life insurance policy. The policy was a “second to die” life insurance policy from The Manufacturers Life Insurance Company (“Manulife”). It listed “the owner” as the beneficiary and listed the children, Kathy Thompson, Barbara Clements, Karen Kirlin, Susan Witherspoon and Carol Lareuse as the owners.
The premium schedule indicated that premiums were “payable at annual intervals to second death, or to age 99 of the younger of the surviving lives.” Under a section marked “PAYMENT OF PREMIUMS,” the policy explained that if a premium was not paid by the end of the grace period, the policy would terminate, unless it had a “cash value.” The “Surrender for Cash” provision described the cash value.
The “GUARANTEED OPTIONS” section stated that if a premium was not paid and the policy had a cash value, the owner could choose a “guaranteed option” instead of resuming premium payments. This section further provided that if a guaranteed option was not chosen before the end of the grace period, and the automatic premium loan option was not requested, the insurer would apply, option (a) would apply. Under option (a), titled “Paid-up life insurance,” the owner could continue the policy as paid-up life insurance payable on the second death. The cash value, less any policy debt, would be used as a net single premium on the due date to compute the amount of insurance. Under option (b), titled “Surrender for Cash,” the owner could surrender the policy for cash according to the “Surrender for Cash” provision.
The policy also contained a section titled “AUTOMATIC PREMIUM LOAN” stating that a loan would automatically be granted to pay all or part of an unpaid premium if: (a) the premium was still unpaid at the end of the grace period; (b) the owner asked for this loan option in the application, or a signed request for it was received before the end of the grace period; and (c) the loan value exceeded the policy debt. The policy further stated that the insurer would loan the whole premium if at the end of the premium period the policy debt will not exceed the loan value. If, however, loaning the whole premium would make the policy debt at the end of the premium period greater than the loan value, only a part of the premium would be loaned.
Under the policy, the amount loaned would keep the policy in force from the due date of the premium until the policy debt equaled the loan value. Then, if the balance of the premium was still unpaid, the policy would terminate. The policy also provided that a request for the automatic premium loan could be canceled by written request. This cancellation would apply from the date the notice was received.
The policy included a “BASIS OF VALUES” section, with a table showing the basic values and the amount of paid-up whole life participating insurance. The policy was signed by the parents, as well as Susan, Kathy, Karen, Carol, and Barbara. The parents, in order to avoid estate taxes, constructed a complex process involving cash gifts to the children/owners that would subsequently be used to pay the premiums on the policy. This process was managed by Gordon Witherspoon, Susan’s husband, an insurance broker and the parents’ financial advisor. Mr. Witherspoon arranged for the premiums to be paid out of the children’s bank accounts after a cash gift was deposited.
For many of the years that the premiums were not paid, Mr. Witherspoon arranged for the premium notices to be sent to an address “in care of” him. It was never envisioned that the children would pay the premiums with their own funds, and they never did. The parents, through cash gifts to their children, paid premiums on the policy until 1996. However, the premium due that year was not paid, and payments were also neglected in 1998, 1999, 2000, 2001, 2002, and 2003. During these years, Manulife borrowed approximately $900,000 against the policy to cover the premiums.
Kathy and Barbara discovered that the policy had been devalued by these loans after Mr. Thompson’s death in 2005. They, along with some of their fellow siblings, placed the blame on Mr. Witherspoon, UBS Financial Services, Inc. and other financial companies associated with the policy. Kathy and Barbara filed an original complaint and, subsequently, an amended complaint alleging counts of negligent misrepresentation, deceit, conversion, negligence, and constructive fraud against Mr. Witherspoon and negligence pursuant to a theory of respondeat superior, negligence, and deceit against UBS. UBS filed a petition to compel arbitration and motion to stay all proceedings, which the circuit court subsequently granted.
The plaintiffs appealed that order to the Court of Special Appeals. In Thompson v. Witherspoon, 197 Md. App. 69 (2011), the Court of Special Appeals vacated the circuit court’s order compelling arbitration. The plaintiffs subsequently dismissed all claims against Manulife, pursuant to a settlement. Discovery commenced, and UBS filed a motion for complete summary judgment, as did Mr. Witherspoon. The plaintiffs filed a motion for partial summary judgment. The court denied the parties’ respective motions for summary judgment.
At the conclusion of the ensuing jury trial, the jury found that Mr. Witherspoon was liable for negligence, and negligent misrepresentation as to both Kathy and Barbara, but also that he was not acting within the scope of his employment at UBS, thereby relieving UBS of liability under a respondeat superior theory. However, the jury concluded that UBS was negligent in its supervision of Mr. Witherspoon. The jury also determined that Mr. Witherspoon concealed a material fact that he had a duty to disclose to Kathy and Barbara and that he engaged in constructive fraud. They also found him liable for conversion and determined that he acted with “actual malice.” Predicated on their finding that Mr. Witherspoon acted with actual malice, the jury awarded $150,000 in punitive damages.
Mr. Witherspoon moved for a judgment notwithstanding the verdict (“JNOV”), new trial or remittur, to alter or amend judgment, to reduce award of punitive damages or remittur or new trial on the punitive damages, and to stay enforcement of the judgment. UBS filed a motion for JNOV, new trial or remittur and to alter or amend the judgment. All post-trial motions were denied.
The defendants appealed to the Court of Special Appeals, which reversed the judgments of the circuit court and remanded the case for a new trial on the claims of negligence, negligent supervision, negligent misrepresentation, and deceit claims only.
LAW: Conversion is an intentional tort that requires an exertion of ownership or dominion over another’s personal property in denial of or inconsistent with the owner’s right to that property. Nickens v. Mount Vernon Realty Group, LLC, 429 Md. 53, 77 (2012). The element of ownership may be proved by evidence that the defendant initially acquired the property or retained it longer than the rightful possessor permits. Lasater v. Guttmann, 194 Md. App. 431, 446-47 (2010). Although money is usually not subject to an action for conversion, if the monies alleged to have been converted are “specific segregated or identifiable funds,” the action may lie. Id. at 447. Similarly, the common law rule that only tangible property could be the subject of a conversion claim was modified to include certain intangible rights. Allied Inv. Corp. v. Jasen, 354 Md. 547, 560 (1999)).
However, the Court of Appeals has limited claims for conversion under this theory to situations where the tangible documents evidenced the property interests and the documents were transferred improperly to the defendant. Id. at 562. The Jasen Court did not extend the tort of conversion to cover completely intangible rights or to situations in which the relevant document itself has not been transferred. Id. at 562. By contrast, §242 of the Restatement (Second) of Torts (1965) provides, in part, that one who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted.
In the present case, evidence was introduced that Mr. Witherspoon arranged for policy premium notices to be sent to his address for several of the years that the premiums were not being paid. The plaintiffs presented expert testimony that this deviated from the standard of care expected of an insurance agent. Accordingly, the plaintiffs argued throughout trial that their “ownership” was converted by Mr. Witherspoon through his handling of the premium notices and his concealment of the fact that loans were being taken out against the value of the policy.
In light of the holding in Jasen, a jury could not reasonably conclude that Mr. Witherspoon was liable for conversion. The tort of conversion extends to a wrongful exercise of control over “a document in which intangible rights are merged.” Id. at 562. While an insurance policy falls into this category, the Jasen Court expressly declined to extend this line of reasoning to intangible rights “customarily” merged into a document when the document was not actually converted. The plaintiffs’ theory of conversion was, in substance, a rearticulation of the theory of liability espoused by the Second Restatement and rejected by the Jasen Court. By failing to forward the notices to appellees and their siblings, Mr. Witherspoon might have interfered with their rights as policy owners, but he could not be liable for conversion unless he exercised dominion over the policy itself, which the plaintiffs never alleged.
The plaintiffs were “owners” of the insurance policy to the extent that they were nominally paying the premiums through cash gifts from the parents. However, this ownership was in theory, not in reality. By the plaintiffs’ own admission, the parents were actually in full control of the policy. Thus, there was no “control” Mr. Witherspoon could take from the sisters. Beyond this limitation, the plaintiffs could not claim that Mr. Witherspoon converted any specific funds, as there exists no agreed-upon, “identifiable” monies to be converted. Furthermore, there was no unauthorized transfer of a tangible document to allow conversion under this theory. Therefore, the circuit court erred by submitting the conversion claim to the jury.
Accordingly, the judgments of the circuit court were reversed, and the case remanded for a new trial on the claims of negligence, negligent supervision, negligent misrepresentation, and deceit claims only.
COMMENTARY: Mr. Witherspoon also argued that the plaintiffs’ constructive fraud claim failed, because Mr. Witherspoon did not share a “confidential relationship” with the defendants. Constructive fraud is defined as a breach of a legal or equitable duty which, irrespective of moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests. Canaj, Inc. v. Baker and Division Phase III, LLC, 391 Md. 374, 421-22 (2006). It is a tort that is often applied in tax and lending cases where a “confidential relationship” exists. See Ellerin v. Fairfax Sav. F.S.B., 337 Md. 216 (1995). A confidential relationship is one in which “two persons stand in such a relation to each other that one must necessarily repose trust and confidence in the good faith and integrity of the other.” Upman v. Clarke, 359 Md. 32, 42 (2000).
Here, the plaintiffs did not establish a sufficient case for constructive fraud. Mr. Witherspoon initiated a duty towards the sisters by taking it upon himself to receive the premium notices and coordinate payment of the premiums, but this duty was limited in nature. Mr. Witherspoon was obligated to pay the premiums when he received the funds to do so and to notify appellees and their siblings when the premiums were unpaid. These duties were not fiduciary in nature. Any fiduciary duty owed by Mr. Witherspoon was to the parents and their respective estates. See Thompson, 197 Md. App. at 88-89. As putative heirs of the Thompsons, the sisters might potentially gain some benefit from the financial advice given by Mr. Witherspoon to their parents, but such possibilities were too attenuated to be the basis for concluding that the sisters were third party beneficiaries of that relationship. Therefore, no reasonable jury could have found, by clear and convincing evidence, that that Mr. Witherspoon committed constructive fraud.
Statute of limitations
BOTTOM LINE: Where there were genuine issues of material fact as to whether homeowner plaintiffs were on inquiry notice that loan program through which plaintiffs were financing their mortgage payments did not exist and that defendant banks, realtors and mortgage agencies were fraudulently representing that it did, circuit court erred in granting summary judgment on whether plaintiffs’ fraud claims were filed within the statute of limitations.
CASE: LaRocca v. The Creig Northrop Team, P.C., No. 0766, Sept. Term, 2013 (filed June 25, 2014) (Judges Zarnoch, HOTTEN & Leahy). RecordFax No. 14-0625-01, 47 pages.
FACTS: The plaintiffs, three married couples (Frank and Catherine LaRocca, Kenneth and Angela Pfeifer, and Mehdi Nafisi and Forough Iranpour), obtained financing to purchase new homes through the defendants, several realtors, mortgage agencies, banks and their employees. The eleven defendants fell within three groups. The first group, “the Realtor defendants,” were the Creig Northrop Team, P.C., Mr. Crieghton Northrop, Ms. Carla Northrop and Long & Foster Real Estate, Inc. The second group, “the Banking defendants,” consisted of Wells Fargo Bank, N.A., Prosperity Mortgage, PNC Mortgage, Ms. Michelle Mathews, a loan officer for Prosperity who worked in the Northrop Team’s offices, and Ms. Suzanne Windesheim, a loan officer for PNC. Finally, “the Title defendants” were Lakeview Title, a licensee of Long & Foster, and Lindell Eagan, an employee of Long & Foster.
While the dates differed, the plaintiffs generally shared the same experience in obtaining financing and purchasing their new homes through the Northrop Team. During 2006 and 2007, the plaintiffs contacted the Northrop Team regarding purchasing new homes. Through discussions with Ms. Matthews, the plaintiffs were led to believe that the Northrop Team would make available to them a “Bridge Loan Program.” Under the Bridge Loan Program, the plaintiffs would obtain financing using the equity in their old homes, while at the same time receiving a primary purchase money mortgage for their new home that was non-contingent upon the sale of the old home. Unbeknownst to the plaintiffs, the purported Bridge Loan Program did not exist and likely violated the underwriting policies of the lenders.
The plaintiffs alleged that the Realtor defendants concealed the lack of a Bridge Loan Program by using forgeries and other misrepresentations to obtain fraudulent financing. The plaintiffs each entered into a non-contingency contract to purchase a new home and obtained a home equity line of credit (“HELOC”) through PNC. At all of the plaintiffs’ closings for the HELOC, they reviewed and signed a number of documents, including a Uniform Residential Loan Application, referred to as Form 1003.
The LaRoccas and the Pfeifers closed on their HELOCs in 2006, and the Nafisis/Iranpours closed on theirs in 2007. The parties understood that under the loan program, they would be paying for three mortgages until the old homes were sold. They completed the mortgage process, sold their old homes, and paid off the HELOCs in July 2006, for the LaRoccas, June 2007, for the Pfeifers, and September 2007 for the Nafisis/Iranpours. In mid-2010 and mid-2011, the plaintiffs were individually contacted by counsel, informing them that another case had revealed a possible fraudulent mortgage scheme. The plaintiffs alleged that they were unaware that the Bridge Loan Program was not legitimate.
The plaintiffs filed a class action lawsuit in December 2011, alleging that in order to effectuate the Bridge Loan Program, the defendants acted to conceal from others that the plaintiffs still owned their old homes. The plaintiffs claimed that the defendants misrepresented the plaintiffs’ income and the status of the old homes so that the plaintiffs could qualify for loans for which they were actually not qualified. As a result, their old homes were on the market for a considerably longer period of time than they normally would have been, which resulted in the plaintiffs paying three mortgages for a longer period of time and incurring more fees. The plaintiffs also contended that the Realtor defendants pressured them into selling their old homes below market value.
The complaint included eleven counts against the Realtor and Banking defendants. The defendants moved to dismiss, asserting statute of limitations as a defense. The court denied the motion and ordered discovery to continue.
Following discovery, the defendants moved for summary judgment on all counts, again arguing the statute of limitations defense. Before the court ruled on the motion, the plaintiffs filed a second amended complaint, adding a new count and three new defendants, the Title defendants and Ms. Northrop.
The court granted the motion for summary judgment, finding that, as a matter of law, the statute of limitations began accruing at the parties’ respective HELOC closings in 2006 and 2007, and, thus, the limitations period had run by the time the complaint was filed in December 2011. The court also denied the plaintiffs’ motion for class certification and granted the defendants’ motion to strike the second amended complaint.
The plaintiffs appealed to the Court of Special Appeals, which affirmed in part and reversed in part.
LAW: The defendants argued that, as a matter of law, that limitations had run a year before the lawsuit was filed, and that the discovery rule did not excuse the untimeliness. The defendants claimed that the plaintiffs were on inquiry notice of fraud at the latest in 2006, for the LaRocca and Pfeifer plaintiffs, and in 2007, for the Nafisi/Iranpour plaintiffs, because of the mention of false “gross rental income” in Form 1003 which was signed at the HELOC closings.
The plaintiffs, in turn, asserted that any notice that may have occurred at the HELOC closings were irrelevant because their claim was that the Bridge Loan Program did not exist and was fraudulently marketed. They asserted that, in order to ensure that the plaintiffs would qualify for the two new mortgages, the defendants misrepresented the plaintiffs’ respective incomes, performed fraudulent acts that enabled them to conceal that the plaintiffs still owned their old homes and, in turn, the Realtor defendants secured sales commissions by submitting non-contingent offers. Accordingly, as a result of the fraud, any notice in 2006 regarding Form 1003 was not sufficient to place the plaintiffs on notice that the Bridge Loan Program was not a legitimate loan. Therefore, pursuant to the discovery rule, their claims were timely because they did not discover the Bridge Loan Program was fraudulent until 2010.
Generally, the statute of limitations begins to accrue when a plaintiff knows of the wrong he or she sustained. See Kumar v. Dhanda, 198 Md. 337, 343 (2011). Modernly, the discovery rule provides that the cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong. Poffenberger v. Risser, 290 Md. 631, 636 (1981). The discovery rule, while originally adopted as an exception, is now the general rule. See Lumsden v. Design Tech Builders, Inc., 358 Md. 435, 444 (2000). The discovery rule is applicable generally in all actions, and the cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong. Id.
Here, the question was whether the plaintiffs were on inquiry notice that the Bridge Loan Program did not exist and that the plaintiffs were fraudulently representing that it did. Summary judgment is appropriate when statute of limitations is at issue, if there is no dispute of material fact. However, there could be instances when accrual involves questions of fact and law. See, e.g., Dashiell v. Meeks, 396 Md. 149 (2006). Here, as in Dashiell, the parties disputed if there were acts sufficient to trigger notice in a reasonable person. Additionally, there appeared to be some dispute regarding whether the Form 1003 was fraudulent in some way because of the plaintiffs’ discovery that other leases had been forged. Thus, there were genuine disputes of material fact and the circuit court therefore erred in granting summary judgment.
Accordingly, the judgment of the circuit court granting the defendants’ motion for summary judgment was reversed, as was portion of the judgment granting summary judgment as to the plaintiffs’ SMLL claims; the remainder of the judgment was affirmed.
COMMENTARY: The plaintiffs also argued that the circuit court erred in granting summary judgment as to the banking plaintiffs’ SMLL claims. Before the circuit court, the plaintiffs alleged violations of §12-403 of the Commercial Law Article (“CL”), known as the Secondary Mortgage Loan Law (“SMLL”). The SMLL is a consumer protection measure designed to incorporate, complement, and prevent circumvention of the usury laws by limiting the interest, fees, and other charges that a lender could collect from a borrower as part of a second mortgage loan on a residential property. Thompkins v. Mountaineer Investments, LLC, No. 43, September Term 2013, slip op. 3-6 (Jun. 23, 2014).
The SMLL sets forth certain requirements that must be followed when a lender extends a secondary mortgage loan to a borrower and also restricts in certain respects the terms of the loan. The statute generally prohibits a lender from offering or making a secondary mortgage loan that s not in compliance with the SMLL and, more specifically, from “directly or indirectly” charging or receiving fees forbidden by the statute. CL §§12-411, 12-412. During the prior motion for summary judgment, the parties had agreed that the applicable statute of limitations for the SMLL count was 12 years, so the count was not barred. However, PNC was not a party to the prior motion for summary judgment and, as a result, in its motion contended that the SMLL count was subject to a three-year statute of limitations under Cts. & Jud. Proc. §5-201.
A claim brought under Com. Law §12-403 is a specialty and subject to the 12-year statute of limitation. See AGV Sports Group, Inc. v. Protus IP Solutions, Inc., 417 Md. 386 (2010). The plaintiffs could have pursued a lawsuit under common law fraud and negligent misrepresentation. However, considering the intent of the legislature in enacting the SMLL, the claims are different. The SMLL was enacted to protect the unsophisticated buyer and “achieves this beneficent purpose by penalizing even the unwitting violator, to the extent of limiting him to recovery of the principal amount of the loan.” Thomkinson v. Mortgage Lenders Network USA, Inc., 209 Md. App. 685, 696 (2013). The common law claims of fraud and negligent misrepresentation must be established by demonstrating that the perpetrator knowingly or intentionally committed them. Under the SMLL, even an “unwitting violator” can be held liable, indicating that the legislature wanted to expand and not restrict the rights under the common law.
Although PNC made the HELOCs, Ms. Windesheim was its loan officer who facilitated that process. As the loan officer for PNC, Ms. Windesheim acted under the auspices of PNC. Furthermore, considering that the law is intended to penalize “even the unwitting violator,” if Ms. Windesheim falsely advertised the Bridge Loan Program pursuant to her position duties as PNC’s loan officer, she could be liable under the SMLL and consequently, so could PNC. Therefore, she was a lender under the SMLL, and it was a question of fact whether she violated the statute. As such, the circuit court erred in granting summary judgment as to Ms. Windesheim.
Although Ms. Matthews was not a lender and was not subject to the SMLL, the statute provides that a lender may not indirectly advertise. PNC could be held liable if it could be shown that, through some arrangement, Ms. Matthews actively advertised on behalf of PNC. Considering the text of the statute and the context of the SMLL as a whole, the prohibition against false advertising applies to dissemination of information to the public and could include personalized “sales pitches” made by realtors. Accordingly, the circuit court erred in granting summary judgment as to the SMLL claim as to PNC.
The court did not abuse its discretion in refusing to certify the plaintiffs as a class.
PRACTICE TIPS: Under Maryland law, certain requirements must be met in order for parties to sue or be sued as a class. First, the class must be so numerous that joinder of all members is impracticable. There must also be questions of law or fact common to the class, and the claims or defenses of the representative parties must be typical of the claims or defenses of the class. Finally, it must be shown that the representative parties will fairly and adequately protect the interests of the class.