Wincopia Farms, LP v. G&G, LLC ( 2012 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1064
In Re: WINCOPIA FARMS, LP,
Debtor.
-------------------------------------
WINCOPIA FARMS, LP,
Plaintiff - Appellant,
v.
G&G, LLC,
Defendant – Appellee,
and
TRENT GOURLEY,
Defendant.
No. 12-1080
In Re: WINCOPIA FARMS, LP,
Debtor.
-------------------------------------
WINCOPIA FARMS, LP,
Plaintiff - Appellee,
v.
G&G, LLC,
Defendant – Appellant,
and
TRENT GOURLEY,
Defendant.
Appeals from the United States District Court for the District
of Maryland, at Baltimore. William D. Quarles, Jr., District
Judge. (1:11-cv-01159-WDQ)
Argued: October 26, 2012 Decided: December 12, 2012
Before TRAXLER, Chief Judge, DIAZ, Circuit Judge, and Catherine
C. EAGLES, United States District Judge for the Middle District
of North Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: James Edmond Carbine, JAMES E. CARBINE PC, Baltimore,
Maryland, for Appellant/Cross-Appellee. James Robert Schroll,
Heidi Eileen Meinzer, BEAN, KINNEY & KORMAN, PC, Arlington,
Virginia, for Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
Wincopia Farms, LP (“WFLP”) appeals a district court
order adopting a bankruptcy court report recommending dismissal
of WFLP’s complaint against G&G, LLC (“G&G”), in an adversary
proceeding. Finding no error, we affirm.
I.
WFLP is a single-asset real estate limited
partnership, see 11 U.S.C. § 101(51B), that owned 124 acres of
land in Howard County, Maryland (“the Farm”), which WFLP valued
at approximately $30 million. Wincopia Farms, Inc. (“WI”)
leased the property and operated a nursery thereon. The Hearn
family owns and operates both WFLP and WI.
In 2002, WI owed United Bank $2.9 million on a loan
secured by the Farm. Unable to repay its debt, WI decided to
refinance to avoid foreclosure. Accordingly, WI borrowed funds
each year from 2002 through 2006 from G&G (“the Loans”) to
refinance the United Bank loan and obtain the funds it needed to
operate. WFLP guaranteed the Loans and G&G received an
indemnity deed of trust on the farm.
WFLP filed for bankruptcy protection with the United
States Bankruptcy Court for the District of Maryland in June
2007. In August 2007, G&G sued WI and members of the Hearn
family and its trust in state court after WI defaulted on its
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obligation to G&G. G&G obtained judgments in its favor in
November and December 2007.
In October 2007, G&G moved for relief from the
automatic stay in WFLP’s bankruptcy proceeding. As a result,
the bankruptcy court modified the automatic stay on December 13,
2007, so that although it remained in effect, WFLP was required
to make payments to G&G. WFLP failed to make those payments,
however, and the court lifted the stay on December 31, 2007. A
foreclosure sale of the Farm was scheduled for February 14,
2008.
On February 13, 2008, WFLP moved in the Circuit Court
for Howard County to stay the foreclosure sale, alleging that
the lien was invalid because of G&G’s fraud. The court denied
the motion, however, and the property was sold at auction to G&G
for $12.5 million. The circuit court later ratified the sale
over WFLP’s objections, and the ratification was affirmed on
appeal. See Wincopia Farms, LP v. Goozman, 982 A.2d 868 (Md.
Ct. Spec. App. 2009).
In November 2007, WFLP had filed an adversary
proceeding in bankruptcy court, alleging that G&G had committed
fraud against WI and WFLP. In April 2008, WFLP amended its
complaint to allege causes of action for breach of contract,
intentional misrepresentation and fraud, negligent
misrepresentation, breach of fiduciary duty, tortious
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interference, and Maryland Securities Act violations. The
bankruptcy court later granted a motion by G&G to dismiss the
complaint on the basis that WFLP, as the guarantor, lacked
standing under the applicable Virginia law to prosecute the
claims. However, the bankruptcy court granted a motion by WFLP
to reconsider as to the fraud claim on the ground that Maryland
law, rather than Virginia law, governed that claim.
WFLP subsequently moved to file a second amended
complaint (“the complaint”). That complaint alleged that WFLP
was induced to guarantee the loan and mortgage the Farm by G&G’s
fraud against, and intentional misrepresentations to, both WI
and WFLP. As is relevant here, the complaint alleged that G&G
(1) had led WFLP to believe that G&G had approved WI for the
Loans, when in fact G&G had not taken any steps to determine
whether WI could repay them, J.A. 224; (2) led WFLP “to believe
that its desire for a longer term loan would be satisfied by a
‘good behavior’ extension right offered to” WI when “[i]n fact,
since all the loans had prepaid interest and fees with a balloon
payment of the entire amount of the loan due annually, there was
no ‘good behavior’ by which to judge the merits of an
extension,” J.A. 225; and (3) falsely told WFLP it had no extra
funds to lend WI in response to WFLP’s plea for increased funds
WI “desperately needed” to reduce the chance of default, J.A.
225. The complaint also alleged that G&G concealed the material
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facts that: by the fall of 2001, G&G had a policy of attempting
to obtain borrowers’ collateral for itself by lending “to
desperate borrowers on take-it-or-leave-it terms” and “grossly
over-collateraliz[ing] the loans,” J.A. 227; and “G&G had in
place a scheme and plan to purposefully structure the Loans so
that default on the loan was a virtual certainty” by refusing to
lend WI funds sufficient to grow the farming business, by
restricting the loan terms to one year, and by misleading WFLP
into believing that the loan term would be extended from year to
year, J.A. 227.
G&G objected to WFLP’s motion to file the amended
complaint and moved to dismiss it. Concluding that the
adversary proceeding was not a “core proceeding,” see 28 U.S.C.
§ 157(c), the bankruptcy court prepared a report and
recommendation for the district court. In it, the bankruptcy
court granted WFLP’s motion to file the complaint. The report
also recommended granting G&G’s motion to dismiss on the basis
that (1) WFLP had alleged fraud against WI, not WFLP, and lacked
standing to assert WI’s claim, and (2) the court could not undo
the state court’s refusal to stay the foreclosure proceedings.
WFLP asserted several objections to the report. As is
relevant here, the district court ruled that, to the extent WFLP
sought to allege that G&G’s fraud induced WFLP to guaranty the
Loans, WFLP’s allegations failed to state a claim for which
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relief could be granted, primarily because WFLP could not have
reasonably relied on the various misrepresentations and
omissions alleged. The district court then entered its order
dismissing the complaint with prejudice.
II.
WFLP argues that the district court erred in
concluding that the complaint failed to state a claim under
Maryland law for fraudulently inducing WFLP’s execution of the
guaranty. We disagree. *
We review de novo the grant of a motion to dismiss for
failure to state a claim. See McCorkle v. Bank of Am. Corp.,
688 F.3d 164, 171 (4th Cir. 2012). “In so doing, we must accept
as true all of the factual allegations contained in the
complaint.” Gerner v. County of Chesterfield, Va., 674 F.3d
264, 266 (4th Cir. 2012) (internal quotation marks omitted). To
survive dismissal, the complaint must contain “enough facts to
state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
*
Although it did not affect the result, the district court
ruled that the bankruptcy court had erred in concluding that the
fraud claim was barred by the prior foreclosure proceedings.
G&G has cross-appealed that ruling. However, in light of our
rejection of WFLP’s challenge to the ruling that its complaint
fails to state a claim, we do not address the merits of G&G’s
cross-appeal.
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To assert a claim of fraud under Maryland law, a
plaintiff must allege that: (1) the defendant made a false
representation of a material fact to the plaintiff; (2) the
defendant knew that the representation was false or made the
representation with reckless indifference as to its truth; (3)
the defendant made the misrepresentation for the purpose of
defrauding the plaintiff; (4) the plaintiff rightfully relied on
the misrepresentation; and (5) the plaintiff was injured by its
reliance. See Gourdine v. Crews, 955 A.2d 769, 791 (Md. 2008).
Maryland does not recognize a general duty upon a
party to a transaction to disclose facts to the other party.
See Sass v. Andrew, 832 A.2d 247, 260, 266 (Md. Ct. Spec. App.
2003). However, a plaintiff may establish a cause of action for
fraudulent concealment even in the absence of a duty to disclose
if the seller actively, and with the intent to deceive, conceals
a material fact; the defendant reasonably relies on the fact;
and the concealment proximately causes the defendant to suffer
damages. See Rhee v. Highland Dev. Corp., 958 A.2d 385, 391
(Md. Ct. Spec. App. 2008).
To successfully allege a fraud claim, a complaint must
identify “the facts constituting a fraud . . . with certainty
and particularity.” Sims v. Ryland Grp., Inc., 378 A.2d 1, 3
(Md. Ct. Spec. App. 1977). “[M]ere vague, general, or
indefinite statements are insufficient.” Fowler v. Benton, 185
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A.2d 344, 349 (Md. 1962). Indeed, vague or general statements
“should . . . put the hearer upon inquiry, and there is no right
to rely upon such statements.” Id. And, a plaintiff cannot
show he reasonably relied on a false statement if he knew or
should have known of the statement’s falsity. See Sass, 832
A.2d at 266; Carozza v. Peacock Land Corp., 188 A.2d 917, 921
(Md. 1963).
Arguing that it alleged sufficiently definite
statements upon which it reasonably relied, WFLP first points to
its allegations that G&G “issued a formal, written ‘loan
commitment’ and extracted a ‘loan commitment fee’” and that
“[b]y its actions, documents and statements, G&G led [WFLP] to
believe that [WI] had been ‘approved’ for the Loans.” J.A. 224.
Initially, we note that G&G’s representation that it agreed to
make the Loans cannot constitute fraud because that
representation was true. WFLP suggests, however, that, by
approving the Loans and charging a loan commitment fee, G&G made
an affirmative representation concerning how able WI was to
repay the Loans. Even assuming, however, that G&G could have
been understood to have made such a representation, any such
representation certainly would have been the very sort of
“vague, general” statement on which no reasonable person in
WFLP’s position could rely. Fowler, 185 A.2d at 349.
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WFLP next points to its allegation that “G&G led
Wincopia to believe that its desire for a longer term loan would
be satisfied by a ‘good behavior’ extension right offered to”
WI. J.A. 225 (emphasis added). The complaint further alleges
that “[i]n fact, since all the loans had prepaid interest and
fees with a balloon payment of the entire amount of the loan due
annually, there was no ‘good behavior’ by which to judge the
merits of an extension.” J.A. 225. The complaint does not
identify exactly what action G&G took or what representation G&G
made that led WFLP to believe that “good behavior” during the
first year by WI would cause G&G to grant an extension. In any
event, as guarantor, WFLP was well aware of the terms of the
Loans and, thus, knew or should have known that there would be
no opportunity for “good behavior” during the year as the
interest and fees were all prepaid with a balloon payment of the
entire amount of the loan due annually. As a matter of law, any
reliance by WFLP on the notion that G&G would decline to
exercise its right to foreclose upon WI’s default simply was not
reasonable.
WFLP next contends that it alleged that G&G had a duty
to disclose both its hope that WI would default and its plan to
foreclose on the farm when that happened. However, WFLP does
not offer any legal basis for the existence of a duty to
disclose on the part of G&G to discuss its thinking, nor are we
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aware of one. WFLP argues that G&G actually took affirmative
actions to conceal its plan and thus that it could be liable for
fraudulent concealment. However, WFLP does not specify what
those concealing actions were, nor does WFLP explain how it
could reasonably rely on the notion that G&G was not going to
take full advantage of its legal rights, especially when WFLP
knew that G&G, in order to agree to lend WI $4.5 million, had
required WFLP to give it a deed of trust to the Farm worth $30
million.
For all of these reasons, we hold that the district
court correctly concluded that WFLP failed to successfully state
a claim that G&G fraudulently induced WFLP into becoming a
guarantor of the Loans.
III.
In sum, finding no error, we affirm the decision of
the district court.
AFFIRMED
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