Larocca v. Creig Northrop Team, P.C. , 217 Md. App. 536 ( 2014 )

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 0766
September Term, 2013
FRANK LAROCCA, ET AL.
v.
THE CREIG NORTHROP TEAM, P.C., ET
AL.
Zarnoch,
Hotten,
Leahy,
JJ.1
Opinion by Hotten, J.
Filed: June 25, 2014
1
Judges Timothy E. Meredith, Christopher B.
Kehoe, and Kevin F. Arthur did not participate in
the Court’s decision to designate this opinion for
publication in the Maryland Appellate Reports
pursuant to Maryland Rule 8-605.1
Appellants, three married couples, obtained financing to purchase new homes through
appellees, several realtors, mortgage agencies, banks and their employees. Appellants filed
a class action lawsuit in the Circuit Court for Howard County, asserting a number of claims
related to an alleged mortgage fraud scheme. The circuit court granted summary judgment
as to all counts in appellants’ original complaint on statute of limitations grounds. It also
denied class certification on grounds of insufficient numbers, and granted a motion to strike
appellants’ second amended complaint because of prejudice to appellees. Appellants
appealed, presenting the following questions for our consideration:
1. Did the [c]ircuit [c]ourt err in ruling that claims concerning mortgage
fraud and forged leases were time-barred because inquiry notice was triggered
by inconspicuous reference to “gross rental income” surreptitiously inserted
on one page out of hundreds initialed and signed by [a]ppellants?
2. Did the [c]ircuit [c]ourt err in ruling that advertising a fake loan
program that secretly involved forged leases and other acts of deception did
not violate the SMLL because the false and misleading information putatively
concerned underwriting guidelines, not loan terms?
3. Did the [c]ircuit [c]ourt err in ruling that, for SMLL claims based on
advertising the fake loan program that purported to be a package of secondary
and primary mortgages, borrowers could only collect treble damages based on
the interest and charges collected under the secondary mortgage, but not the
primary mortgage?
4. Did the [c]ircuit [c]ourt err in ruling that the individual loan officers
who made the secondary mortgages were not “lenders” despite that the
statutory definition of lenders includes individuals who make loans?
5. Did the [c]ircuit [c]ourt err in denying class certification based solely
on concluding that the proposed class was not numerous enough because of
counting transactions, not persons, and estimates of class size were only
approximations that did not take into account the collapse of the housing
market and other variables?
6. Did the [c]ircuit [c]ourt err in ruling that the filing of the [s]econd
[a]mended [c]omplaint was unfairly prejudicial, despite that it was filed more
than 30 days before trial, in accordance with the [c]ircuit [c]ourt’s [s]cheduling
[o]rder, and the new claims would be barred by res judicata if not brought in
this action?
7. Did the [c]ircuit [c]ourt err in ruling that compensation paid to Carla
Northrop by Lakeview Title Company, Inc. (“Lakeview”) was not relevant to
claims concerning real estate transactions brokered by Ms. Northrop’s broker
and settled at Lakeview?
For the reasons that follow, we shall affirm in part and reverse in part the judgment of the
circuit court.
FACTUAL AND PROCEDURAL HISTORY
The Parties
This case involves six appellants and eleven appellees. Appellants consist of three
married couples: Frank and Catherine LaRocca, Kenneth and Angela Pfeifer, and Mehdi
Nafisi and Forough Iranpour. All are residents of Maryland who owned a primary residence
and contacted appellees regarding purchasing a new primary residence. Since there are
eleven appellees, they have been divided into three groups. The “Realtor Appellees” are the
Creig Northrop Team, P.C., (“the Northrop Team”); Crieghton Northrop (“Mr. Northrop”);
Carla Northrop (“Ms. Northrop”); and Long & Foster Real Estate, Inc. (Long & Foster”).
The “Banking Appellees” are Wells Fargo Bank, N.A. (“Wells Fargo”); Prosperity Mortgage
(“Prosperity”), PNC Mortgage, a division of PNC Bank (“PNC”), formerly National City
Mortgage; Michelle Mathews (“Ms. Matthews”), a loan officer for Prosperity who worked
in the Northrop Team’s offices; and Suzanne Scales Windesheim (“Ms. Windesheim”), a
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loan officer for PNC. The Title Appellees are Lakeview Title (“Lakeview”), a licensee of
Long & Foster, and Lindell Eagan, an employee of Long & Foster.
Factual Background
While the dates differ, appellants generally shared the same experience in obtaining
financing and purchasing their new homes through the Northrop Team. During 2006 and
2007, appellants contacted the Northrop Team regarding purchasing new homes. Through
discussions with Ms. Matthews, appellants were led to believe that the Northrop Team would
make available to them a “Bridge Loan Program.” Under the Bridge Loan Program,
appellants 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 appellants, the purported Bridge Loan
Program did not exist and likely violated the underwriting policies of the lenders. Appellants
allege that the Realtor Appellees concealed the lack of a Bridge Loan Program by using
forgeries and other misrepresentations to obtain fraudulent financing. Appellants each
entered into a non-contingency contract to purchase a new home and obtained a home equity
line of credit (“HELOC”) through PNC. At each appellants’ closing 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
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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, appellants were individually contacted by
counsel, informing them that another case1 had revealed a possible fraudulent mortgage
scheme. Appellants allege that they were unaware that the Bridge Loan Program was not
legitimate.
Appellants filed the instant case as a class action lawsuit in December 2011, with
appellants as the named plaintiffs and proposed class representatives. In their complaint,
they asserted that in order to effectuate the Bridge Loan Program, appellees acted to conceal
from others that appellants still owned their old homes. Appellants claim that appellees made
misrepresentations regarding appellants’ income and the status of the old homes so that
appellants could qualify for loans they were unqualified for. As a result of appellees’
fraudulent actions, their old homes were on the market for a considerably longer period of
time than they normally would have been, which resulted in appellants paying three
mortgages for a longer period of time and incurring more fees. Appellants also contend that
the Realtor Appellees pressured them into selling their old homes below market value.
1
The other case, Ripkin v. Long & Foster Real Estate, Inc. et al., No. 13-08-73725,
was between the Ripkin plaintiffs and the Realtor and Banking Appellees. During discovery
in that case, counsel was alerted to potential mortgage fraud by forged leases. The Realtor
Appellees also provided a list of 21 other loan customers who may have participated in the
same fraudulent loan program. Following the conclusion of this case, counsel contacted
appellants about pursuing legal action.
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Procedural Background
Appellants’ class action complaint included eleven counts against the Realtor and
Banking Appellees. Appellees moved to dismiss the complaint, asserting statute of
limitations as a defense. The court denied the motion, ordering discovery to continue so that
it could be determined whether limitations barred the action. During discovery, appellants
issued a subpoena requesting compensation documents from Lakeview. Since Lakeview was
not a party to the action at that time, the Realtor Appellees moved for a protective order. The
court granted the order after reviewing the documents in camera and reasoning that they
were not related to any of the counts alleged in appellants’ complaint. Following discovery,
appellees moved for summary judgment on all counts, again arguing the statute of limitations
defense. Before the court ruled on the motion for summary judgment, appellants filed a
second amended complaint, adding a new count and three new appellees, the Title Appellees
and Ms. Northrop. Following a hearing on the motion for summary judgment, the court
granted the motion, finding that as a matter of law, the statute of limitations began accruing
at the parties’ respective HELOC closings in 2006 and 2007 and therefore, the limitations
period had run by the time the complaint was filed in December 2011. The court also denied
appellants’ motion for class certification and granted appellees’ motion to strike the second
amended complaint. Appellants noted a timely appeal against all appellees.
Additional facts shall be provided, infra, to the extent they prove relevant in
addressing the issues presented.
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STANDARD OF REVIEW
Summary judgment is proper where the circuit court determines that there are no
genuine disputes as to any material fact and that the moving party is entitled to judgment as
matter of law. See Md. Rule 2-501. Disputes concerning contract interpretation are
questions of law and frequently regarded as appropriate for summary judgment. See Sandler
v. Executive Mgmt. Plus, 203 Md. App. 399, 423 (2012) (noting that contract interpretation
is a question of law). See also Bank of Montreal v. Signet Bank, 193 F.3d 818, 835 (4th Cir.
1999).
We review a circuit court’s grant of summary judgment de novo. Mitchell v.
Baltimore Sun Co., 164 Md. App. 497, 506 (2005). In reviewing the grant of a motion for
summary judgment, appellate courts focus on whether the circuit court was legally correct.
Laing v. Volkswagen of Am., Inc., 180 Md. App. 136, 152-53 (2008) (citations omitted).
“The parameter for appellate review is determining ‘whether a fair minded jury could find
for the plaintiff in light of the pleadings and the evidence presented, and there must be more
than a scintilla of evidence in order to proceed to trial . . . .’” Id. at 153. “Additionally, if
the facts are susceptible to more than one inference, the court must view the inferences in the
light most favorable to the non-moving party.” Id.
We review rulings on motions for protective orders, motions to strike, and motions
for class certification all under an abuse of discretion standard. See Creveling v. Gov’t
Employees Ins. Co., 376 Md. 72, 90 (2003) (“We ordinarily review a [circuit court’s]
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decision regarding whether to certify a class action for an abuse of discretion.”); Tanis v.
Croker, 110 Md. App. 559, 573 (1996) (stating that this Court reviews the grant of a
protective order under an abuse of discretion standard); Hendrix v. Burns, 205 Md. App. 1,
45 (2012) (“We review for abuse of discretion a court’s decision to allow or disallow
amendments to pleadings or to grant or deny leave to amend pleadings.”). “A trial judge
abuses his or her discretion where no reasonable person would take the view adopted by the
[trial] court.” Maryland-Nat’l Capital Park & Planning Comm’n v. Mardirossian, 184 Md.
App. 207, 217 (2009) (citing Fontaine v. State, 134 Md. App. 275, 288 (2000)).
Our standard of review for determining whether a [c]ircuit [c]ourt used a correct
legal standard in determining whether to grant or deny class certification is de novo. Philip
Morris, Inc. v. Angeletti, 358 Md. 689, 726 (2000).
DISCUSSION
1. Did the circuit court improperly grant summary judgment as to counts I to IX and
XI because there were genuine disputes of material fact?
At the conclusion of discovery, the Realtor appellees moved for summary judgment,
again asserting limitations as a defense.2 Specifically, they argued that the question of
accrual of statute of limitations was 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. Appellees
claimed that appellants were on inquiry notice of fraud at the latest in 2006, for the Larocca
2
The Banking Appellees filed joinders of Realtor appellees motion for summary
judgment. The Title Appellees were not yet a party to the action at the time of the filing.
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and Pfeifer appellants, and in 2007, for the Nafisi/Iranpour appellants, because of the
mention of false “gross rental income” in Form 1003 which was signed at the HELOC
closings. Appellants responded 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 appellants would
qualify for the two new mortgages, appellees misrepresented appellants’ respective incomes,
performed fraudulent acts that enabled them to conceal that appellants still owned their old
homes and, in turn, the Realtor Appellees 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 appellants 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. The circuit court
held a hearing on the motion which lasted longer than five hours. In its memorandum
opinion, the court granted summary judgment as to counts I through IX and XI. The court
found that appellants had failed to establish any dispute of the fact that they had reviewed
and signed Form 1003. Then, applying the “signature doctrine”, which presumes that one
who signs a document is bound to its terms, the court found that appellants were on notice
at the HELOC closings in 2006 and 2007 and consequently counts I through IX and XI were
untimely.
On appeal, appellants advance similar arguments, namely that the factual disputes
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regarding timeliness were a question for a jury; that the circuit court improperly applied the
signature doctrine; and that one reference to “gross rental income” in hundreds of documents
did not constitute notice. Appellees maintain that there is no dispute that appellants received
Form 1003 and that the Form placed them on notice of any alleged fraudulent activity.
Maryland Code, (2006 Repl. Vol. 2012), Courts and Judicial Proceedings §5-101
[hereinafter Cts. & Jud. Proc.] provides:
A civil action at law shall be filed within three years from the date it accrues
unless another provision of the Code provides a different period of time within
which an action shall be commenced.
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. App. 337, 343 (2011) (explaining that for
example, in a breach of contract case the date of accrual is the date of the breach). 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). This Court and the Court of Appeals have acknowledged that 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).
Having already broken the barrier confining the discovery principle to
professional malpractice, and sensing no valid reason why that rule’s sweep
should not be applied to prevent an injustice in other types of cases, we now
hold the discovery rule to be 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. (quoting Poffenberger, 290 Md. at 636).
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In Poffenberger, a homeowner brought suit against his homebuilder for failing to
comply with applicable building restrictions. 290 Md. at 633. The home had been built in
1972 and the homeowner filed suit after he discovered the building violation in 1976. Id.
The homebuilder moved for summary judgment relying on Cts. & Jud. Proc. §5-101,
asserting that the homeowner’s suit was barred by the three year statute of limitations. Id.
The homebuilder argued that the action began accruing when the home was completed in
1972 while the homeowner argued that the action did not begin accruing until he discovered
the violation in 1976. Id. at 634. The circuit court granted summary judgment and the
homeowner appealed. The Court of Appeals began its analysis by announcing that the
discovery rule was applicable to all actions and accordingly, could be applied in the case.
Id. at 636. The homebuilder argued that the homeowner had constructive notice in 1972
because the plat and deed showed the land boundaries. Id. at 637. The Court of Appeals
rejected this argument, holding that in order for there to be notice sufficient to begin tolling
of the statute of limitations, a plaintiff required actual notice. Id. It explained that there are
two forms of actual notice, express and implied:
Express notice embraces not only knowledge, but also that which is
communicated by direct information, either written or oral, from those who
are cognizant of the fact communicated. Implied notice, which is equally
actual notice, arises where the party to be charged is shown to have had
knowledge of such facts and circumstances as would lead him, by the exercise
of due diligence, to a knowledge of the principal fact . . . . It is simply
circumstantial evidence from which notice may be inferred.
Id. The Court concluded that there was no dispute that the homeowner lacked express notice,
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but there was clearly a dispute as to whether he had implied notice. Id. at 638. It remanded
back to the circuit court so that the factual dispute could be addressed at trial. Id.
While a grant of summary judgment is appropriate where the statute of limitations has
expired, the Court of Appeals has explained that the question of accrual under Cts. & Jud.
Proc. §5-101 may be a question for a jury. Frederick Rd. Ltd. P’ship v. Brown & Sturm, 360
Md. 76, 95 (2000). The Court stated that: “[t]his determination may be based solely on law,
solely on fact, or on a combination of law and fact, and is reached after careful consideration
of the purpose of the statute and the facts to which it is applied.” Id.
Appellants rely on Dashiell v. Meeks, 396 Md. 149 (2006) in support of their
argument that the circuit court erred in finding that their claims were barred as a matter of
law. There, Meeks hired Dashiell as his attorney in 1989 to draft a prenuptial agreement in
anticipation of his upcoming wedding. Id. at 157. According to Meeks, the draft of the
agreement he reviewed with Dashiell contained an alimony waiver provision. Id. However,
unbeknownst to Meeks, the final version which he and his fiancé signed did not include the
waiver. Id. At trial, Meeks claimed that he was unaware any changes had been made
between the first draft and the final draft, and that Dashiell had indicated that he did not need
to read the final draft because no changes had been made. Id. at 159. In 2001, Meeks and
his wife separated and it was at this point Meeks discovered the signed agreement lacked the
alimony waiver. Id. Meeks filed a legal malpractice action against Dashiell claiming he was
negligent in failing to include the waiver and in advising Meeks that he did not need to read
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the contract prior to signing. Id. Dashiell moved for summary judgment, arguing in part that
the claim was barred under the three year statute of limitations. The court granted the motion
based on limitations and Meeks appealed to this Court. Id. We vacated the circuit court’s
ruling, concluding that the claim was not barred by the statute of limitations. Id. at 158
(citing Meeks v. Dashiell, 166 Md. App. 415 (2006)(en banc)).
Dashiell appealed and the Court of Appeals granted certiorari. The Court began its
analysis by acknowledging the general rule “under Maryland contract law that, as between
the parties to an agreement, a party who signs a contract is presumed to have read and
understood its terms and that the party will be bound by them when that document is
executed.” Id. at 167. The Court explained that absent fraud, duress or mutual mistake, the
Court will not rescind an agreement because one party, due to their own carelessness in
reading the terms, does not want to abide by the agreement. Id. The Court then held that the
trial court erred when it found that Meeks was “charged with knowledge . . . at the time he
signed the document.” Id. at 168. Applying the discovery rule, the Court concluded that
there was a question of fact regarding whether Meeks was on notice. It held that “the
discovery rule tolls the running of the statute of limitations and it is ordinarily a question for
the jury or the ultimate factfinder as to whether the plaintiff failed to discover the cause of
action because he failed to exercise due diligence or whether he was unable to discover it
(and, as a result, unable to exercise due diligence) because the defendant concealed the
wrong.” Id. at 169.
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This Court and the Court of Appeals have reached the same conclusion in other cases.
See Frederick Road, 360 Md. 76 (2000) and Supik v. Bodie et al., 152 Md. App. 698 (2003).
In Frederick Road, an elderly couple, the Kings, hoping to minimize estate and gift taxes,
contacted their attorney, Brown, regarding transferring their farm land to their children
before they died. 360 Md. at 81. The Kings’ other attorney, Wolf, believed that the land was
valued somewhere between $20 million and $100 million. Id. Brown believed that if the
Kings appraised the farm as “farm use only”, valuing it between $515,000 and $720,000,
they would incur significant tax savings. Id. Wolf strongly disagreed with Brown’s advice
and expressed his objections to the Kings. Id. at 82. Eventually, in 1981, the Kings
proceeded with Brown’s plan, sold their farm to their children for approximately $600,000
and discharged Wolf as their attorney. Id. In response, Wolf sent the Kings a letter
expressing his concerns regarding Brown’s valuation plan and that they could be subject to
serious tax consequences. The Kings died and Brown continued to represent the King
children on matters relating to the farm. Id. at 84. Five years after the transfer, the IRS
began investigating the land transfer and issued a deficiency assessment of more than $68
million in penalties and taxes. Id. The IRS contended the sale of the land had been
undervalued and as a result, not enough taxes had been paid. Id. Brown convinced the King
children that Wolf had sent the IRS his letter to their parents expressing his concerns about
the sale amount, and as a result, they had no defenses and should settle with the IRS for $20
million. Id. at 85. The King children agreed and in 1988 settled with the IRS. In 1991, they
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filed a malpractice suit against Wolf. Id. at 87. The circuit court granted Wolf summary
judgment reasoning that if the King children had sustained any damages, it was the result of
Brown’s poor legal advice in the 1981 sale and Brown’s failure to contest the admissibility
of Wolf’s letter in tax court. Id. In 1995, seven years after the IRS settlement, the King
children filed a malpractice action against Brown. Id. at 88. The circuit court granted Brown
summary judgment after finding that the King children’s claims were barred by statute of
limitations and/or laches. Id. at 89. The King children appealed and we affirmed the circuit
court’s judgment. Id. See also Frederick Road v. Brown & Sturm, et al., 121 Md. App. 384
(1998).
Before the Court of Appeals, the King children argued that Brown had deliberately
prevented them from discovering his wrongdoing and that therefore, the court erred in
finding their claims were barred. Id. at 91. Brown contended that there were distinct acts
in 1982, 1985, 1987, and 1988 that placed the King children on inquiry notice of a potential
cause of action. Id. at 92. The Court of Appeals reviewed the underlying principles of the
discovery rule. Id. at 95-96. It explained that “the question of notice generally requires the
balancing of factual issues and the assessment of the credibility or believability of the
evidence.” Id. at 96. (quoting O’Hara v. Kovens, 305 Md. 280, 294-95 (1986)). The Court
also explained that there were some circumstances that would toll the statute of limitations,
including fraud, pursuant to Cts. & Jud. Proc. §5-203.3 Id. at 98. Again, quoting O’Hara,
3
“If the knowledge of a cause of action is kept from a party by the fraud of an adverse
(continued...)
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the Court explained that for fraud:
[B]eing ‘on notice’ means having knowledge of circumstances which would
cause a reasonable person in the position of the plaintiffs to undertake an
investigation which, if pursued with reasonable diligence, would have led to
knowledge of the alleged fraud.
Id. at 99 (quoting O’Hara, 305 Md. at 302). The Court held that because of the relationship
between the parties, a jury could have found that the King children were not on notice of a
potential claim against Brown.
In Supik, 152 Md. App. at 704, the plaintiffs were represented by the defendant in a
toxic tort litigation against two exterminators who had treated the plaintiffs’ home. Over the
course of the three years the defendant represented them, the parties would occasionally
disagree regarding a course of action or, in more extreme instances, the defendant would act
contrary to the plaintiffs’ wishes. Id. at 705-08. Eventually, they settled the toxic tort case
but subsequently, the plaintiffs learned that the settlement was for an amount significantly
less than it likely was worth. Id. at 708. As a result, the plaintiffs filed a legal malpractice
action against the defendant. Id. In response, the defendant moved for summary judgment
using the statute of limitations as its defense. The circuit court granted summary judgment,
finding that the plaintiffs were on inquiry notice of malpractice before the settlement
occurred. Id. at 709. The plaintiffs appealed.
(...continued)
party, the cause of action shall be deemed to accrue at the time when the party discovered,
or by the exercise of ordinary diligence should have discovered the fraud.” Cts. & Jud. Proc.
§5-203.
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On appeal, citing Frederick Road, we observed that “Maryland’s appellate courts have
repeatedly stated that the determination of when a cause of action “accrues” under §5-101
of the Courts and Judicial Proceedings Article is one left to the court for judicial
determination.” Supik at 710. We then explained that “[w]e read O’Hara and Frederick
Road directing that only when there is no genuine dispute of material fact as to when the
action accrued, should a trial court grant summary judgment on the basis of limitations;
otherwise, the question is one of fact for the trier of fact.” Id. at 710-11 (emphasis in
original). We also noted that when credibility of witnesses or weight of evidence is at issue,
the question is one for the jury to resolve. Id. Next, we reviewed some of the instances when
the statute of limitations may be tolled, including fraud. “The fraud exception is essentially
a tangent of the discovery rule. If an adverse party fraudulently conceals knowledge of a
cause of action, ‘the cause of action shall be deemed to accrue at the time when the party
discovered, or by the exercise of ordinary diligence should have discovered the fraud.’” Id.
at 715 (quoting [Cts. & Jud. Proc.] §5-203). We considered that there was some dispute
between the parties over whether any of the prior disagreements or the defendant’s acts
against the will of the plaintiffs constituted notice. The defendant claimed that they should
have been on inquiry notice of a potential malpractice action before the settlement and at
latest when the settlement occurred. The plaintiffs argued that they did not have notice until
well after the settlement, thereby tolling the statute of limitations. Id. at 720. We held:
Because the ordinary principles governing summary judgment continue to
apply when the issue is summary judgment on grounds of limitations, and
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because there does exist, in this case, a genuine dispute of material fact, we
hold that the trial court erred as a matter of law in granting [the defendant’s]
motion for summary judgment.
Id. at 722.
Returning to the case at bar, the question was whether appellants were on inquiry
notice that the Bridge Loan Program did not exist and that appellants were fraudulently
representing that it did. Appellees contend that the inclusion of false gross rental income on
Form 1003 should have indicated some level of fraudulent activity. Although we are not
persuaded that one mention of false income on a loan application form is necessarily notice
that the Bridge Loan Program did not exist, we will not decide that issue. Our inquiry is
whether it is a question of law for the court or a question of fact for the jury if appellants
were reasonably on notice. As Maryland courts have held, 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. This case is one such
instance. Akin to Dashiell and Frederick Road, the parties dispute if there were acts that
were sufficient to trigger notice in a reasonable person. Additionally, there appears to be
some dispute regarding whether the Form 1003 was fraudulent in some way because of
appellants’ discovery that other leases had been forged. Appellants never affirmatively
recalled seeing the gross rental income on the Form. As such, the court’s decision that gross
rental income should have put them on notice involved the credibility of their testimony. As
we explained in Supik, when credibility is at issue, the question is one to be decided by the
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finder of fact. We conclude that there were genuine disputes of material fact and therefore,
the circuit court erred in granting summary judgment.
2. Did the circuit court err in granting summary judgment as to the Banking
Appellants’ SMLL claims?
Before the circuit court, appellants alleged violations of Maryland Code, (1975 Repl.
Vol. 2013), §12-403 of the Commercial Law Article [hereinafter Com. Law], known as the
Secondary Mortgage Loan Law (“SMLL”). Recently, the Court of Appeals provided a
review of the SMLL’s background in the opinion of Thompkins v. Mountaineer Investments,
LLC, No. 43, September Term 2013, slip op. 3-6 (Jun. 23, 2014).
The SMLL is a consumer protection measure that was 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 . . . . The
SMLL is codified at Maryland Code, Commercial Law Article (“CL”), §12-
401 et seq. It 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 includes various other
consumer protection provisions, including prohibitions against false
advertising regarding the availability of secondary mortgage loans, against age
discrimination in the granting of such loans, and against loan provisions that
require the debtor to waive the protections of the SMLL. CL §§12-403, 12-
403.1, 12-409. The statute generally prohibits a lender from offering or
making a secondary mortgage loan that is 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.
Finally the SMLL provides for both civil and criminal enforcement. CL
§§12-413, 12-414. The civil remedy provision reads as follows: Except for
a bona fide error of computation, if a lender violates any provision of [the
SMLL] he may collect only the principal amount of the loan and may not
collect any interest, costs, or other charges with respect to the loan. In
addition, a lender who knowingly violates any provision of [the SMLL] also
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shall forfeit to the borrower three times the amount of interest and charges
collected in excess of that authorized by law. CL §12-413. Thus, a lender
who violates the SMLL is limited to collecting the principal amount of the loan
and is not entitled to collect any interest or other charges. If the violation is
“knowing,” the borrower can recover a form of treble damages from the
lender.
Following the circuit court’s grant of summary judgment as to counts I to IX and XI,
the Banking Appellees moved for summary judgment as to count X, the alleged SMLL
violations. During the prior motion for summary judgment, the parties had agreed that the
applicable statute of limitations for the SMLL count was twelve 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. Appellants argued before the trial court that the
Banking Appellees had violated the SMLL by falsely advertising the existence of a non-
contingent Bridge Loan Program. The circuit court granted summary judgment, after finding
that the SMLL did not apply to Ms. Matthews or Ms. Windesheim because they were not
lenders; that the communications with Michelle Matthews did not qualify as advertising
under the statute; and that the statute was not intended to regulate the type of conduct
performed by the Banking Appellees.
On appeal, appellants argue the circuit court erred because by advertising that a non-
existent Bridge Loan Program was an option, appellees had falsely advertised loan
availability in violation of the SMLL. They also posit that Ms. Matthews and Ms.
Windesheim qualify as lenders under the SMLL and that the court erred in its determination
- 19 -
concerning the penalties that appellees would be required to pay. Additionally, PNC
maintains that the SMLL claim is barred by limitations and that in the alternative, there is no
evidence that it violated the SMLL.
As a preliminary note, the SMLL applies only to secondary mortgages, and therefore,
in the instant case, is only applicable to appellants’ HELOCs. While the Banking Appellees
are comprised of five entities, the SMLL claim could only apply to those parties involved
with the HELOCs. Thus, Prosperity and Wells Fargo are not subject to the SMLL because
they are parties to this action as a result of their involvement with the primary purchase
money loans. PNC provided the HELOCs and Ms. Windesheim was the loan officer for
PNC, therefore, both of these parties could be subject to the SMLL. Lastly, Ms. Mathews
was the loan officer for Prosperity, which was not covered by the SMLL, but appellants
contend that she participated in advertising the Bridge Loan Program, which involved the
HELOC. Accordingly, of the five Banking Appellees, we shall consider liability only as to
the latter three parties. Finally, appellants contend that due to appellees’ actions, their old
homes were on the market for a considerable period of time, during which they incurred fees
and other charges that they would not have incurred but for the Bridge Loan Program. If
appellees are liable under the SMLL, as noted supra, appellants could recover up to three
times the amount of any interest or other costs associated with the loan. See Com. Law §12-
413.
a. Is the SMLL claim subject to a twelve year statute of limitations?
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Courts & Judicial Proceedings §5-102 provides:
(a) Twelve-year limitation. – An action on one of the following specialties
shall be filed within 12 years after the cause of action accrues, or within 12
years from the date of the death of the last to die of the principal debtor or
creditor, whichever is sooner:
(1) Promissory note or other instrument under seal;
(2) Bond except a public officer’s bond;
(3) Judgment;
(4) Recognizance;
(5) Contract under seal; or
(6) Any other specialty.
PNC maintains that the traditional three year statute of limitations applies to the SMLL claim
because it does not fall under any of the speciality exceptions of Cts. & Jud. Proc. §5-102.
Master Financial, Inc. v. Crowder, 409 Md. 51 (2009) [hereinafter Crowder], was a case in
which the Court of Appeals addressed whether a claim brought under several provisions of
the SMLL4 was subject to the twelve year specialty statute of limitations. There, several
borrowers brought class actions against several lenders asserting violations of the SMLL and
the Consumer Protection Act. Id. at 56. The trial court dismissed the action, reasoning that
the SMLL claims were barred by the three year statute of limitations. Id. The Court of
Appeals granted certiorari and although neither side argued that the SMLL claims were
subject to a twelve year statue of limitations, the Court directed the parties to address the
issue. Relying on Greene Tree H.O.A v. Greene Tree Assoc., 358 Md. 453 (2000) and the
line of cases which followed, the Court explained the criteria for a claim to be considered a
4
Specifically the plaintiffs alleged violations of Com. Law §§12-401, 12-402, 12-
404, 12-405, 12-406, 12-407.1 and sought damages under Com. Law §12-413.
- 21 -
speciality. Acknowledging that the lawsuits were not seeking to enforce the loans and that
all of the claims arose entirely under the SMLL, the Court reasoned that the determination
of whether the twelve year limitation applied depended upon whether the SMLL claims were
an “other specialty.” The Court explained that in order to satisfy that determination, it had
to decide if:
(1) the duty, obligation, prohibition, or right sought to be enforced is created
or imposed solely by the statute, or a related statute, and does not otherwise
exist as a matter of common law; (2) the remedy pursued in the action is
authorized solely by the statute, or a related statute, and does not otherwise
exist under the common law; and (3) if the action is one for civil damages or
recompense in the nature of civil damages, those damages are liquidated,
fixed, or, by applying clear statutory criteria, are readily ascertainable.
Crowder, 409 Md. at 70. The Court noted that the duties and obligations were solely a
product of the SMLL and that the Com. Law §12-413 provided remedies that could only be
recovered under the statute and they were fixed and ascertainable. Id. at 72.
PNC asserts that the SMLL claim under Com. Law §12-403 fails the first prong of the
speciality analysis because it already exists at common law, specifically as fraud and
negligent misrepresentation. We conclude that a claim brought under Com. Law §12-403
is a specialty and subject to the twelve year statute of limitation. We find the Court of
Appeals decision in AGV Sports Group, Inc. v. Protus IP Solutions, Inc., 417 Md. 386
(2010), is instructive. There, the plaintiffs brought suit asserting violations of the Maryland
and federal Telephone Consumer Protection Acts (“TCPA”). Id. at 389. The federal District
Court of Maryland certified a question to the Court of Appeals, instructing it to decide if a
- 22 -
claim under the Maryland TCPA was a statutory specialty. Id. at 390. The defendant
advanced several arguments in support of its claim that the TCPA was not a specialty, among
which was the assertion that the first prong of the specialty analysis was not satisfied. Id. at
397. The defendant contended that the same rights protected under the TCPA could also be
pursued under the common law actions of conversion and trespass to chattels and that in
addition, the TCPA permitted a plaintiff to recover unliquidated damages, which violated the
third prong. Id. The Court agreed with the defendant, and reasoned that the common law
actions were sometimes pursued along with TCPA claims. The Court also explained that the
TCPA expressly permitted a plaintiff to recover liquidated damages, pursuant to the statute,
and unliquidated damages that could be recovered under the common law.
Returning to the instant case, we find the facts of AGV distinguishable. Appellants
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) (quoting Duckworth v. Bernstein, 55 Md. App.
710, 724 (1983)). The common law claims of fraud and negligent misrepresentation must
be established by demonstrating that the perpetrator knowingly or intentionally committed
- 23 -
them.5 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. A
comparison of Com. Law §12-413 with Com. Law §12-403, provides further support that the
SMLL is different from fraud and negligent representation. Com. Law §12-413 permits
additional recovery by a plaintiff if they can establish that the lender acted knowingly;
indicating that one can be liable under §12-403 without acting intentionally. Additionally,
5
In order to establish common law fraud, a plaintiff must demonstrate five elements:
1) that the defendant made a false representation to the plaintiff;
2) that its falsity was either known to the defendant or that the representation
was made with reckless indifference as to its truth;
3) that the misrepresentation was made for the purpose of defrauding the
plaintiff;
4) that the plaintiff relied on the misrepresentation and had the right to rely on
it; and
5) that the plaintiff suffered compensable injury resulting from the
misrepresentation.
Sass v. Andrew, 152 Md. App. 406, 429 (2003). To establish negligent representation, a
plaintiff must show:
(1) the defendant, owing a duty of care to the plaintiff, negligently asserts a
false statement;
(2) the defendant intends that his statement will be acted upon by the plaintiff;
(3) the defendant has knowledge that the plaintiff will probably rely on the
statement, which, if erroneous, will cause loss or injury;
(4) the plaintiff, justifiably, takes action in reliance on the statement; and
(5) the plaintiff suffers damage proximately caused by the defendant’s
negligence.
Lloyd v. Gen. Motors Corp., 397 Md. 108, 135-36 (2007).
- 24 -
unlike the case in AGV, wherein the TCPA provided for liquidated damages but also
permitted unliquidated damages, the SMLL only allows a plaintiff to recover interest, costs
and other charges related to the loan. Com. Law §12-413. Our conclusion that a claim under
Com. Law §12-403 is a specialty statute, is consistent with the Court of Appeals’ holdings
in Crowder and AGV.
b. Are Ms. Matthews, Ms. Windesheim or PNC liable under the SMLL?
Next we turn to the question of the Banking Appellees’ potential liability under the
SMLL. Commercial Law Article §12-401(b)(2) states that a lender is a “person who makes
a secondary mortgage loan” or a licensee of such a person. A person is defined as “an
individual, corporation, business trust, statutory trust, estate, trust, partnership, association,
two or more persons having a joint or common interest, or any other legal or commercial
entity.” Com. Law. §12-401(h). Commercial Law Article §12-403, provides:
(a) A person may not advertise directly or indirectly in the State any false or
misleading statement regarding secondary mortgage loans or their availability.
Finally, a lender is subject to civil liability under Com. Law §12-413 if:
Except for a bona fide error of computation, if a lender violates any provision
of this subtitle he may collect only the principal amount of the loan and may
not collect any interest, costs, or other charges with respect to the loan. In
addition, a lender who knowingly violates any provision of this subtitle also
shall forfeit to the borrower three times the amount of interest and charges
collected in excess of that authorized by law.
Resolving whether the Banking Appellees’ acts were prohibited by the SMLL requires
statutory interpretation. In Thomkinson, supra, 209 Md. App. at 697, we explained that:
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[Q]uestions of statutory interpretation are often: “resolvable on the basis of
judicial consideration of three general factors: 1) text; 2) purpose; and 3)
consequences. Text is the plain language of the relevant provision, typically
given its ordinary meaning, Breslin v. Powell, 421 Md. 266, 286 [26 A.3d 878]
(2011), viewed in context, Kaczorowski v. City of Baltimore, 309 Md. 505, 514
[525 A.2d 628] (1987), considered in light of the whole statute, In re Stephen
K., 289 Md. 294, 298 [424 A.2d 153] (1981), and generally evaluated for
ambiguity. Kaczorowski, 309 Md. at 513 [525 A.2d 628]. Legislative purpose,
either apparent from the text or gathered from external sources, often informs,
if not controls, our reading of the statute. Kaczorowski, 309 Md. at 515 [525
A.2d 628]. An examination of interpretive consequences, either as a
comparison of the results of each proffered construction, Christian v. State, 62
Md.App. 296, 303 [489 A.2d 64] (1985), or as a principle of avoidance of an
absurd or unreasonable reading, Kaczorowski, 309 Md. at 513, 516 [525 A.2d
628], grounds the court's interpretation in reality.”
(quoting Town of Oxford v. Koste, 204 Md. App. 578, 585–86 (2012)).
We have explained that the SMLL was enacted as a “legislative approach to consumer
protection” Id. at 696. It “is a law intended to guard the foolish or unsophisticated borrower,
who may be under severe financial pressure, from his own improvidence.” Id. (quoting
Duckworth v. Bernstein, 55 Md. App. 710, 724 (1983)).
i. Were the individual Banking Appellees “lenders” under the statute?
While a person may commit an act that violates the SMLL, they are only subject to
liability if they are a “lender” under the statute. Herein lies the dispute regarding Ms.
Mathews and Ms. Windesheim. While appellants contend they are lenders, the Banking
Appellees assert that they are not. Michelle Mathews was a loan officer for Prosperity.
There is no dispute that Prosperity did not fund the HELOCs. Appellants assert that Ms.
Mathews was a lender because she was the loan officer who primarily facilitated appellants’
- 26 -
HELOCs. In cases that applied the SMLL, entities that were considered lenders were the
banks that provided the funding. See Master Fin., Inc. v. Crowder, 409 Md. 51, 56 (2009)
(plaintiffs brought suit alleging SMLL violations against the entities which originated their
secondary mortgages); Norwest Bank Minnesota, N.A. v. Pence, 132 Md. App. 363, 365
(2000). See also Royal Fin. Servs., Inc. v. Eason, 183 Md. App. 496, 497 (2008) (lawsuit
against a bank which gave the plaintiff a secondary mortgage on her primary residence).
While it is clear that Ms. Mathews was involved in the process, under the intent and language
of the SMLL, she was not a lender for its purposes. As the statute explains, a lender is a
“person who makes a secondary mortgage loan.” Although Ms. Mathews was heavily
involved in the process, she was not an employee of the institution that provided the
HELOCs. Therefore, as to Ms. Mathews, we conclude that the circuit court did not abuse
its discretion in granting summary judgment.
Suzanne Windesheim, on the other hand, was a loan officer for PNC, the bank that
provided the HELOCs to appellants. As provided in Com. Law. §12-401 a lender is the
organization that provided the secondary loan. Additionally, a person is prohibited from
false advertising, and pursuant to Com. Law §12-401, a person can be an individual. The
Court of Appeals has explained that a corporation can only be liable as a result of acts by its
employees. See Southern Management Corp. v. Taha, 378 Md. 461 (2003). In Taha, the
plaintiff sued his former employer and two employees for malicious prosecution. Id. at 470.
The jury found the employer corporation liable but not the employees. Id. at 473. On appeal,
- 27 -
the question for the Court of Appeals was whether, under the doctrine of respondeat superior,
a corporation could be held liable when its employees were exonerated. Id. at 478. The
Court explained that if an employee is “responsible for the acts about which the complaint
is made by the plaintiff, the employer is also responsible since they would have been acting
in the course of their employee responsibilities.” Id. Further expounding upon this principle,
the Court opined:
[H]owever, we have long held that a corporation can act only by virtue of its
agents. See Hecht v. Resolution Trust Co., 333 Md. 324, 345, 635 A.2d 394,
405 (1994); Maryland Trust Co. v. Mechanics Bank, 102 Md. 608, 629, 63 A.
70, 78 (1906); Central Railway Co. v. Brewer, 78 Md. 394, 401, 28 A. 615,
616 (1894); Carter, 51 Md. at 295-96 (1879). Corporations have been
described as “creature[s] of legal fiction,” which are “incapable of tortious
conduct” by themselves. Lokay v. Lehigh Valley Cooperative Farmers, 342
Pa.Super. 89, 492 A.2d 405, 408, 409 (1985). Because, by themselves,
corporations are “dejure persons” and “cannot . . . have a mental state of any
kind,” they “can only . . . be liable for . . . the mental states of [their] various
employees, when they act within the authority given to them.” Louisiana
Power & Light Co. v. United Gas Pipe Line Co., 642 F. Supp. 781, 803
(E.D.La.1986).
Id. at 480. For liability to exist, an employee must be acting pursuant to its employer’s
authority, which simply means that the act was “incident to the performance of the duties
entrusted to the employee by the employer.” Id. at 481 (quoting Ennis v. Crenca, 322 Md.
285, 293-94 (1991)).
Here, because PNC’s personhood is a legal fiction, it may only “act” as a result of
its employees actions. Although PNC made the HELOCs, Ms. Windesheim was its loan
officer who facilitated that process. As the loan officer for PNC, Ms. Windesheim acted
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under the auspices of PNC. Furthermore, considering that this Court has previously held 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 may be liable under the SMLL and consequently, so may PNC. Therefore, she is a lender
under the SMLL and it is a question of fact whether she violated the statute. We hold that
the circuit court erred in granting summary judgment as to Ms. Windesheim.
ii. Did the Banking appellees violate Com. Law §12-403?
Appellants assert that by misrepresenting the availability of the non-contingent Bridge
Loan Program, appellees violated Com. Law §12-403 which prohibits false advertising by
lenders. They argue that by advertising the loan as “Home Equity Lines and Loans (to make
your client non-contingent),” appellees were advertising the Bridge Loan Program was
legitimate when it was not. Prosperity and PNC admitted that a non-contingent Bridge Loan
was not a mortgage program offered by either bank. Before the trial court, appellants were
unable to present any information establishing that PNC advertised the false loan. The
evidence proffered was that PNC indirectly advertised through Ms. Mathews, when she
informed appellants of the Bridge Loan Program. PNC denies that it advertised the program.
The SMLL does not define “advertise.” However, Commercial Law §13-101 states:
(b)(1) “Advertisement” means the publication, dissemination, or circulation of
any oral or written matter, including labeling, which directly or indirectly tends
to induce a person to enter into an obligation, sign a contract, or acquire title
or interest in any merchandise, real property, intangibles, or service.
Relying on the Commercial Article’s definition of “advertise” and on its plain meaning, it
- 29 -
is clear that advertising involves some method of communication to the public. This is
further supported by Com. Law §12-403(b), which states that “[t]his section does not apply
to the owner, publisher, operator, or employee of any publication or radio or television
station which disseminates the statement without knowledge of its false or misleading
character.” However, we do not believe that advertising is strictly limited to widespread
communications. Commercial Law §13-101 permits advertising to be an oral direct or
indirect inducement of one into a contract. If this inducement occurs by a lender’s
dissemination of information to smaller groups of the public, we surmise this could still
qualify as an advertisement. For example, two of the plaintiffs contend that they first met
Ms. Matthews at an open house and decided to retain her to purchase a new home. We
believe that the SMLL is intended to cover advertisement to small groups, such as the
circumstances found in the instant case.
An indirect advertisement is advertising that is not performed by the defendant itself
but is prohibited because it intentionally results in the same outcome.6 In Morris v. Osmose,
6
Cf. Guerand v. Dandelet, 32 Md. 561 (1870) (affirming a trial court’s grant of an
injunction finding that a defendant’s father had indirectly violated a covenant not to compete.
The father entered into a contract and agreed to not directly or indirectly compete with the
plaintiff in Baltimore City in the field of dyeing or scouring from any time after the signing
of the lease. Several years later, after the lease had expired, the defendant opened a dyeing
and scouring business next door to the plaintiff’s business under a similar name to his
father’s business. Id. at 565.
The Court explained that by contracting to not directly or indirectly compete with the
plaintiff, the father could “neither compete himself, no employ or combine with others to do
it. What he [could not] do directly, he [could not] do indirectly.” Id. at 570. After
explaining that the covenant clearly prohibited the father from participating in any way in
(continued...)
- 30 -
340 Md. 519 (1995), the Court of Appeals addressed an issue somewhat similar to this case
at bar. The plaintiffs were several homeowners who had purchased homes with roofs made
of allegedly defective plywood. Id. at 526. They contended that the manufacturers of the
wood advertised the wood as suitable for roofs but, in fact, the roofs deteriorated quickly and
created structural integrity problems for the homes. Id. at 527-28. The homeowners brought
suit, asserting, among other claims, violations of Maryland Consumer Protection Act which
prohibited unfair and deceptive trade practices.7 The Act prohibited a seller of consumer
goods from making false, misleading representations and from failing to state material facts
or deceiving a consumer. Id. at fn. 9. The Court described the issue as “whether the plaintiff
home buyers may maintain an action against Maryland’s Consumer Protection Act against
manufacturers or sellers with whom the plaintiffs had no direct contact.” Id. at 526. One of
the manufacturers’ defenses was that they advertised to commercial buyers, i.e.
homebuilders, and not to consumers or homeowners and therefore, the Act could not apply
as to them. Id. at 530. The Court agreed with the manufacturers, that the statute was
intended to apply to consumers and not commercial buyers. However, it noted:
By this we do not mean that the only entity that can engage in a deceptive trade
practice is one who directly sells or offers to sell to consumers. It is quite
6
(...continued)
competition with the plaintiff, the Court opined: “the defendant could, not only not become
interested in any opposition, but that he could not, in any manner, aid or become instrumental
in setting up, or carrying on, an opposition line of stages; and that without such construction,
the word “indirect,” employed in the contract, would have no meaning or effect whatever.”)
7
See Com. Law §13-303.
- 31 -
possible that a deceptive trade practice committed by someone who is not the
seller would so infect the sale or offer for sale to a consumer that the law
would deem the practice to have been committed “in” the sale or offer for sale.
See §13–303. An example may be a deceptive statement appearing on a
manufacturer’s packaging that is targeted to consumers. Under such
circumstances, the CPA may provide a claim against the manufacturer because
the statements were made in the sale or offer for sale of the consumer goods.
For other examples see State v. Cottman Transmissions, 86 Md. App. 714, 587
A.2d 1190 (1991) (permitting CPA action against franchiser who directed
franchisee to engage in deceptive practices) . . . .
Id. at 541. Continuing, the Court explained that there was no evidence or dispute that the
manufacturers did not sell or advertise to the plaintiffs, nor did they exert any influence over
the sale or were otherwise involved. Id. at 542. The Court then cited cases where plaintiffs
were allowed to proceed when the defendants had been accused of indirectly violating a
statute. The Court differentiated between those cases, reasoning that the statutes involved
all provided that the acts could be performed indirectly in order to subject one to liability.8
Concluding that the statute at issue did not permit indirect misrepresentations to be used to
create liability, the Court declined to hold the manufacturers liable. Id. at 544.
8
The Court stated “the consumer’s cause of action was allowed to proceed only
because specific statutory language made the manufacturer’s alleged misrepresentation
indirectly a part of the sale to the consumer.” Morris, 340 Md. at 542. It then cited two
cases. In Jones v. Sportelli, 166 N.J.Super. 383, 390 (1979), the court applied a statute which
defined sale as “any ‘attempt directly or indirectly to sell.’” The court in that case found a
doctor liable for selling medicine to a customer under the statute even though he did not
personally make the sale, but the patient was indirectly charged for the medicine. Id. In
Kociemba v. G.D. Searle & Co., 680 F. Supp. 1293, 1305 (D. Minn.1988), a federal court
found that a Minnesota statute, worded similarly to the one in Jones, permitted a case to
proceed against a defendant when it was alleged he indirectly sold medicine to a patient
because the statute covered “‘direct and indirect’ outreaches to the public.’” Id.
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Appellants contend that not only would Ms. Mathews’ conversations with appellants
regarding the Bridge Loan Program qualify as advertisements pursuant to the SMLL, but also
that the brochures distributed by her company would qualify as well. As was explained
above, Ms. Mathews was not a lender and not subject to the SMLL. However, 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.
Appellants contend that a five-step non-contingent Bridge Loan Program was advertised
described as a “Buy-First-Sell-Later” process. Additionally, there appears to be no dispute
that a non-contingent Bridge Loan does not exist at any of the banks involved. It is a
question of fact whether there were any acts that could satisfy the advertisement requirement
of Com. Law §12-403. 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.
3. Did the circuit court err in denying class certification?
Appellants filed their complaint as a class action and sought certification for the
following class:
• Maryland residents;
• retained The Creig Northrop Team, P.C. to represent them in the
purchase of a primary residence (“new home”) and the sale of an
existing home (“old home”) between January 1, 2004 and January 1,
2009;
• received financing for the purchase of their new homes consisting of
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(1) a primary purchase money mortgage originated, processed, or
funded through Prosperity Mortgage and (2) a home equity line of
credit on the old home (“HELOC”) through National City;
• Michelle Mathews originated, processed, or funded their primary
purchase money mortgage;
• Suzanne Scales Windesheim originated, processed, or funded the
HELOC;
• Prosperity Mortgage’s records concerning the primary mortgage on the
new home reference rental income from the old home as income or an
asset of the borrower; and
• specifically excluded are Brett and Hope Ripkin, whose claims were
resolved in the [Ripkin] case.
Following a hearing, the circuit court denied appellants class certification, finding that
the proposed class was not numerous enough to warrant certification. On appeal, appellants
argue that the circuit court erred in its conclusion and that the court improperly calculated the
class size as the number of transactions instead of the number of persons. In contrast,
appellees contend that appellants’ estimate was speculative and accordingly, the circuit court
did not err in denying class certification.
This Court has explained that the purposes of class actions are “to overcome the
impracticalities of overtly cumbersome joinder requirements,” and to “promote the objectives
of judicial economy and access to the legal system, particularly for persons with small
individual claims.” Christensen v. Philip Morris USA Inc., 162 Md. App. 616, 640 (2005)
(quoting Kirkpatrick v. Gilchrist, 56 Md. App. 242, 249 (1983) and Philip Morris, Inc. v.
Angeletti, 358 Md. at 732, 752 (2000)). In order for an action to warrant class certification,
it must meet the statutory requirements enumerated in Maryland Rule 2-231(a).
(a) Prerequisites to a [c]lass [a]ction. One or more members of a class may
- 34 -
sue or be sued as representative parties on behalf of all only if (1) the class is
so numerous that joinder of all members is impracticable, (2) there are
questions of law or fact common to the class, (3) the claims or defenses of the
representative parties are typical of the claims or defenses of the class, and (4)
the representative parties will fairly and adequately protect the interests of the
class.
In its order denying class certification, the court found that appellants had met all of
the prerequisites except for numerosity. The court explained that the estimated number of
transactions was not so numerous that joinder was impracticable and that the method
appellants employed to reach their estimate was not sufficient.
In Philip Morris, Inc. v. Angeletti, 358 Md. at 732, 752 (2000), the plaintiffs filed a
class action against Phillip Morris and other tobacco companies for injuries suffered by using
tobacco products. They filed a Md. Rule 2-231 motion for class certification, seeking to
certify a class that included all Maryland residents who either personally suffered injuries
from conditions caused by smoking or became nicotine dependent after using products sold
by the defendants. Id. at 700. The court granted their motion and denied the defendants’
motion for reconsideration of class. Id. at 703. The defendants filed a petition for writ of
mandamus and/or writ of prohibition with the Court of Appeals, requesting it to order the
circuit court to decertify the classes. Id. The Court granted certiorari. The Court considered
cases from the United States Supreme Court as well as federal circuit and district courts. Id.
at 725-26. While the party moving for class certification has the burden of establishing that
the requirements are met, a court should accept the moving party’s allegations as true. Id.
at 726. The Court explained, “[w]hether numerosity is met depends on a court’s practical
- 35 -
judgment, given the facts of a particular case.” Id. at 732. The plaintiffs did not have an
exact number of the proposed class size, but did provide a good faith estimate that it would
be at least ten thousand. Id. at 732-33. The Court noted that there were only four class
representatives in the lawsuit, but accepted the plaintiffs’ claim that the litigation would
impact possibly hundreds of thousands of Maryland residents. Id. at 733. The Court
concluded that the numerosity requirement had been met. Id.
Maryland Rule 2-231 uses the same language as Federal Rule 239 , and accordingly,
Maryland courts rely on federal cases interpreting Rule 23. See Jackson v. State, 340 Md.
705, 716 (1995). Appellants cite Mitchell-Tracey v. United Gen. Title Ins. Co., 237 F.R.D.
551, 556 (D. Md. 2006) in support of their argument that a proposed class of at least forty
is sufficient to meet the number requirement. In that case, the plaintiffs sued the defendant
insurance companies for engaging in illegal practices intended to “cheat consumers” with
9
(a) Prerequisites. One or more members of a class may sue or be sued as
representative parties on behalf of all members only if:
(1) the class is so numerous that joinder of all members is
impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the
claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the
interests of the class.
Federal Rules of Civil Procedure, Rule 23.
- 36 -
respect to title insurance acquired during the process of obtaining a mortgage or refinancing
their homes. Id. at 553. The plaintiffs filed a Fed. Rule 23 motion for class certification.
Id. at 553. In considering the numerosity requirement, the court noted that “[c]ourts have
found classes of as few as forty members sufficiently large to make joinder impracticable.”
Id. at 556. The U.S. District Court found that the first requirement was met, explaining:
Although [p]laintiffs have not provided the precise number of members in the
potential classes, [p]laintiffs assert that based on the level of activity that
occurred in the mortgage industry between 2002 and 2005, the number of
Maryland borrowers potentially eligible for the reissue rate is considerable;
accordingly, [p]laintiffs estimate the number most certainly would exceed the
40 members generally accepted to be sufficiently large to make joinder
impracticable.
Id.
Appellants also rely on Hoving v. Lawyers Title Ins. Co., 256 F.R.D. 555 (E.D. Mich.
2009), in support of their argument that the court erred in counting the number of
transactions instead of the number of persons. There the plaintiff filed suit against the
defendant under a theory of unjust enrichment, alleging that the defendant had overcharged
the plaintiff for title insurance. He sought to have a multi state class certified. Id. at 558.
The U.S. District Court noted that “[w]here the exact size of the class is unknown but general
knowledge and common sense indicate that it is large, the numerosity requirement is
satisfied.” Id. at 563. It found that the plaintiff had provided enough evidence to establish
that his class size was sufficiently large to prohibit joinder. The defendant had performed
nearly 850,000 insurance transactions and at least 29% of this number could potentially
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qualify for the transactions covered by the proposed class or nearly 250,000 individuals as
the court stated. Id. The court concluded that even if only half of this number were members
of the class, the numerosity requirement had been met. Id.
Returning to the case at bar, appellants argue that the court erred in two ways in
denying class certification: by counting the number of transactions instead of people, which
resulted in a class size of 20 to 34, and by finding that the method used to reach the estimate
was not sufficient. Our task in reviewing the court’s denial of class certification is to
determine whether “no reasonable person would take the view adopted by the [trial] court.”
Mardirossian, 184 Md. App. at 217. The court’s rationale for finding that the method of
calculating the class size was not sufficient is explained below:
The [c]ourt finds that the [p]laintiffs have not presented sufficient evidence to
support their estimate of the size of the class. There is no acceptable rational
for including 2004 in the time period defining the class. Likewise, it is
questionable if 2008 should remain in the time period. Further, simple
extrapolation does not involve concepts of “random sampling” or statistical
analysis that result in meaningful data. It is difficult to even characterize the
method used by the [p]laintiffs as producing an educated guess. Also, the
method used by the [p]laintiffs is simple math that does not take variables into
account. The events of recent past, with the rise and fall of the real estate
market, are not accounted for when treating each year between 2004 and 2009
as identical in terms of business productivity. A person looking to buy or sell
a home in 2005, 2006 and even 2007 was in for a much different experience
than starting in 2008.[]
The court was concerned that the decision of what years to use in calculating the class size
did not appear to be a reliable estimate. The court’s concern arose from appellants’ own
statement during argument on class certification, that they “chose to add a year on each side”
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as a “buffer.” Despite the court’s concerns, it stated: “The [p]laintiffs failed to demonstrate
numerosity, however, even if their method of estimating the size of the proposed class is
acceptable under the law. The [c]ourt will not consider the year 2004 in determining the
issue of numerosity. The [c]ourt, however, will consider 2008 because, if not for any other
reason, all of the [d]efendants were employed in the positions they held during the time
period of the alleged conspiracy.” The court’s finding that the method was insufficient was
not determinative because the court accepted appellants’ method in order to determine
numerosity. The court did find that the class size was not large enough, given the insufficient
number of transactions. In finding that it would consider the number of transactions instead
of the number of individuals, the court noted:
The [c]ourt first turns to the question of whether to consider a proposed
member to be an individual human being or whether to consider a proposed
class member to be the transaction. Plaintiff is correct that class members are
usually considered as individual persons. That seems appropriate when the
alleged behavior impacts persons in an individual manner, even if they are in
the same family or living unit. In the instant case, however, the defining
characteristics of the class are related to the transaction itself. The vast
majority of the transactions that have been identified by the [p]laintiffs have
included two persons per transactions. The harm alleged, and the damages
sought, are the same in each transaction whether there be one, two or a
hundred persons applying for the particular loan.
We conclude that the court did not abuse its discretion in finding that the class size consisted
of the number of loan transactions and not the number of parties to the loans. The U.S.
District Court stated in Mitchell that a class size of forty members can be sufficient to render
a class large enough to make joinder impossible. However, the court found that the class size
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would likely be between 20 and 34 transactions, and therefore, was not large enough to
warrant certification. The facts of this case differ from class actions where the harm suffered
is based upon an act directed against an individual person. Here, the act was fraud arising
out of each of the loan transactions. We agree with the circuit court that appellees’ alleged
fraud was committed in relation to each loan. It did not matter how many people were co-
borrowers for each loan, but rather that the transaction itself that was allegedly fraudulent.
Therefore, we hold that the circuit court did not abuse its discretion in denying appellant’s
class certification.
4. Did the circuit court err in striking appellants’ second amended complaint?
Appellants filed a second amended complaint on March 14, 2013. The amended
complaint included a new Count XII against Mr. Northrop, the Northrop Team, Long &
Foster, and three new parties, Ms. Northrop, Ms. Eagan and Lakeview Title Company,
alleging violations of the Real Estate Settlements and Procedures Act (“RESPA”)10 . The new
count was based upon the alleged “sham employment” of Ms. Northrop by Lakeview.
Appellants alleged that Lakeview paid Ms. Northrop a “salary” but she provided no actual
services and the salary was in fact disguised compensation to the Northrop Team for referrals
– in essence an illegal kickback. Appellees filed a motion to strike the amended complaint
arguing that the second amended complaint was made without leave of the court, that count
XII was barred by the statute of limitations, and that appellees would be prejudiced if the
10
RESPA is codified in 12 U.S.C.A. Chapter 27.
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court permitted the addition of a new cause of action and three new parties at the end of
discovery. Following a hearing on the matter, the circuit court granted the motion to strike,
reasoning that permitting the amended complaint would prejudice the appellees.
Appellants argue that the court erred because the second amended complaint was
“timely and appropriate.” Appellees respond that the court did not strike the amended
complaint on the grounds of timeliness and therefore the argument is baseless. We agree
with appellees. The court indicated that prejudice to appellees and the jury was the basis of
its ruling. Appellants are not challenging the court’s prejudice determination, which was the
basis of its denial. Accordingly, because appellants’ argument was not the basis of the circuit
court’s ruling, we decline to review the grant of the motion to strike the second amended
complaint.
5. Did the circuit court err in granting a protective order regarding documents of Ms.
Northrop’s employment with Lakeview?
During discovery, appellants served a subpoena with a notice of deposition duces
tecum on Lakeview. At this time in the litigation, Lakeview was not a party to the case and
neither was Ms. Northrop. The subpoena sought in relevant part:
Request No. 6: All documents concerning the payment of
compensation or remuneration of any sort by Lakeview Title Company, Inc.
to Wells Fargo, Prosperity Mortgage, Long & Foster, Creig Northrop, or the
Northrop Team, including any payment to Carla Northrop.
Request No. 7: All documents concerning any agreements and
contracts concerning the payment of compensation or remuneration of any sort
by Lakeview Title [C]ompany, Inc. [t]o any of the following: Prosperity
Mortgage, Wells Fargo, National City, Michelle Mathews, Suzanne
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Windesheim, Creig Northrop, The Northrop Team, Long & Foster and Carla
Northrop.
The Realtor appellees filed a motion for a protective order, requesting that the court prohibit
the disclosure of the above requested information that was not related to appellants’ loan
transactions. They argued that the requested information was overly broad and that because
Lakeview was not a party or mentioned in appellants’ complaint, the information was
unrelated to appellants’ claims. Pursuant to an order from the court, Lakeview submitted the
requested documents to the circuit court and the court performed an in camera review.
Following the in camera review, the court granted the motion for protective order and
quashed the subpoena. The court found that because neither Lakeview nor Ms. Northrop
were parties to the action and none of the documents related to transactions involving any of
appellants, that the documents were not responsive to the issues of appellants lawsuit.
On appeal, appellants contend that Ms. Northrop provided testimony, approximately
nine months after the grant of the protection order, that rendered the compensation records
relevant. They maintain that based on the later testimony, the circuit court’s grant of the
protective order was an abuse of discretion because the documents were relevant. The
Realtor appellees respond that the court’s ruling was not an abuse of discretion because at
the time Lakeview and Ms. Northrop were not parties to the action and the documents were
not related to any claim.
Maryland Rule 2-403 governs protective orders.
(a) Motion. On motion of a party, a person from whom discovery is sought,
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or a person named or depicted in an item sought to be discovered, and for good
cause shown, the court may enter any order that justice requires to protect a
party or person from annoyance, embarrassment, oppression, or undue burden
or expense, including one or more of the following: (1) that the discovery not
be had . . . .
When a party requests a protective order, it is within the purview of the circuit court to first
examine the documents in camera, in order to determine whether to grant the order. See
Bond v. Slavin, 157 Md. App. 340, 360 n.31 (2004) (“If the party against whom discovery
is sought makes a timely motion for a protective order, the court can examine the relevant
documents or information in camera before determining whether a restraining order should
issue.”).
In Tanis v. Croker, 110 Md. App. 559 (1996), the plaintiff and defendant had
previously been married to one another. Id. at 566. Upon divorce, the court entered a child
support order regarding the parties two children. Id. at 567. Several years later, the plaintiff
sought that the child support be modified. Id. During the proceedings, the plaintiff requested
that the defendant produce unredacted income tax returns for several years, information
regarding a home mortgage he had applied for and information regarding the sale of his
home. Id. at 572. The defendant filed a motion for a protective order, arguing that he had
provided the plaintiff with his W2’s which contained the same information as the income tax
returns and that some of the information from his mortgage and home sale documents could
be used against him in another pending litigation between the two. Id. at 573. The court
granted the defendant’s motion and the plaintiff appealed.
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We explained that a “trial court [does] not abuse its discretion when it grant[s a
protective order] motion as long as good cause was shown and the order was issued to protect
appellee from annoyance, embarrassment, oppression or undue burden or expense.” Id. at
574. We then turned to federal decisions construing Federal Rule of Civil Procedure 26 11
because Md. Rule 2-403(a) was modeled after that Rule. We noted that the party seeking the
protective order had the burden to demonstrate that there would be some harm if the motion
was denied. Id. We concluded that the defendant did not meet his burden of establishing that
he would suffer oppression or an undue burden and accordingly, the court erred in granting
the motion.
Returning to the instant case, the circumstances differ from those presented in Tanis
because the party from which the documents were sought was not a party to the action.
Additionally, the information sought was regarding another non-party. The Realtor
11
(1) In General. A party or any person from whom discovery is
sought may move for a protective order in the court where the
action is pending–or as an alternative on matters relating to a
deposition, in the court for the district where the deposition will
be taken. The motion must include a certification that the
movant has in good faith conferred or attempted to confer with
other affected parties in an effort to resolve the dispute without
court action. The court may, for good cause, issue an order to
protect a party or person from annoyance, embarrassment,
oppression, or undue burden or expense, including one or more
of the following:
(A) forbidding the disclosure or discovery; . . .
Fed. R. Civ. P. 26 (c)(1).
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Appellees argued, and the circuit court agreed, that because the documents sought were not
related to a party to the action or related to any of the causes of action asserted in appellants’
complaint, that the documents were not relevant. Before this Court, appellants contention
that the court abused its discretion rests on events that occurred after the motion for
protective order. More than one year after the original request for documents from Lakeview
and more than six months after the court’s grant of the protective order, appellants attempted
to add claims against Lakeview and Ms. Northrop in their second amended complaint. They
argue that based on Ms. Northrop’s subsequent testimony, in which she allegedly
contradicted statements made at the time the protective order was at issue, they can establish
error on the court’s part. We are not persuaded. When the court granted the motion, it could
not have known that appellants would attempt to amend the complaint to add causes of action
that were relevant to the documents. It’s true that the documents were related to appellants’
subsequently filed RESPA claims, but when appellants made the discovery request, the
documents were not relevant. The court found that because Lakeview and Ms. Northrop
were not parties to the action, and the information requested was not related to any of the
eleven counts alleged, that the order should be granted. We conclude that the circuit court
did not abuse its discretion in granting the motion for protective order.
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JUDGMENTS OF THE CIRCUIT COURT
FOR HOWARD COUNTY ARE AFFIRMED
IN PART AND REVERSED IN PART.
SUMMARY JUDGMENT AS TO COUNTS I
THROUGH IX AND XI IS REVERSED.
SUMMARY JUDGMENT AS TO COUNT X
AGAINST MS. WINDESHEIM AND PNC IS
REVERSED. ALL OTHER JUDGMENTS
AFFIRMED. COSTS TO BE SPLIT AMONG
THE PARTIES.
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