Monument Bank v. Am. Bank

MONUMENT BANK v. AMERICAN BANK, FSB

No. 2242

COURT OF SPECIAL APPEALS OF MARYLAND

September Term, 2015

June 21, 2017

UNREPORTED

Nazarian, Reed, Zarnoch, Robert A. (Senior Judge, Specially Assigned), JJ.

Opinion by Nazarian, J.

* This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.

This case involves a well- and fully documented commercial loan transaction that, like many loans of its vintage, wasn't repaid as planned; this is the last of three lawsuits it has begotten. In the second case, the Circuit Court for Montgomery County ruled that Monument Bank ("Monument"), the original lender, breached certain obligations it owed to American Bank, FSB ("American") in servicing the loan, and that American was entitled, as a result, to take over servicing the loan as of the date of the breach. Nevertheless, Monument continued to service the loan while that case was pending, and it now seeks in this case to recover expenses it incurred in doing so. After a three-day bench trial, the circuit court found in favor of American. Monument appeals and American cross-appeals. We affirm the rulings at issue in Monument's appeal, and remand for entry of a declaratory judgment relating to American's cross-appeal.

I. BACKGROUND

Monument made two loans to Fairweather Investments, Inc. (the "Borrower"): one in 2006 for $1.1 million (the "2006 Loan"), and a second in 2007 for $1.8 million (the "2007 Loan"). David and Jane Fairweather were the guarantors for both loans. Both of these loans had "participants": EagleBank participated in the 2006 Loan and American participated in the 2007 Loan. The dispute in this case focuses on servicing expenses incurred in connection with the 2007 Loan.

On June 29, 2007, Monument and American entered into a Participation Agreement under which, among other things, Monument sold its entire interest in the 2007 Loan to American. Under the Participation Agreement, Monument agreed to administer andservice the 2007 Loan, which included collecting all payments due from the Borrower. Meanwhile, American agreed to "be responsible for the payment of its proportionate share of any [not ordinary, day-to-day] expenses . . . in connection with the servicing, administration, or enforcement of the [2007] Loan" and to reimburse the expenses "incurred or made by [Monument] in connection with the [2007] Loan for which [Monument wa]s not reimbursed by or on behalf of the Borrower." American also agreed to pay Monument's expenses in connection with collecting and enforcing the 2007 Loan, including appraisal and legal fees. The Participation Agreement specified that in the event of a material breach, American would automatically take control of servicing the 2007 Loan:

In the event of . . . a material breach by [Monument] of any covenant or agreement herein or in the Participation Certificate . . . it is agreed that [American] shall automatically succeed to all rights, titles, status and responsibilities which Seller may have regarding the holding and servicing of the Loan, and have an option to exercise all of the powers herein above granted to [Monument], and have the option to designate itself or any person or firm on its discretion to exercise such powers in a manner consistent with the respective participation interested of [Monument]. In such event, all records thereof shall be delivered to [American] or its designee, as the case may be, together with necessary or proper assignment, transfers and documents of authority, and reasonable compensation shall be paid to the person or firm exercising such powers.

The 2007 Loan matured in June 2010 and the Borrower fell behind on its payments. American informed Monument that it did not want to renew or extend the 2007 Loan. Monument did not, however, exercise any of its rights on default, and instead tried to work with the Borrower and guarantors to devise a plan to pay off the loan. In July 2010,American first asked Monument to transfer servicing to it. On September 27, 2010, American again expressed displeasure with Monument's servicing and requested that Monument "exercise all remedies, including foreclosure," against the Borrower for default.

During the summer of 2011, the Borrower sought to extend the 2006 and 2007 Loans. American "adamantly rejected an extension" because "it appeared that there was going to be an inherent conflict in the fact that since [one of the guarantors] was on the board and an integral board member of Monument, [American] just felt that there was going to be an inherent conflict upon -- about Monument being able to enforce [the 2007 Loan]," and it disagreed with the manner in which Monument was (not) collecting the 2007 Loan. American again asked Monument to transfer servicing of the 2007 Loan to American.

In October 2011, Monument agreed to transfer the servicing of the 2007 Loan provided that American execute a Transfer and Release Agreement. American refused, contending that the agreement would prohibit American from holding Monument responsible for actions it had taken while it had serviced the 2007 Loan, and it declined to execute "any agreement other than a servicing transfer agreement." On October 21, 2011, American sent a letter to Monument stating that Monument had materially breached the Participation Agreement and demanding that Monument transfer servicing duties to American by October 28, 2011. Monument continued to service the Loan itself.

Monument declared the Borrower in default in November 2011 and, in January 2012, filed suit against the Borrower and the individual guarantors of the 2006 and 2007Loans. The circuit court issued confessed judgments against the Borrower and the guarantors on January 30, 2012. Despite having confessed judgments in hand, though, Monument elected to defer collection efforts to continue working with the guarantors on an alternative plan.

American filed suit against Monument for the first time in connection with the servicing of the 2007 Loan on December 9, 2011. For a time, starting in or around November 2011, it appeared that one of the guarantors would receive money by way of a tax credit plan that would allow payments by the end of 2012. Because it appeared that this plan would succeed, Monument and American entered into a tolling agreement in September 2012 and, in October 2012, dismissed the 2011 lawsuit without prejudice. This plan, however, never came to fruition, so American re-filed its case against Monument (the second lawsuit) in May 2013. In the 2013 lawsuit, the circuit court "found that Monument had breached the '07 agreement [by failing to disclose false and misleading financial information by the Borrower]. And American was entitled to immediately succeed to Monument's rights to service the loan" as of October 6, 2011, "but shall not be entitled to money damages for any claimed loss." We affirmed. Democracy Capital Corp. v. Monument Bank, No. 908, Sept. Term 2015 (Md. App. Sept. 15, 2016), slip op. at 7-8.

In or around January 2014, Monument hired counsel to initiate collection proceedings on the confessed judgments for the 2006 and 2007 Loans. Monument's counsel, however, only pursued one of the loans—the 2006 Loan—to avoid duplication from pursuing two collections against "one pot of money." Monument submittedstatements of its costs associated with the collection proceeding to American in June 2014 and made several other requests for reimbursement through February 2015. American did not reimburse these costs.

Sometime early in 2014, Monument's counsel discovered that Monument held an interest reserve account with $173,000 that had been pledged by the Borrower as collateral to secure the 2007 Loan. American was not informed of this account, which could have been applied to the interest due on the 2007 Loan, until December 10, 2014.

On October 3, 2014, Monument filed the complaint that gives rise to this case, the third one arising from these loans, alleging breach of contract (Count I). After American answered, Monument filed a First Amended Complaint, adding counts of unjust enrichment (Count II) and declaratory judgment (Count III). American moved to strike Counts II and III on June 4, 2015; on June 22, 2015, Monument filed an opposition and requested a hearing. Monument and American each filed a motion for summary judgment and an opposition to the other party's motion.

After a hearing on July 21, 2015, the court ruled on American's Motion to Strike and each party's Motion for Summary Judgment (among others). American withdrew its motion to strike Count III, and the court granted the motion as to Count II because it determined that Monument's claims were grounded in the Participation Agreement. As a result of these findings, the court deemed American's Motion for Summary Judgment moot. The court also noted that the parties "agreed that any fees incurred prior to October6, American would be obliged to pay," and denied Monument's Motion for Summary Judgment. American filed an answer to the amended complaint on July 31, 2015.

The case then went to trial on Count I on August 24, 2015. At the close of Monument's case, American moved for judgment, arguing that the Participation Agreement was a contract that precluded an equitable remedy and called for an automatic transfer of servicing upon a material breach, "mean[ing that] Monument at that moment in time no longer ha[d] the right to servicing." The court granted the motion in part, "find[ing] that there is no requirement of a judicial determination that a breach has occurred before the obligation [to turn over the servicing of the 2007 Loan] arises," and denied it in all other respects. At the conclusion of the trial, American again moved for judgment and the court deferred ruling.

The court issued its opinion in open court on October 14, 2015. It...