Wells Fargo Bank, N.A. v. Chesapeake Fin. Servs., Inc.

WELLS FARGO BANK, N.A. Plaintiff

v.CHESAPEAKE FINANCIAL SERVICES, INC., et al. Defendants

CIVIL ACTION NO. MJG-08-2439

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

SO ORDERED: July 18, 2013

MEMORANDUM AND ORDER RE: MOTIONS FOR SUMMARY JUDGMENT

The Court has before it:

1. Plaintiff Wells Fargo Dealer Services¹ , Inc.'s Motion for Partial Summary Judgment as to Defendant Chesapeake Financial Services, Inc.'s Liability for Breach of Contract (Count I and Count III) and Philip Colonna's Liability for Breach of Contract (Count IV) [Document 120];

2. Defendant Atlantic Boat Documentation, Inc.'s Motion for Partial Summary Judgment [Document 128];

3. Plaintiff's . . . Motion for Partial Summary Judgment as to Atlantic Boat Documentation, Inc.'s Liability for Negligence [Document 137];

4. Defendants Chesapeake Financial Services' and Philip Colonna's Motion for Summary Judgment [Document 179] (sealed);5. Defendant/Cross-Defendant Atlantic Boat Documentation, Inc.'s Motion for Summary Judgment [Document 183];

6. Plaintiff's . . . Motion for Summary Judgment [Document 195];

7. Defendant/Cross-Defendant Atlantic Boat Documentation, Inc.'s Motion to Strike Portions of Plaintiff's Reply (Document No. 214) and to Strike the Affidavits of Meere (Document No. 214-1) and Murphy (Document No. 214-2) in their Entirety [Document 217]; and

8. Plaintiff's Motion in Limine to Preclude Testimony of Defendant Chesapeake Financial Services, Inc.'s Designated Experts David Griffith, Thomas J. Lekan, and Charles Brian Diggs [Document 175].²

and the materials submitted relating thereto.

The Court has held a hearing and has had the benefit of the arguments of counsel.

I. INTRODUCTION

As discussed at length herein, two conmen perpetrated a fraud that caused a lender to fund a fraudulent boat purchase loan. The scam yielded the conmen approximately $885,000 as well as, eventually, prison sentences. The lender has brought the instant law suit to recover its loss from the broker, who arranged the loan, and/or the documentation company retained to document the transaction. The broker, if held liable, seeks tocast away blame (and liability) by placing it upon the documentation company.

The cast consists of:

• The Conmen - Michael Vorce ("Vorce") and James Jett ("Jett")

• The Boat - the Faithful, a 56-foot Viking yacht

• The Purported Boat's Owner/Seller - JRP Marine LLC ("JRP Marine") owned by Roy and Jan Pence ("the Pences")

• The Purported Purchaser/Borrower - Victor Cribb Jr. ("Cribb")

• The Lender - Wells Fargo Dealer Services ("Wells Fargo")

• The Loan Broker - Chesapeake Financial Services, Inc. ("Chesapeake"), whose principal is Philip Colonna ("Colonna")

• The Documentation Company - Atlantic Boat Documentation, Inc. ("ABD")

In general, the scheme worked like this:

• The Conmen identified the Boat (which was actually for sale) and the identity of the Owner, JRP Marine.

• The Conmen obtained the credit report of Cribb providing his identity information and establishing his financial ability to purchase the Boat.

• The Conmen contacted Chesapeake and, using fabricated documents, presented an application for a loan to finance Cribb's purchase of the Boat.

• Chesapeake put together a "credit package" and sent it to Wells Fargo and ultimately obtained approval of the loan.

• Chesapeake retained ABD to effect the proper filing of documents to establish what, absent fraud, would have been a security interest in favor of Wells Fargo.

• Wells Fargo paid the loan proceeds of $885,000 to Chesapeake who in turn wired the proceeds to an account it believed to be that of Cribb's investment banker, but in reality was controlled by the Conmen.

As discussed at length herein (and in the order discussed herein), the Court concludes:

1. Chesapeake and Colonna are entitled to summary judgment on the RICO claims (Counts VI and VII).

2. Wells Fargo is entitled to summary judgment on its contract claims against Chesapeake and Colonna (Counts I, III, and IV) subject to the still pending affirmative defense of equitable estoppel.

3. With respect to Chesapeake's breach of contract cross claim against ABD (Claim I), ABD is entitled to partial summary judgment establishing that it had no "verification obligation" but there is a material dispute of fact regarding the alleged "Certificate of Documentation obligation" (as defined herein) with respect to the Cribb transaction.

4. As to Wells Fargo's negligence claim against Chesapeake (Count II), Chesapeake is not entitled to partial summary judgment establishing no liability and Wells Fargo will be permitted to designate Mr. Lynn as an expert in support of its negligence claim, subject to the conditions discussed herein. Absent adequate expert testimony, Wells Fargo's negligence claim will be limited to Acts 2 and 3 (as defined herein). Chesapeake is not entitled to summary judgment on its contributory negligence defense.

5. As to Wells Fargo's negligence claim against ABD (Count V), Wells Fargo is entitled to partial summary judgment establishing that ABD owed it a tort duty to exercise reasonable care in the provision of its "documentation services" in the Cribb transaction. ABD is entitled to partial summary judgment establishing that this duty does not include an affirmative duty to investigate or prevent fraud in the underlying boat sale transaction. There is a genuine issue of material fact regarding whether ABD acted as the agent of Wells Fargo in connection with the Cribb transaction thereby giving rise to certain fiduciary duties. There exist genuine issues of material fact regarding whether ABD breached its tort duty (and potentially any duties based upon a finding of agency) in the ways identified by Wells Fargo.

II. BACKGROUND

A. Loan Approval Process - Wells Fargo and Chesapeake

On August 27, 2007, Wells Fargo entered into the "Marine Operating Agreement" ("MOA") with Chesapeake in an attempt to "consolidate the number of loan brokers sending it business."C&C's³ Summ. J. [Document 179-1] (sealed) at 5. The MOA governed the obligations of Chesapeake and Wells Fargo in relation to Chesapeake's submission of "Credit Packages"⁴ on behalf of persons seeking to finance boat purchases and Wells Fargo's origination of promissory notes and related security agreements in connection therewith. When an "Obligation"⁵ involved the granting of a security interest in the boat as collateral for the loan, the responsibility for documenting the boat with the United States Coast Guard, including performing tasks related to perfecting a preferred ship mortgage⁶ through recordation with the Coast Guard, rested with Chesapeake or the boat documentation service company Chesapeake used for such tasks. See MOA § C(3)(e),(4).

Upon receipt of a "Credit Package" from Chesapeake, Wells Fargo reviews the materials and either (1) disapproves the loan, (2) approves the loan, or (3) approves the loan with conditions.Upon approval by Wells Fargo, Chesapeake prepares certain papers for the loan, including the promissory note. Chesapeake then forwards the promissory note, related security agreements, the preferred ship mortgage, and any other documents to the loan applicant for signature. Upon return of the executed documents to Chesapeake from the loan applicant, Chesapeake forwards them to Wells Fargo with any other documents required by Wells Fargo, such as a copy of the loan applicant's driver's license (the "Closing Package"). Wells Fargo then reviews the Closing Package and makes a determination as to whether to fund the boat loan. If Wells Fargo decides to fund the boat loan, it sends a funding notice to Chesapeake. See MOA § A, B.

B. Documentation Process - Chesapeake and ABD

As provided in ABD's brochure for "Vessel Documentation and the Service that Provides It," boat documentation is "a national form of registration" for vessels with the Coast Guard's National Vessel Documentation Center ("NVDC"). [Document 195-12]. The documentation "provides evidence of nationality" for a boat and involves recordation of certain documents with the Coast Guard. Id.

In a financing situation, the boat documentation process includes filing a preferred ship mortgage with the Coast Guardfor recording in order to perfect any security interest provided therein and/or in related security agreements.⁷

When Wells Fargo requires a boat loan to be documented with the Coast Guard, Chesapeake can obtain documentation services by making a request to ABD. Although the parties dispute the actual role and duties of ABD in a transaction involving Chesapeake and Wells Fargo, ABD at a minimum performs the following tasks, not necessarily in this order:

1. ABD uses the information provided by Chesapeake regarding the boat loan to create an in-take sheet and load that information into its computer database. Such information includes the seller's name, the boat name and Hull ID, the buyer's name, and the lender's name;

2. ABD obtains the Abstract of Title on the boat involved in the transaction from the Coast Guard;

3. If one of the parties to the boat sale is an entity, ABD confirms the entity is in good standing in its state of incorporation or organization;

4. ABD prepares paperwork for the buyer to sign including, interalia, (1) a limited power of attorney (an authorization for ABD to act as thebuyer's agent with the NVDC); (2) Coast Guard Form: Application for Initial Issue, Exchange or Replacement of Certificate of Documentation, Redocumentation (change in title ownership); (3) First Preferred Ship Mortgage; (4) and an ABD document called Information Verification and Authorization Sheet⁸ (collectively the "Buyer's Paperwork")⁹ ;

5. ABD prepares paperwork for the seller to sign including the Bill of Sale and limited power of attorney for ABD to act as the seller's agent (collectively the "Seller's Paperwork");

6. The Buyer's Paperwork and Seller's Paperwork are sent to the buyer and seller¹⁰ , respectively for signature, some of which are required to be notarized per the Coast

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