EYLER, DEBORAH S., J.
Tower Oaks Boulevard, LLC ("Tower Oaks"), the appellant, is a Virginia limited liability company that owned commercial real estate located at 2701 Tower Oaks Boulevard, in Rockville ("the Property"). 2701 Tower Oaks Boulevard Holdings, LLC ("TOB Holdings") held a deed of trust against the Property. Brent W. Procida and Laura S. Bouyea, the appellees, were appointed by TOB Holdings as substitute trustees under the deed of trust.
On October 22, 2012, in the Circuit Court for Montgomery County, the substitute trustees commenced an action against Tower Oaks to foreclose on the deed of trust for the Property. Tower Oaks filed a motion to stay and dismiss. The court granted a temporary stay but, after an evidentiary hearing, lifted the stay and denied the motion. Tower Oaks noted this interlocutory appeal, in which it asks whether the court's ruling was in error. We shall affirm the order.
On March 19, 2007, TOB, Inc., an entity related to Tower Oaks, borrowed $9.1 million dollars from CWCapital, LLC ("CW"), and executed a promissory note guaranteed by Tower Oaks. (Unless it is necessary to do otherwise, we include TOB, Inc., when we reference Tower Oaks.) As security for the loan, Tower Oaks granted CW a deed of trust against the Property. The promissory note and the deed of trust were assigned several times to various lenders, the last of which was TOB Holdings.
The sole Member of Tower Oaks is Oak Plaza, LLC ("Oak Plaza"), a Maryland limited liability company. Oak Plaza's Operating Agreement states that its purpose is "to acquire and hold all outstanding membership interests in Tower Oaks LLC and, through Tower Oaks LLC, to buy, sell, own, hold, develop, lease, manage, subdivide, and otherwise deal in and with the... Property and to do any and all things necessary, convenient, or incidental to that purpose."
Oak Plaza was formed on January 11, 2001. Its original Members were five siblings in the Buckingham family, who owned the following percentages of the company: Thomas and Daniel, 26% each; and Susan, Richard, and David, 16% each. Their father, John Buckingham, was designated the Manager of the company in the Operating Agreement, but was not a Member. An amendment to the Operating Agreement in February of 2007 made John a Member, with a 1% interest. The other Members' interests were reduced accordingly (Thomas and Daniel, 25.8% each; Susan, Richard, and David, 15.8% each).
John also was the Manager of Tower Oaks under its Operating Agreement. For many years, he managed both companies. As we shall discuss below, the Tower Oaks Operating Agreement authorizes
The Oak Plaza Operating Agreement, by contrast, gives the Manager extremely broad authority and discretion to act on behalf of the company and make decisions affecting it. That Operating Agreement contains a succession plan for the position of Manager. The plan provides that John will act as Manager until his death or resignation, at which time Thomas, Daniel, and Elizabeth Buckingham (John's wife and the mother of the siblings) "shall jointly become the Manager (with all Manager decisions to thereafter be made by majority vote of these three (3) individuals, or in such other manner as they may among themselves determine to be appropriate.)." (The Manager of Oak Plaza need not be a Member.)
John developed dementia and became unable to function mentally. On January 13, 2011, the Circuit Court for Montgomery County issued an order appointing Elizabeth and David co-guardians of John's person and David guardian of his property, without limitation. David's guardianship authority included the power to act in John's stead as Manager of Tower Oaks and Manager of Oak Plaza.
Tower Oaks defaulted on its obligations under the promissory note, and in November of 2011, in the Circuit Court for Montgomery County, the substitute trustees, acting under the deed of trust held by TOB Holdings, commenced a foreclosure action against the Property (sometimes referred to as "the first foreclosure action"). The Property was sold at foreclosure on November 28, 2011. On December 19, 2011, David, with the agreement of Thomas, Richard, and Susan, retained the law firm of Gleason, Flynn, Emig and Fogleman ("GFEF") to defend Tower Oaks in the foreclosure action. Through GFEF, Tower Oaks filed exceptions to the foreclosure sale. Eventually, the substitute trustees agreed to set the sale aside and dismiss the foreclosure action without prejudice. On July 30, 2012, the court entered a consent order to that effect.
In the meantime, on December 7, 2011, Elizabeth died.
On August 14, 2012, David, acting as Manager of Oak Plaza and purportedly acting pursuant to a provision of the Oak Plaza Operating Agreement by which each Member makes the Manager his or her attorney-in-fact, signed a "Second Amendment to Operating Agreement of Oak Plaza, LLC" ("Second Amendment") individually, and on behalf of Thomas and Daniel, as their attorney-in-fact. Richard and Susan personally signed the Second Amendment. As written, the Second Amendment changed the line of managerial succession in the Oak Plaza Operating Agreement, removing Thomas and Daniel and replacing them with Richard, Susan, and David. Thomas and Daniel were not aware of the Second Amendment.
John died on October 17, 2012. Five days later, on October 22, 2012, the substitute trustees again brought a foreclosure action against Tower Oaks regarding the Property (sometimes referred to as "the second foreclosure action"). A sale of the Property was scheduled for November 13, 2012.
On November 9, 2012, Tower Oaks, represented by GFEF, filed a motion to stay and dismiss the second foreclosure action, under Rule 14-211(a). Such a motion
In its motion, Tower Oaks "dispute[d] and challenge[d the] plaintiffs' right to foreclose against the Property." It did so based on allegations it had made in a pending civil action it had brought, together with TOB, Inc., Oak Plaza, and John (soon before his death), against TOB Holdings and prior holders of the promissory note ("the Lenders"), and Ronald Cohen Investments, Inc., and Ronald Cohen Management Company, both tenants of the Property ("the Tenants") ("the civil action"). In the civil action, Tower Oaks made claims for tortious interference with contractual relations, civil conspiracy, aiding and abetting, abuse of process, breach of contract, conversion, unjust enrichment, constructive fraud, and breach of an indemnification agreement. The gist of the allegations was that the Lenders, most prominently TOB Holdings, had conspired with the Tenants to have the Tenants not pay their rent for the Property, which would deprive Tower Oaks of the income necessary to make the payments on the promissory note secured by the Property, put the loan in default, and result in foreclosure.
Also on November 9, 2012, the substitute trustees filed an opposition to the motion to stay and dismiss. They stated that the total amount due on the loan, which had been accelerated upon default, was over $9.8 million. They pointed out that in the civil action Tower Oaks had acknowledged the promissory note and deed of trust, that payment on the promissory note was in default, and that the loan had been accelerated. They emphasized that, pursuant to Rule 14-211(a)(3)(B), a motion to stay and dismiss a foreclosure action must "`state with particularity the factual and legal basis of each defense that the moving party has
Still on that same day, the court held an expedited hearing on whether to issue a temporary stay of the upcoming foreclosure sale. The court granted the temporary stay, scheduled a merits hearing on the motion to stay and dismiss for January 3, 2013 (which later was moved to January 10, 2013), and ordered Tower Oaks to post a bond by 2:00 p.m. on November 13, 2012, in the amount of $95,030.52 "as security for payment of advertising fees, cancellation fees, and the December, 2012, and January, 2013 payments of principal and interest." Instead of posting a bond, Tower Oaks paid that sum of money into court.
The substitute trustees also argued, as they had at the hearing on the temporary stay, that Tower Oaks could not show that the lien or lien instrument were invalid or that TOB Holdings did not have the right to foreclose on the Property.
The hearing went forward on January 10, 2013, and largely was devoted to the issue of David's authority vel non to cause Tower Oaks to defend itself in the second foreclosure action. The substitute trustees argued, as explained above, that because Thomas and Daniel did not authorize the hiring of counsel or the filing of the motion to stay and dismiss, the court had no option but to deny the motion. Mr. Fogleman (of GFEF), arguing on behalf of Tower Oaks, offered three reasons why David had been authorized to decide whether Tower Oaks would defend itself in the second foreclosure action and to take action to launch a defense: 1) David's guardianship power to act as Manager of Oak Plaza in John's place extended beyond the time of John's death, at least for a short period that encompassed the decision to defend Tower Oaks in the second foreclosure action (filed on October 22, 2012, five days after John died); 2) when GFEF was retained to represent Tower Oaks in the first foreclosure action, before John's death, the scope of the retention was to defend Tower Oaks in all foreclosure actions brought against it regarding the Property, which ultimately included the second foreclosure action; and 3) the Second Amendment to Oak Plaza's Operating Agreement removed Thomas and Daniel from the line of managerial succession and replaced them with David, Susan, and Richard, who in fact authorized the defense of Tower Oaks in the second foreclosure action.
The substitute trustees called Thomas and Daniel as witnesses. Thomas testified that he had served as the Assistant Manager of Tower Oaks until around the time David was appointed guardian of John's property. He did not sign the Second Amendment to the Oak Plaza Operating Agreement. He had consented to and authorized GFEF's representing and defending Tower Oaks in the first foreclosure action, in November 2011, and had discussed the matter with Mr. Fogleman then and in March of 2012. No one had discussed the second (pending) foreclosure
Daniel testified that he had had no involvement in any matter having to do with the Property since 2009. He was not aware of the first foreclosure action and sale (later vacated) in 2011, and had not been informed of any decisions made or actions taken by David, or by anyone, regarding Tower Oaks's defense to that foreclosure action or to the second (pending) foreclosure action. He did not sign the Second Amendment to the Oak Plaza Operating Agreement, regarding the succession plan. As of the present (January 10, 2013), he did not have sufficient information to say whether he would have authorized Tower Oaks's defense in the second (pending) foreclosure action had he been asked.
Mr. Fogleman read into the record the engagement letter of December 19, 2011, between GFEF and Tower Oaks. The letter was signed by David. (We shall discuss its contents infra.) David then was called as a witness. He testified, in pertinent part, that in the Fall of 2011, when he was acting as guardian of John's property and therefore Manager of Oak Plaza and Tower Oaks, he had engaged GFEF to defend Tower Oaks in the first foreclosure action, which was then pending, and in any future foreclosure action concerning the Property.
David further testified that Daniel had not communicated any inclination against defending Tower Oaks in the second foreclosure action or against retaining GFEF to represent Tower Oaks in that action. David stated that, when it came time to decide how to defend Tower Oaks in the second foreclosure action, he consulted with Mr. Fogleman and executed the affidavit attached to the motion to stay and dismiss. He had been aware in August of 2012 (before John's death) that the substitute trustees were planning to file a second foreclosure action against the Property. Mr. Procida, one of the substitute trustees, had told him then that a foreclosure sale of the Property likely would be scheduled for a date in September of 2012. According to David, that was when he decided in favor of defending Tower Oaks in the second foreclosure action, even though it had not yet been filed, and he made that decision by exercising his authority as Manager of Oak Plaza, in John's stead.
The court ruled from the bench. It determined that, under Md.Code (2001, 2011 Repl.Vol.), sections 13-220 and 13-221 of the Estates and Trusts Article, David's guardianship of John's property ceased upon John's death, and after that date David had no power to act as Manager of Oak Plaza. It further determined that the engagement letter did not change this, and did not authorize a defense of Tower Oaks in an action commenced after John's death. The court also found that the Second Amendment to Oak Plaza's Operating Agreement, purporting to change the managerial succession plan for that company, did not come "close to complying with the law" because the Operating Agreement required an amendment of that significance to be made by the Members of Oak Plaza personally, not by means of a
Although it had ruled that the motion to stay and dismiss had to be denied because it was not authorized by Tower Oaks, the court discussed the substance of the motion, and whether the facts alleged in the civil action, if true, could establish that TOB Holdings, and through it the substitute trustees, did not have the right to foreclose on the Property. The judge observed:
The judge further commented: "I don't really think, even assuming that [Tower Oaks] put on its case here and I said, `You know what, the reason you didn't pay this was because they deprived you of your ability to do so,' I don't think that falls within the provisions of the rule. I don't think that's what is contemplated by the rule."
That same day, the court issued and docketed an order lifting the temporary stay that had been entered on November 9, 2012. On January 22, 2013, Tower Oaks filed a motion to alter, amend, or revise judgment, and request for hearing, which was denied by order entered on January 25, 2013. On February 6, 2013, Tower Oaks filed a notice of appeal.
On February 21, 2013, the court issued and docketed an order denying the motion to stay and to dismiss "[f]or the reasons stated in the court's opinion delivered from the bench on January 10, 2013." On February 28, 2013, Tower Oaks filed a second notice of appeal.
In the meantime, on February 12, 2013, the substitute trustees filed in the circuit court a motion to dismiss appeal, to which Tower Oaks filed an opposition. On April 11, 2013, the court issued an order, entered on April 16, 2013, denying the motion.
During the pendency of this appeal, the second foreclosure action against the Property has proceeded in the circuit court, with Tower Oaks defending the action, through GFEF. On February 8, 2013, the Property was sold. TOB Holdings "bought in" at a purchase price of $6 million. The substitute trustees filed a report of sale on March 11, 2013. On May 28,
Also during the pendency of this appeal, the claims in the civil action were decided in part before trial by the court and in part by a jury and the court at trial. The court granted summary judgment in favor of the Lenders on the claims against them. The claims against the Tenants were tried to a jury, which found in favor of Tower Oaks and awarded it significant compensatory damages, including sums for lost rent. After an evidentiary hearing, the court awarded Tower Oaks punitive damages against the Tenants. Recently, the Tenants noted an appeal in this Court.
We shall include additional facts as necessary to our discussion of the issues.
In their brief, the substitute trustees argue that this appeal must be dismissed as moot because the court denied the motion to stay and dismiss on two grounds, and in its brief Tower Oaks only challenges one ground, making no mention of the other. Specifically, the substitute trustees maintain that the court denied the motion because it was filed without authorization
In a reply brief, Tower Oaks argues that the court denied the motion to stay and dismiss on the ground that it was filed without authorization, and that the court's observations about the unclean hands doctrine and the type of evidence necessary to show that the lien holder does not have a right to foreclose were not a separate, independent ground for its ruling. Thus, the only ruling subject to challenge on appeal was the one determining that Tower Oaks's defense, including its motion to stay and dismiss, had not been authorized and therefore was of no effect. Tower Oaks also argues that, if the court ruled on two separate, independent grounds, both rulings were in error.
After briefs were filed but before oral argument in this Court, the substitute trustees filed another motion to dismiss the appeal, also for mootness, but on a different theory. As we have explained, Tower Oaks had argued that the court should grant the motion to stay and dismiss because, under the unclean hands doctrine, TOB Holdings had lost its right to foreclose by engaging in wrongful conduct that resulted in Tower Oaks's defaulting on the promissory note. Almost a year after the motion to stay and dismiss was denied, the court in the civil action granted summary judgment in favor of the Lenders, including TOB Holdings. The substitute trustees argue that because the claim of wrongful conduct against TOB Holdings in the civil action was essential to Tower Oaks's assertion that TOB Holdings did not have a right to foreclose, TOB Holdings' victory in the civil action eliminated Tower Oaks's "no right to foreclose" argument. Therefore, Tower Oaks was left with no basis on which to challenge TOB Holdings' right to foreclose, and, even if authorized to file the motion to stay and dismiss, had no basis for it.
Maryland law makes clear that "[a] case is moot when there is no longer an existing controversy between the parties at the time it is before the court so that
There is no theory advanced by the substitute trustees that would warrant
The court's "ruling" about the merits of the motion to stay and dismiss was not a separate and independent basis on which it denied the motion. At most, it was a contingent ruling. The court found that Tower Oaks filed an unauthorized and therefore ineffective motion to stay and dismiss; the consequence of that finding is that any "ruling" on the merits of the motion is immaterial. It is not a separate basis for denying the motion, independent of the lack of authority ruling. If this Court were to decide on appeal that the circuit court was correct in its lack of authority ruling, that would result in an affirmance, with the "ruling" on the merits remaining inconsequential. Even if this Court were to decide on appeal that the circuit court had erred in its lack of authority ruling, the "ruling" on the merits only would take on meaning with respect to whether the error was prejudicial. In that case, the "ruling" on the merits, if itself correct, would enable this Court to conclude that the motion to stay and dismiss would have to have been denied, even absent the authority ruling. In neither situation are the two rulings separate and independent and in neither situation has there ceased to be a live controversy between the parties so that the case has become moot.
Regardless of the court's "ruling" on the merits of the motion to stay and dismiss, and regardless of the resolution of the claims against TOB Holdings in the civil action in its favor, there is a controversy between the parties over whether the court erred in finding that Tower Oaks lacked authority to defend itself in the second foreclosure action, and this Court has the power to provide an effective remedy respecting that controversy. It is worth noting that the lack of authority ruling has affected subsequent rulings in the second foreclosure action. For example, the court denied Tower Oaks's exceptions to the foreclosure sale and ratified the sale on the ground that the lack of authority ruling made in January 2013
For all these reasons, this case is not moot, and this appeal will not be dismissed for mootness.
The parties repeat many of the arguments they advanced below about whether Tower Oaks's defense in the second foreclosure action, including its filing of the motion to stay and dismiss, was or was not authorized. In particular, Tower Oaks maintains that David had authority to decide that Tower Oaks would defend itself and to take action to accomplish that purpose because: 1) he retained guardianship power after John's death to act as Oak Plaza's Manager for a brief period, during which the decision whether Tower Oaks would defend against the second foreclosure action was made; 2) before John's death, David effectively "pre-authorized" GFEF to defend Tower Oaks against all future foreclosure actions involving the Property; or 3) by virtue of the Second Amendment to the Oak Plaza Operating Agreement, upon John's death, David, Richard, and Susan became the Manager, jointly, of Oak Plaza, and therefore had authority to decide whether Tower Oaks would defend itself in the second foreclosure action. (David, Susan, and Richard all agreed that Tower Oaks should defend itself). Tower Oaks also argues that Thomas and Daniel ratified David's decision to defend Tower Oaks in the second foreclosure action and to have GFEF represent Tower Oaks in that action (as it had done in the first foreclosure action).
The substitute trustees respond that the court correctly rejected these arguments, and that other arguments, such as ratification, have no factual basis. Therefore, under the managerial line of succession provision in the Oak Plaza Operating Agreement, Thomas and Daniel were the Manager of Oak Plaza, which was the sole Member of Tower Oaks when the second foreclosure action was initiated, and they had sole authority to decide for Oak Plaza, and hence for Tower Oaks, whether to defend Tower Oaks in that action. David's actions in that regard were unauthorized.
The circuit court's decision on the authority issue was based in part upon its interpretation of the Operating Agreements for Tower Oaks and Oak Plaza, and relevant statutory law. These are legal decisions that we review de novo. See Moscarillo v. Prof'l Risk Mgmt. Servs., Inc., 169 Md.App. 137, 145, 899 A.2d 956 (2006). We also review mixed questions of law and fact by a circuit court de novo. See Winder v. State, 362 Md. 275, 310-11, 765 A.2d 97 (2001). Finally, we defer to the court's factual findings, unless they are clearly erroneous, but give no deference to its purely legal conclusions. Fischbach v. Fischbach, 187 Md.App. 61, 88, 975 A.2d 333 (2009).
It is important to keep in mind that the authority issue in this case is not about an ultra vires act of a business entity. An act of a corporation is ultra vires if it is beyond the scope of the express or implied
19 C.J.S. Corporations § 675. The latter is what we are confronted with here. Tower Oaks, through Oak Plaza, had the authority to defend the second foreclosure action against it. It did not act beyond its power in doing so. The question is whether David was authorized to make the decision to defend Tower Oaks in that action and to carry out that decision. For the reasons we shall explain, we agree with the circuit court that David was not so authorized.
To review briefly, the Tower Oaks Operating Agreement provides that the decision whether to defend Tower Oaks in a lawsuit must be made by a majority of the Members, which means it must be made by Oak Plaza, the only Member of Tower Oaks. The broad powers of the Manager of Oak Plaza are set forth in Section 5.1.2 of its Operating Agreement, which states, in relevant part:
(Emphasis added.)
The Oak Plaza Operating Agreement not only grants the Manager expansive authority to operate the business but also limits the authority of its Members to act on the company's behalf. Section 5.1.4.1 provides: "No Member is an agent of the Company solely by virtue of being a Member, and no Member has authority to act for the Company solely by virtue of being a Member."
As noted, John died on October 17, 2012, and the second foreclosure action was filed on October 22, 2012. Tower Oaks maintains that David's power to act in John's place as the Manager of Oak Plaza still was in effect when the second foreclosure action was filed. It points out that immediate termination would be inconsistent with ET section 13-221 of the Estates and Trusts Article ("ET"), which sets forth provisions for terminating a guardianship after the death of the ward, and which requires the guardian to deal
ET section 13-220, entitled "Termination of appointment of guardian" states, in pertinent part, that "[t]he appointment of a guardian terminates when the guardianship terminates under § 13-221 of this subtitle." ET section 13-221, in turn states:
The relevant rule that applies to a fiduciary is Rule 10-710. (Chapter 700 is entitled "Fiduciary Estates Including Guardianships of the Property.") It states, in relevant part,
Tower Oaks asserts that the guardianship necessarily must continue during this forty-five day period, at least until a personal representative of the estate is appointed. Therefore, for some period of time after John's death, David retained the authority granted to him by the guardianship order to make management decisions for Oak Plaza, including the decision to defend Tower Oaks against the second foreclosure action.
This argument lacks merit because the relevant statutory language, quoted above, only addresses the guardian's role in "wrapping up" the deceased ward's estate; it does not provide generally for a continuation of the guardianship authority the guardian possessed while the ward was living to a period after the ward's death. In Battley v. Banks, 177 Md.App. 638, 651, 937 A.2d 846 (2007), we explained,
(Emphasis added.) In Battley, we reversed a circuit court's order allowing a guardian to pay himself a commission from the guardianship bank account after the ward's death. Because all of a ward's assets became the assets of the ward's estate upon the ward's death, the guardian was required to immediately turn over all assets to the personal representative of the estate. A court later could approve guardianship fees to be paid from that estate,
The holding in Battley makes clear that a guardian's role after the death of the ward is circumscribed, and differs from the role of surrogate decision-maker the guardian occupies while the ward is alive. Nothing in the law pertaining to guardianships provides for the kind of post-death residual decision-making authority asserted by Tower Oaks. It would be illogical for a guardian to retain such decision-making authority after the death of the person on whose behalf such decisions are made. Indeed, this is the very reason that governing business documents, such as the Oak Plaza Operating Agreement in this case, include succession plans. Here, Oak Plaza's succession plan for the role of Manager was triggered upon John's death. As we shall explain, infra, by operation of the Oak Plaza Operating Agreement, Thomas and Daniel became the Manager upon John's death, automatically. Thus, there was no gap in time, after John's death and before a new Manager was appointed, in which, if David did not continue to exercise some residual guardianship power, there would be no one to make the decisions the Manager is empowered to make.
Tower Oaks contends its defense of the second foreclosure action properly was authorized by David, in his role as Manager of Tower Oaks and Oak Plaza, before John died. It makes two supporting arguments.
First, in the engagement letter of December 19, 2011, in which GFEF was retained, David "pre-authorized" GFEF to defend Tower Oaks in a future foreclosure action against the Property. The letter states:
(Emphasis added.) According to Tower Oaks, the use of the plural "foreclosure proceedings" shows that, by signing the letter, David was authorizing GFEF to defend Tower Oaks in
Second, in August of 2012, before John died. David made the decision in his guardianship capacity to defend Tower Oaks against the second foreclosure action that later was filed on October 22, 2012, which turned out to be after John's death. His decision in August of 2012 was prompted by an encounter with one of the substitute trustees who told him that a foreclosure sale of the Property was going to be scheduled for "sometime in September" 2012.
The meaning of "proceedings" as we have explained it is consistent with David's testimony that, in August of 2012, after the first foreclosure action had ended and before the second one was commenced, he decided to retain GFEF to represent Tower Oaks in the second foreclosure action. If the letter meant what Tower Oaks now argues it meant, there would have been no reason for David to have had that thought in August of 2012. He already would have been operating with the understanding that GFEF had been retained to represent Tower Oaks in the foreclosure action that was going to be filed in the Fall of 2012.
Moreover, the decision David claims he made in August of 2012 was premature. The decision to mount a defense in an action only can be made once the action has commenced, when there is something to defend. Here, there was nothing to defend until October 22, 2012. By then, John had died, David no longer had guardianship authority to act as Manager of Oak Plaza, and, for the reasons we shall discuss, only Thomas and Daniel had the authority to decide whether to defend Tower Oaks.
The Oak Plaza Operating Agreement designates John Buckingham as its "initial Manager," and provides for succession as follows:
All five Buckingham siblings, as well as John (as Manager), signed the Operating Agreement, and the February 2007 amendment to the Operating Agreement.
On August 14, 2012, a little more than two months before John died, David executed
The Second Amendment is signed by Richard, Susan, and David. David also signed four times on behalf of John under his guardianship authority: on behalf of John as a Member of Oak Plaza; on behalf of John as Manager of Oak Plaza; on behalf of John as attorney-in-fact for Thomas; and on behalf of John as attorney-in-fact for Daniel. As noted, neither Thomas nor Daniel personally signed the second amendment.
Section 9.4 of the Oak Plaza Operating Agreement states with respect to amendments to the Operating Agreement,
(Emphasis added.) Thus, any amendment to the Operating Agreement requires the written consent of all of Oak Plaza's Members, unless there is an express provision in the Operating Agreement to the contrary.
Tower Oaks argues that section 5.6 of the Oak Plaza Operating Agreement is such an express provision to the contrary, under which the Manager is authorized to amend the Operating Agreement without the written consent of the Members; and therefore the Second Amendment is valid and effective. Section 5.6 states, in pertinent part:
The substitute trustees respond that the plain language of this provision allows the Manager to use his power of attorney to
We agree with the substitute trustees. Section 5.6 limits the kinds of documents the Manager may execute as attorney-in-fact for Oak Plaza's Members. The plain language of the section allows the Manager to use his power of attorney to execute documents that "
Upon John's death on October 17, 2012, the succession provision in the Oak Plaza Operating Agreement was triggered and (because Elizabeth no longer was alive) Thomas and Daniel became the company's Manager, jointly, with the "full, exclusive, and complete discretion, power, and authority, subject to the requirements of applicable law, to manage, control, administer, and operate the business and affairs" of the company, and "to make all decisions affecting such business and affairs." That authority includes "without limitation" the power to "enter into any kind of activity necessary to, in connection with, or incidental to, the accomplishment of the purposes" of Oak Plaza.
As already mentioned, the purpose of Oak Plaza, as stated in section 2.3 of its Operating Agreement, is to hold all membership interests in Tower Oak and "to buy, sell, own, hold, develop, lease, manage, subdivide, and otherwise deal in and with" the Property "and to do any and all things necessary, convenient, or incidental to that purpose." The decision whether to defend Tower Oaks in a foreclosure action that could result in the sale of the single Property that Tower Oaks owns and the very Property that Oak Plaza is to manage, hold, and otherwise "deal with" is central to Oak Plaza's purpose, and so is within the authority of its Manager to make. Accordingly, when the second foreclosure action was commenced on October 22, 2012, Thomas and Daniel, as the Manager of Oak Plaza, had the exclusive authority to decide whether to defend Tower Oaks in that action and, if so, to take steps to do so. David had no such authority, and the court correctly ruled that his decisions and actions in that regard were not effective.
Finally, Tower Oaks contends that, if David acted without authority in acting to defend Tower Oaks in the second foreclosure action, the facts adduced at the evidentiary hearing established that Thomas and Daniel ratified David's actions.
Ratification is a longstanding doctrine of agency law that may apply to acts and transactions in a number of settings, including business settings. Under the doctrine, when an actual or apparent agent purporting to act on behalf of a principal did not have authority to act, the principal later may approve the unauthorized act. In re Uwimana, 274 F.3d 806, 812 (4th Cir.2001) (applying Maryland law); Bruffey Contracting Co., Inc. v. Burroughs Corp., 522 F.Supp. 769, 774-75 (D.Md.1981). Thus, the act, although done without authority, becomes binding on the principal who subsequently approves it. Bannon v. Warfield, 42 Md. 22, 42 (1875). See e.g. Webb v. Duvall, 177 Md. 592, 11 A.2d 446 (1940) (corporation may ratify and render binding originally unauthorized acts and contracts of officers and other agents); Carrington v. Turner, 101 Md. 437, 61 A. 324 (1905) (contract by president or officer of a corporation who did not have authority to enter into it, and therefore was invalid when made, can be ratified by the corporation and made good). The ratified act is effective as if it had been performed with authority to begin with, and therefore relates back in time.
For a corporation to ratify an unauthorized act of its actual or apparent agent, it must have had knowledge of all the material facts concerning the act being ratified and affecting the corporation, at the time of ratification. Linden Homes, Inc. v. Larkin, 231 Md. 566, 570, 191 A.2d 441 (1963); Tricat Indus., Inc. v. Harper, 131 Md.App. 89, 748 A.2d 48 (2000) (evidence legally insufficient to show that board of directors ratified employment offered by officer to employee in absence of evidence of knowledge of material facts on part of board); Yost v. Early, 87 Md.App. 364, 382, 589 A.2d 1291 (1991). An inference that the principal had knowledge may be drawn from the existence of such information as would put a person of ordinary intelligence on notice of the material facts of the transaction being ratified. Bakery and Confectionery Union and Industry Int'l Pension Fund v. New World Pasta Co., 309 F.Supp.2d 716, 729-30 (D.Md. 2004).
Ratification may be undertaken in a number of ways that evidence an intention to ratify. A corporation may ratify an unauthorized act expressly or by implication. Webb, 177 Md. at 599, 11 A.2d 446. When done expressly, and when the corporate charter or other governing document or statute requires approval in a particular manner, the ratification must be done in that manner. 19 C.J.S. Corporations § 708. Ratification of an unauthorized act, although not express, may be implied from words, acts, or conduct on the part of the principal that reasonably indicate a desire to affirm the unauthorized act. In re Uwimana, 274 F.3d at 812-13; Progressive Cas. Ins. Co. v. Ehrhardt, 69 Md.App. 431, 442, 518 A.2d 151 (1986). See also 19 C.J.S. Corporations § 709 ("[r]atification may be implied from acts or conduct reasonably tending to show an intention to adopt the act or contract"). A corporation may be found to have ratified an unauthorized act by adopting it or acquiescing in it, Webb, 177 Md. at 599, 11 A.2d 446, Hill v. State, 86 Md.App. 30, 36, 585 A.2d 252 (1991); by accepting and retaining its benefits, Citizens Bank of Maryland v. Maryland Indus. Finishing Co., Inc., 338 Md. 448, 463-64 n. 9, 659 A.2d 313 (1995); or by failing to timely disavow or repudiate it, Proctor v. Metro. Money Store Corp., 579 F.Supp.2d 724 (D.Md.2008) (applying Maryland law). In all these circumstances, for ratification to happen there must be knowledge of the material facts affecting the act or transaction.
As we have noted, Oak Plaza is not a corporation; it is a limited liability company formed under the Maryland Limited Liability Act. Under that Act, each member of the company is an agent of the company for the purpose of its business, unless the articles of organization or operating agreement provide otherwise. CA § 4A-401. The Oak Plaza Operating Agreement in fact provides otherwise, at section 5.1.4.1, stating that no Member is an agent of the company and no Member has authority to act for the company solely because he or she is a Member. So, because David's acts on behalf of Oak Plaza to defend Tower Oaks in the second foreclosure action were taken solely in his position as Member, they were not authorized.
As explained above, however, we are not dealing with an act taken by David that
Thomas and Daniel, as the Manager, jointly, of Oak Plaza, were authorized to take action to defend (or to decide not to defend) Tower Oaks in the second foreclosure action. In their brief, the substitute trustees acknowledge that Thomas's testimony was sufficient to show that he was ratifying David's unauthorized acts. With virtually no argument, Tower Oaks maintains that the evidence showed that Thomas
As mentioned previously, during the pendency of this appeal the second foreclosure action has proceeded. The Property was sold, Tower Oaks filed exceptions to the sale, the exceptions were dismissed, an order of ratification of sale was entered, and Tower Oaks filed a notice of appeal. Although, when the circuit court made the ruling that is the subject of this appeal, there was no evidence to support a finding that Thomas
