WILLIAM D. QUARLES, JR., District Judge.
William Dierker and Clear Summit Mortgage ("CSM") sued Eagle National Bank ("Eagle") for fraud and other claims. For the following reasons, the Court will deny Eagle's motion for summary judgment.
Dierker has worked in the mortgage industry since 2003.
Eagle is a federally-chartered bank. ECF No. 35 at 2. Eagle Nationwide Mortgage Company ("ENMC") is a wholly-owned subsidiary of Eagle. Id.
In 2009, ENMC employees provided mortgage loans at Eagle branches throughout the country. ECF No. 35 at 2. Branches had two options for processing loans. Id. The branches could "broker" a loan by sending it to a third-party investor, which would underwrite the loan with its own funds. Dierker Dep. 24:10-13. Alternatively, the branches could "bank" a loan by lending money directly from branch funds. Id. 23:20-24:7.
CSM brokered all the loans it originated. Dierker Dep. 36:8-12. In 2009, Dierker decided to move CSM's mortgage lending business to a federally chartered bank to (1) originate loans from all 50 states under a single federal mortgage license, and (2) generate more revenue by banking loans instead of brokering them. Dierker Dep. 57:3-58:21, 83:2-84:17, 89:11-90:21.
In October 2009, Dierker inquired through Eagle's website about converting CSM into an Eagle branch. Id. 62:9-12. Thereafter, Dierker exchanged emails with Eagle recruiter Sheila Morelli, and the two spoke on the phone "pretty regular[ly]." Id. 62:21-64:1. Dierker "made it crystal clear from the beginning that [his] intention was to bank 100 percent" of the loans he originated. Id. 136:14-16.
At the time Dierker was considering a relationship with Eagle, he knew that many banks were failing, being sold, or merging with other banks. Dierker Dep. 154:6-16. "Banks were unwilling to make real estate loans on anything that didn't carry a government-backed guarantee," because "[t]here was a lot of scrutiny and finger-pointing ... to find out what caused the mortgage [and] real estate collapse." Id. 109:15-110:17.
By October or November 2009, Eagle's mortgage division president, Sam Morelli, knew that Eagle "wanted to sell or close or somehow get rid of the mortgage division." Sam Morelli Dep. 16:18-25, Jan. 17, 2012.
On November 3, 2009, Dierker applied to open an Eagle branch. Dierker Dep. 9:18-10:10, 68:9-16, 70:6-15. The application stated that CSM intended to process about $12 million in loans each monthabout 80 $150,000 loans. Id. 134:8-19. CSM produced a spreadsheet of loans in its "pipeline"; the spreadsheet did not show whether the loan applicants would qualify for a loan. Id. 122:12-125:6.
Sheila Morelli told Dierker that, to become an Eagle branch, CSM "needed two months' operating expenses set up as a reserve." Dierker Dep. 167:14-168:6; Dieker Aff. ¶ 5. Because Dierker could not personally afford to make the deposit, Eagle agreed to accept "the full amount of the proceeds of [CSM's] wind down," which "was payable directly to [Dierker] as [CSM's] 100 [percent] owner." William Dierker Aff. ¶ 4. Dierker transferred $128,000 "from the [CSM] account and put it into [his] personal account and cut the check from there." Dierker Dep. 169:21-170:2. The $128,000 was "profit for CSM that [Dierker] had not yet distributed"; "had Eagle not requested the funds," Dierker would have kept them. Dierker Aff. ¶ 6.
On February 1, 2010, CSM began operating as an Eagle branch.
Opp'n to Mot. for Summ. J., Ex. 7. When he sent the email, Sam Morelli knew "that we would be sold." Sam Morelli Dep. 48:24-29:5.
In mid-March 2010, Sheila Morelli called Dierker "to give [him] a heads-up that [Eagle's] mortgage division was being listed for sale." Dierker Dep. 149:5-12. Although no one had told Dierker that the mortgage division would not be sold, he was "complete[ly] surprise[d]." Id. 149:20, 152:10-14.
Former CSM employees found that Eagle's understaffing delayed loan processing.
In late May 2010, Dierker decided that his business should stop operating as an Eagle branch. Dierker Dep. 182:10-20. In May and June 2010, the former CSM employees left Eagle.
On November 30, 2010, Dierker sued Eagle in the Circuit Court for Howard County, seeking more than $1 million in damages for fraud, negligent misrepresentation, unjust enrichment, and constructive fraud. ECF No. 2. On December 14, 2010, Dierker served the complaint and summons on Eagle. ECF No. 1 at ¶ 5. On January 11, 2011, Eagle removed to this Court on the basis of diversity jurisdiction.
On March 28, 2011, Dierker amended the complaint to (1) add CSM as a plaintiff, and (2) include a claim for detrimental reliance. ECF No. 18. On April 11, 2011, Eagle filed its answer and counterclaimed for negligent misrepresentation and unjust enrichment. ECF No. 19.
In response to Eagle's interrogatories, Dierker said that CSM lost about $644,000 in total revenue because of the "precipitous decline" in its loan conversion rate after CSM became an Eagle branch. ECF No. 35, Ex. F at 7. Dierker stated that, before joining Eagle, CSM earned about $4,000 per loan, and generally completed about 35 percent of the loans that it processed. Id. At Eagle, CSM employees processed 897 loans but completed only 153 (about 18 percent fewer than before). Id. Thus, to calculate the $644,000 damages figure, Dierker took 18 percent of 897
On March 5, 2012, Eagle moved for summary judgment on all of the Plaintiffs' claims. ECF No. 35. On May 11, 2012, the Plaintiffs opposed the motion.
Under Fed.R.Civ.P. 56(a), summary judgment "shall [be] grant[ed] ... if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." In considering a motion for summary judgment, "the judge's function is not ... to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for
The Court must "view the evidence in the light most favorable to ... the nonmovant[s]," and draw all reasonable inferences in their favor, Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir.2002), but the Court also "must abide by the affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial," Bouchat v. Bait. Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir. 2003).
Eagle argues that it is entitled to summary judgment on each of the Plaintiffs' claims.
To establish fraud, a plaintiff must show that
Hoffman v. Stamper, 385 Md. 1, 867 A.2d 276, 292 (2005).
Under the doctrine of detrimental reliance, a promise is binding if "the promisor should reasonably expect [the promise] to induce action or forbearance on the part of the promisee, "does induce such action or forbearance," and injustice can be avoided only by enforcement of the promise." Pavel Enters, v. A.S. Johnson Co., 674 A.2d at 529 n. 18 (quoting Restatement (Second) Contracts § 90(1)). To establish detrimental reliance, a plaintiff must show, inter alia, "a clear and definite promise" and reasonable reliance. See id. at 532.
Eagle argues that it is entitled to summary judgment on the Plaintiffs' fraud claim because the only representations it made were "non-actionable sales talk," upon which the Plaintiffs did not rely. ECF No. 35 at 2. Eagle argues that the detrimental reliance claim fails for the same reason: "the lack of clear, definite promises and reasonable reliance on such promises." Id. at 17.
"To be actionable, misrepresentations must be material to the transaction at issue." Rozen v. Greenberg, 165 Md.App. 665, 886 A.2d 924, 930 (Md.Ct. Spec.App.2005). "In Maryland, only a false statement concerning a present or past event may undergird a claim for fraud[.]"
A statement about future events may support a claim for fraud "if it relates to matters within the speaker's exclusive control, rather than an expectation or prediction."
A statement is not actionable in fraud if it is "vague and indefinite," because "such statements are deemed to put the party to whom they are made on inquiry notice to investigate further." Lasater v. Guttmann, 194 Md.App. 431, 5 A.3d 79, 103 (Md.Ct.Spec.App.2010) (internal quotation marks omitted). Nor can a fraud claim arise out of opinions
A jury could reasonably find that Sam Morelli knew, when he told Dierker that Eagle "could handle all the volume" that CSM originated,
Although Sam Morelli was "overly confident almost to the point of cocky," see Id. 134:4-6, his statements were not puffery, because they were neither "extravagant in scope and measure" nor "elusive in meaning." See Milkton, 150 A. at 32-32. Dierker had made clear that CSM intended to process about 80 loans a month — totaling about $12 million — and that he wanted to bank all the loans. See Dierker Dep. 134:8-19, 136:14-16. Sam Morelli told Dierker that Eagle was capable of banking that volume. See id. 134:4-6, 142:14-143:2. A jury could reasonably find that Sam Morelli's representations were a sufficiently clear and definite promise that Eagle could — and intended to — process that volume. See Pavel Enters., 674 A.2d at 532.
Because Sam Morelli's statements were not puffery, and there is a genuine dispute about whether he knew Eagle could not process CSM's volume of loans, Eagle has not shown that the statements are not fraudulent. Eagle has also not shown the lack of a clear and definite promise for recovery for detrimental reliance.
"A party is justified in relying on another's factual assertions unless ... the facts should be apparent to one of his knowledge and intelligence from a cursory glance, or he has discovered something which should serve as a warning that he is being deceived," in which case "he is required to make an investigation of his own."
Eagle argues that the Plaintiffs could not have reasonably relied on its alleged misrepresentations because they knew that "Eagle was not in a position to categorically state that CSM's traditional borrowers could be funded in the Eagle system"; Dierker had provided Eagle "only summary data regarding CSM's loan pipeline," not "prospective borrower information, creditworthiness, and similar information to allow Eagle to determine whether the prospective borrowers would meet the lender qualifications of Eagle and its third-party lending partners." ECF No. 35 at 15. Eagle further contends that Dierker was already "leaning" toward a relationship with Eagle before Sam Morelli's December 9, 2009 statements. Id.
The Plaintiffs counter that they provided Eagle all the information that it had requested. ECF No. 42 at 13. They further contend that Sam Morelli's statements "caused CSM to join Eagle." Id.
Eagle has failed to show that the Plaintiffs unreasonably relied on its representations that it could bank $12 million in loans per month. See Dierker Dep. 134:4-19, 142:14-143:2. That Eagle may have assumed that many applicants would not have qualified for loans does not absolve it from misrepresenting that it could have banked all the loans for which CSM had applications. Nor does it explain how CSM or Dierker could have — or should have — known that some of the applicants would not qualify for loans under Eagle's guidelines.
Because Eagle has not shown that its statements were not actionable, or that the Plaintiffs' reliance was unreasonable, Eagle is not entitled to summary judgment on the Plaintiffs' fraud claim. The Court must also deny summary judgment on the detrimental reliance claim, because the Plaintiffs have raised a genuine dispute about whether there was a clear and definite promise, and reasonable reliance on that promise.
The Plaintiffs allege that Eagle committed negligent misrepresentation by making "several false representations" and omissions to induce them to join Eagle. See Am. Compl. ¶ 41. They allege that Eagle committed constructive fraud by "creat[ing] a relationship of trust and confidence with [the] Plaintiffs ... to cause them to fold CSM's business operations into Eagle" when "Eagle knew ... that it lacked the necessary staff to process and underwrite the volume of loans originated through CSM's former employees." Id. ¶¶ 51-52.
To establish negligent misrepresentation, a plaintiff must show that
Lavine v. Am. Airlines, Inc., Case No. 2917, ___ A.3d ___, ___, 2011 WL 6003609, at *4 (Md.Ct.Spec.App. Dec. 1, 2011).
Constructive fraud is a "breach of a legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests." Canaj, Inc. v. Baker and Division Phase III, LLC, 391 Md. 374, 893 A.2d 1067, 1095 (2006) (internal quotation marks omitted).
Although "[t]here is no precise formula for determining the existence of a duty of care between two parties," a plaintiff who claims economic loss from negligent representation must show an "intimate nexus" through "contractual privity or its equivalent." Griesi v. Atl. Gen. Hosp. Corp., 360 Md. 1, 756 A.2d 548, 554 (2000). "Arms-length negotiations between representatives of commercial entities do not establish an intimate nexus unless they invoke considerations of personal trust and reliance." Sagent Tech., Inc. v. Micros Systems, Inc., 276 F.Supp.2d 464, 471-72 (D.Md.2003).
Griesi, 756 A.2d at 554 (quoting Int'l Prods. Co. v. Erie R. Co., 244 N.Y. 331, 155 N.E. 662, 664 (1927)). Courts applying Maryland law have found an intimate nexus between parties who have engaged in detailed, months-long business negotiations,
To establish constructive fraud, a plaintiff must show a breach of a "legal or equitable duty." See Canaj, Inc., 893 A.2d at 1095. Although the tort often involves the breach of a fiduciary duty,
A reasonable jury could find that Eagle owed a duty of care. Dierker testified that he exchanged several emails with Eagle recruiter Sheila Morelli, and spoke with her by phone "pretty regular[ly]" beginning in October 2009; on November 3, 2009, Dierker applied to open an Eagle branch; and on December 9, 2009, he met with three Eagle representatives to further discuss converting CSM into an Eagle branch. See Dierker Dep. 9:18-10:10, 62:21-64:1, 68:9-16, 70:6-15, 134:8-19. Such lengthy negotiations, about forming a long-term relationship, may show that the parties had an intimate nexus. See, e.g., Giant Food, Inc., 536 A.2d at 1185. Eagle also had exclusive control over information — Eagle's ability to process a certain volume of loans — that Dierker needed to understand the situation and decide whether to convert CSM into an Eagle branch. See Odyssey Travel Ctr., Inc., 262 F.Supp.2d at 628. Dierker further testified that, because of Eagle's representations, CSM started to surrender licenses, and Dierker gave Eagle his $128,000 in "wind-down proceeds." Dierker Dep. 38:7-39:3, 72:3-4; William Dierker Aff. ¶¶ 4-5. Thus, a jury could reasonably find that Eagle's representations "were an inducement to the [Plaintiffs] and provided [Eagle] with a business advantage when the [Plaintiffs] acted in conformance with them." See Cooper, 810 A.2d at 1062.
Because there is a genuine dispute about whether Eagle had a legal duty of care to the Plaintiffs, the Court must deny Eagle's motion for summary judgment on Counts II and IV.
Eagle argues that it is entitled to summary judgment on all counts because the Plaintiffs' requested damages are "speculative and unrecoverable." ECF No. 35 at 18.
CSM claims it lost about $644,000 in total revenue because of the "precipitous decline" in its loan conversion rate after CSM became an Eagle branch. ECF No. 35, Ex. F at 7. Dierker also seeks to
Eagle argues that (1) the Plaintiffs "must choose either benefit-of-the-bargain damages or the `actual loss' [$128,000] out-of-pocket expenses," but "cannot recover both" in their fraud and misrepresentation claims; (2) neither Dierker nor CSM can recover the $128,000 that Dierker paid Eagle as a security deposit; and (3) the Plaintiffs' calculation of lost profits is based on "flawed methodology." ECF No. 35 at 18-20.
In fraud and deceit cases, a plaintiff may recover "out-of-pocket" expenses (i.e., the plaintiff's actual losses) or "benefit-of-the-bargain" damages, which "put[] the defrauded party in the same financial position as if the fraudulent representations had in fact been true." Goldstein, 859 A.2d at 324 (internal quotation marks omitted). Benefit-of-the-bargain damages require the plaintiff to show that a bargain existed. Id. A plaintiff's actual loss is determined by the fact-finder. AGV Sports Grp., Inc. v. Protus IP Solutions, Inc., 417 Md. 386, 10 A.3d 745, 752 (2010).
Eagle argues that the Plaintiffs impermissibly seek both types of damages, and have not shown a bargain necessary to recover benefit-of-the-bargain damages. See ECF No. 35 at 18-19. The Plaintiffs counter that they seek only actual losses: "damages associated with what [they] would have earned (and/or not paid to [Eagle]) if [they] had never relied on the misrepresentations and joined Eagle." ECF No. 42 at 25. They argue that their actual losses "include the $128,000 [that Dierker paid as a security deposit] as well as the profits they would have made" had they not converted CSM to an Eagle branch. Id.
Eagle is not entitled to summary judgment, because the Plaintiffs seek only actual losses, which are recoverable in fraud cases. Goldstein, 859 A.2d at 324. Whether the amount the Plaintiffs seeks is accurate is a question for the factfinder, see AGV Sports Grp., Inc., 10 A.3d at 752, not one for the Court to resolve upon a motion for summary judgment.
Eagle argues that the $128,000 security deposit is not recoverable. See ECF No. 35 at 19. Eagle contends that Dierker has no claim to the money because it belonged to CSM: Dierker "obtained the funds from CSM's bank account," "merely transferred the funds to his personal bank account," and "a sole shareholder does not have standing to assert claims alleging wrongs to the corporation." See ECF No. 35 at 10, 19. Eagle argues that CSM cannot recover the money because CSM did not suffer a loss: the $128,000 "benefitted the business" and "would have been spent on the same operational expenses ... if the CSM operations had not transitioned to Eagle." See id. at 19.
The Plaintiffs counter that Dierker has a claim to the $128,000 because it "represented profit for CSM" that "would have gone to ... Dierker had CSM not transitioned to Eagle." ECF No. 42 at 21. They argue that CSM has a claim to the money because the $128,000 was paid to Eagle for "an operation that did not benefit CSM." See id.
Eagle has failed to show that neither Dierker nor CSM has a claim to the $128,000. Although the money was CSM's profits, Dierker testified that it was transferred to his personal account, from which he wrote the check to Eagle for the security deposit. Dierker Dep. 169:21-170:2. Thus, a reasonable jury could conclude that the money no longer belonged to CSM but, rather, to Dierker.
Even if Dierker was acting on CSM's behalf — and the money belonged to
Eagle argues that CSM's assertion that it lost about $644,000 in profits is "unsupported by anything other than assumptions, speculation, and an incomplete and unreliable damages calculation." ECF No. 35 at 21. Eagle argues that the Plaintiffs have "offer[ed] no expert lost profits assessment," and Dierker's figure does not "factor [in] costs" or consider other reasons — such as applicants' failure to meet lending criteria — for the drop in CSM's loan conversion rate. Id.
The Plaintiffs counter that Dierker calculated the damages figure "based on [CSM's] historical performance," expert and lay witness testimony, and documentation that "indicate that the decline in the [conversion] rate ... was caused by Eagle not being able to process borrowers' loans in a timely fashion." ECF No. 42 at 22. The Plaintiffs contend that whether the "damages are speculative ... is an issue for the jury to decide." Id. at 23.
To be recoverable, damages must be "reasonably certain"
Eagle has not shown that the Plaintiffs' claimed damages are too speculative to be submitted to the jury. See McAlister, 197 A.2d at 146. Dierker explained that the lost profits figure was based on CSM's historical performance, the average amount CSM earned per loan, and the difference in the conversion rates before and after CSM joined Eagle. ECF No. 35, Ex. F at 7. Any alleged flaws in the methodology are the proper subject of cross examination,
For the reasons stated above, the Court will deny Eagle's motion for summary judgment.
