Windesheim v. Larocca ( 2015 )

Suzanne Scales Windesheim, et al. v. Frank Larocca, et al., No. 71, September Term, 2014,
Opinion by Adkins, J.
MARYLAND CODE (1973, 2013 REPL. VOL.), § 5-101 OF THE COURTS AND
JUDICIAL PROCEEDINGS II ARTICLE (“CJP”) — THREE-YEAR STATUTE
OF LIMITATIONS — INQUIRY NOTICE: Borrowers were on inquiry notice, and,
thus, the three-year statute of limitations began to run, when they had knowledge of several
elements of critical information about which they claim they were deceived and that
suggested their loan transactions were not proceeding as they expected.
MARYLAND SECONDARY MORTGAGE LOAN LAW, MARYLAND CODE
(1975, 2013 REPL. VOL.), § 12-403(a) OF THE COMMERCIAL LAW ARTICLE
(“CL”) — STATUTORY CONSTRUCTION — INDIRECT ADVERTISING:
Petitioners cannot be liable for “indirectly” advertising false or misleading statements
regarding secondary mortgage loans or their availability because there is no evidence that
they “brought about” false advertisements.
Circuit Court for Howard County
Case No.: 13-C-11-089075
Argued: April 9, 2015
IN THE COURT OF APPEALS
OF MARYLAND
No. 71
September Term, 2014
SUZANNE SCALES WINDESHEIM, et al.
v.
FRANK LAROCCA, et al.
Barbera, C.J.
Harrell
Greene
Adkins
McDonald
Watts,
Wilner, Alan M. (Retired,
Specially Assigned),
JJ.
Opinion by Adkins, J.
Filed: June 23, 2015
In 2006 and 2007, Respondents, three married couples (collectively, “Borrowers”)1,
obtained home equity lines of credit (“HELOCs”) from Petitioners, PNC Mortgage, a
division of PNC Bank, N.A. (“PNC”), and its loan officer, Suzanne Scales Windesheim
(collectively, “Windesheim and her Employer” or “Petitioners”). Borrowers allege that
these HELOC transactions were part of an elaborate “buy-first-sell-later” mortgage fraud
arrangement carried out by Petitioners and numerous other Defendants.2 In December
2011, Borrowers filed a putative class action lawsuit in the Circuit Court for Howard
County, alleging numerous causes of action including, but not limited to, fraud, conspiracy,
and violations of Maryland consumer protection statutes. In this case, we consider whether
the Court of Special Appeals erred in reversing the Circuit Court’s grant of summary
judgment for Windesheim and her Employer.
FACTS AND LEGAL PROCEEDINGS3
Because the facts of this case are somewhat complex, we review them in stages.
1
Borrowers include Frank and Catherine Larocca (the “Laroccas”), Kenneth and
Angela Pfeifer (the “Pfeifers”), and Mehdi Nafisi and Forough Iranpour (the “Nafisi-
Iranpours”).
2
Other than Windesheim and her Employer, Defendants include: the Creig
Northrop Team, P.C. (the “Northrop Team”); Crieghton Northrop (“Mr. Northrop”); Carla
Northrop (“Ms. Northrop”); Long & Foster Real Estate, Inc. (“Long & Foster”); Wells
Fargo Bank, N.A. (“Wells Fargo”); Prosperity Mortgage Company (“Prosperity”);
Michelle Mathews, a loan officer for Prosperity who worked in the Northrop Team’s
offices; Lakeview Title Company, Inc. (“Lakeview”), a licensee of Long & Foster; and
Lindell Eagan, a part owner of Lakeview and an employee of Long & Foster.
3
Because the Circuit Court for Howard County granted summary judgment in favor
of all Defendants, Borrowers never proved that Defendants perpetrated mortgage fraud.
Our description of how the alleged fraud unfolded is based on the allegations in Borrowers’
First Amended Complaint.
Borrowers Encouraged to “Buy-First-Sell-Later”
In 2006 and 2007, Borrowers became interested in selling their current homes and
purchasing new homes. Borrowers contracted with Realtor Defendants4 to represent them
in the real estate transactions. Realtor Defendants advised and encouraged Borrowers to
“buy-first-sell-later,” meaning Borrowers would use HELOCs to extract equity from their
current homes that they could use to purchase new homes before their current homes were
sold. By extracting the equity in their current homes, Borrowers could make offers to
purchase new homes that were not contingent on the sale of their current homes. These
non-contingent offers would be more attractive to potential sellers. Realtor Defendants
assured Borrowers that a “buy-first-sell-later” plan was “common and appropriate.”
Borrowers Referred To Michelle Mathews At Prosperity Mortgage
To effectuate the buy-first-sell-later arrangement, Realtor Defendants advised
Borrowers to simultaneously apply for two mortgage loans—a “bridge financing” HELOC
against their current homes and a primary residential mortgage for their new homes. To
facilitate these lending transactions, Realtor Defendants referred Borrowers to Michelle
Mathews, a loan officer with Prosperity Mortgage Company (“Prosperity”)5 who worked
out of the same office location as Realtor Defendants. Mathews told Borrowers that bridge
loan financing was a “common lending tool at Prosperity.” Borrowers provided accurate
4
Realtor Defendants include Long & Foster, the Northrop Team, and Mr. Northrop.
5
Prosperity Mortgage was a joint venture between Long & Foster and Wells Fargo.
Notwithstanding its relationship with Wells Fargo, in this case, Prosperity performed the
underwriting and loaned the capital associated with Borrower’s primary residential
mortgages.
2
financial information to Mathews for the purpose of qualifying to purchase their new
homes. After obtaining Borrowers’ financial information and preparing mortgage
applications, Mathews created Mortgage Approval Letters stating that Borrowers were pre-
approved for primary residential mortgages for their new homes that were not contingent
upon the sale of their current homes. In reality, without selling their current homes,
Borrowers did not have sufficient funds to be approved for their new primary residential
mortgages.
National City, Not Prosperity, Provided The HELOCs
Borrowers believed at all times that Mathews was processing the HELOCs through
Prosperity. Because loan underwriting standards would not permit Prosperity to approve
a HELOC secured by a home intended for sale, Mathews had to get National City Mortgage
(“National City”),6 a separate mortgage lender, to provide the HELOCs. Unbeknownst to
Borrowers, Mathews sent Borrowers’ financial information to Windesheim, a loan officer
for National City. Mathews then waited for National City to approve the HELOCs before
she submitted Borrowers’ paperwork for the primary residential mortgages.
Using the financial information that Mathews provided, Windesheim completed
Uniform Residential Loan Applications (“HELOC Applications”) on behalf of Borrowers
without ever speaking with them. Windesheim falsely represented on the HELOC
Applications that she had contact with Borrowers to obtain their financial information.
6
PNC is the successor to National City. PNC Gets National City in Latest Bank
Acquisition, http://www.nytimes.com/2008/10/25/business/25bank.html?_r=0 (last visited
Jun. 12, 2015). We use either “PNC” or “National City” as appropriate in context.
3
Because National City’s underwriting standards would also not permit them to approve a
HELOC for a home intended for sale, Windesheim also falsely represented on the HELOC
Applications that the HELOCs would be secured by Borrowers’ “primary residences.”
Based on this misrepresentation, National City eventually approved the HELOCs. At the
HELOC closings, Borrowers signed the HELOC Applications that Windesheim had
prepared.7
Prosperity Approved Primary Residential Mortgages Based On
Fraudulent Rental Income
With the bridge financing arranged, Prosperity submitted Borrowers’ Uniform
Residential Loan Applications for the primary residential mortgages on the new homes
(“Primary Mortgage Applications”) to Prosperity’s underwriters.8 Because the Primary
Mortgage Applications would not be approved with the new debt created by the HELOCs
and without the proceeds from the sales of Borrowers’ current homes, however, Mathews
needed to create additional monthly income for Borrowers. To accomplish this, one or
more Defendants fabricated leases between Borrowers and fictitious tenants and forged
Borrowers’ signatures.9 As alleged, one or more Defendants then surreptitiously inserted
7
Borrowers closed their HELOCs on the following dates: the Laroccas on May 18,
2006; the Pfeifers on November 21, 2006; and the Nafisi-Iranpours on May 14, 2007.
8
We will refer to the HELOC Applications and the Primary Mortgage Applications
collectively as the “Applications.”
9
In their First Amended Complaint, Borrowers do not specifically allege which of
the numerous Defendants actually fabricated the leases.
4
fraudulent rental income on the Primary Mortgage Applications that Borrowers signed
when they settled on their new homes and closed their primary residential mortgages.10, 11
Counsel Contacted Borrowers And They Filed Suit
In 2010 and 2011, after counsel contacted Borrowers to inform them that they may
have been the victims of mortgage fraud, Borrowers allegedly discovered for the first time
the fabricated leases on which their signatures were forged and the false rental income on
the Primary Mortgage Applications. Borrowers then filed their class action lawsuit,
alleging 11 Counts against Petitioners and the other Defendants.12 Borrowers alleged that
the mortgage fraud caused them to incur unnecessary commissions, fees, interest, expenses,
taxes, and penalties associated with the mortgage transactions; sell their old homes below
market value as a result of the financial burden imposed by the HELOC debt; and pay
above-market prices their new homes without reasonable home-sale contingencies.
10
The HELOC Applications that Borrowers signed at their HELOC closings did not
include the fraudulent rental income.
11
Borrowers settled on their new homes and closed their primary residential
mortgages on the following dates: the Laroccas on May 30, 2006; the Pfeifers on November
30, 2006; and the Nafisi-Iranpours on May 29, 2007.
12
The 11 Counts included the following: Fraud - Intentional Misrepresentation
(Count I); Fraud - Concealment or Nondisclosure (Count II); Constructive Fraud (Count
III); Civil Conspiracy to Commit Fraud (Count IV); Negligence (Count V); Aiding and
Abetting Tortious Conduct (Count VI); Respondeat Superior (Count VII); Unfair and
Deceptive Trade Practices under the Consumer Protection Act (“CPA”), Maryland Code
(1975, 2013 Repl. Vol.), § 13-101, et seq. of the Commercial Law Article (“CL”) (Count
VIII); Violation of the Maryland Mortgage Fraud Protection Act, Maryland Code (1974,
2010 Repl. Vol.), § 7-401, et seq. of the Real Property Article (Count IX); Violation of the
Maryland Secondary Mortgage Loan Law (“SMLL”), CL § 12-403(a) (Count X); and
Unjust Enrichment (Count XI).
5
Circuit Court and Court of Special Appeals Proceedings
Defendants moved to dismiss, arguing the statute of limitations barred Borrowers’
suit. The Circuit Court denied the motions. After extensive discovery, Defendants moved
for summary judgment on all Counts.13 Concluding that the statute of limitations barred
Counts I–IX and XI and that no Defendants violated the Maryland Secondary Mortgage
Loan Law (“SMLL”), Maryland Code (1975, 2013 Repl. Vol.), § 12-403(a) of the
Commercial Law Article (“CL”) as a matter of law, the Circuit Court granted Defendants’
motions. Borrowers appealed.
In a reported opinion, the Court of Special Appeals reversed the Circuit Court’s
grant of summary judgment as to Counts I–IX and XI against all Defendants, and as to
Count X against PNC and Windesheim.14 The intermediate appellate court concluded that
the Circuit Court erred in granting summary judgment on the statute of limitations issue
because there was a genuine dispute as to whether Borrowers reasonably should have
discovered the mortgage fraud before counsel contacted them.15 As for Count X—the
SMLL Count—the Court of Special Appeals held that there was a genuine dispute as to
13
Before the Circuit Court could rule on Realtor Defendants’ motion for summary
judgment, Borrowers filed a Second Amended Complaint adding Ms. Northrop, Lakeview,
and Eagan as Defendants and a cause of action under the Real Estate Settlement Procedures
Act, 12 U.S.C. § 2607 (2012). The Circuit Court eventually struck the new cause of action,
but allowed the Second Amended Complaint to replace the First Amended Complaint as
to Counts I–XI.
14
Larocca v. Creig Northrop Team, P.C., 217 Md. App. 536, 94 A.3d 197, cert.
granted sub nom. Windesheim v. Larocca, 440 Md. 225, 101 A.3d 1063 (2014).
15
Id. at 556, 94 A.3d at 209.
6
whether Windesheim and her Employer violated CL § 12-403(a), the SMLL’s prohibition
against falsely advertising secondary mortgage loans.16
Defendants appealed, and we granted the Petitions for Writ of Certiorari filed by
Windesheim and her Employer only. In our Writ of Certiorari issued on October 21, 2014,
we agreed to consider the following:
1. Did the Court of Special Appeals err by holding that an
employee of a lender is a “lender” for purposes of civil
liability under the Maryland Secondary Mortgage Loan
Law?
2. Did the Court of Special Appeals err by holding that
[Borrowers] stated a claim on which relief could be granted
under the Maryland Secondary Mortgage Loan Law?
3. Did the Court of Special Appeals err by holding that a cause
of action under the Maryland Secondary Mortgage Loan
Law was “another specialty” under Section 5-102 of the
Maryland Courts and Judicial Proceedings Article and
therefore entitled to a 12-year statute of limitations?
4. Did the Court of Special Appeals err by holding that it was
a question of fact to be decided by the jury as to whether
[Borrowers’] claims against [Windesheim and her
Employer] in the [c]ase [b]elow were barred by the 3-year
statute of limitations under Section 5-101 of the Maryland
Courts and Judicial Proceedings Article?
5. Whether as a matter of law a defendant may be liable under
the SMLL, where the false advertising that is the purported
basis for the claim occurred orally in a private setting, and
where the record contains no evidence that the defendant
participated in any way in the communication of the
statements allegedly constituting false advertising?
Because we answer yes to the second and fourth questions, we need not address the other
questions and shall reverse the judgment of the Court of Special of Appeals.
16
Id. at 570, 94 A.3d at 217.
7
STANDARD OF REVIEW
We review the Circuit Court’s grant of summary judgment as a matter of law.
Goodwich v. Sinai Hosp. of Balt., Inc., 343 Md. 185, 204, 680 A.2d 1067, 1076 (1996)
(“The standard of review for a grant of summary judgment is whether the trial court was
legally correct.” (citation omitted)). Before determining whether the Circuit Court was
legally correct in entering judgment as a matter of law in favor of Windesheim and her
Employer, we independently review the record to determine whether there were any
genuine disputes of material fact. Hill v. Cross Country Settlements, LLC, 402 Md. 281,
294, 936 A.2d 343, 351 (2007). A genuine dispute of material fact exists when there is
evidence “upon which the jury could reasonably find for the plaintiff.” Beatty v.
Trailmaster Prods., Inc., 330 Md. 726, 739, 625 A.2d 1005, 1011 (1993) (citation omitted).
“We review the record in the light most favorable to the nonmoving party and construe any
reasonable inferences that may be drawn from the facts against the moving party.” Myers
v. Kayhoe, 391 Md. 188, 203, 892 A.2d 520, 529 (2006) (citation omitted).
DISCUSSION
Are Counts I–IX And XI Barred By The Three-Year Statute Of Limitations?
Pursuant to Maryland Code (1973, 2013 Repl. Vol.), § 5-101 of the Courts and
Judicial Proceedings II Article (“CJP”), civil actions are generally subject to a three-year
statute of limitations: “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.” Maryland has adopted the “discovery rule,” which
“tolls the accrual of the limitations period until the time the plaintiff discovers, or through
8
the exercise of due diligence, should have discovered, the injury.” Frederick Rd. Ltd.
P’ship v. Brown & Sturm, 360 Md. 76, 95–96, 756 A.2d 963, 973 (2000). In Poffenberger
v. Risser, 290 Md. 631, 636, 431 A.2d 677, 680 (1981), we made this rule generally
applicable in all civil actions.
Notice is critical to the discovery rule. Before an action can accrue under the
discovery rule, “a plaintiff must have notice of the nature and cause of his or her injury.”
Frederick Rd., 360 Md. at 96, 756 A.2d at 973. There are two types of notice: actual and
constructive. Poffenberger, 290 Md. at 636–37, 431 A.2d at 680. Actual notice is either
express or implied. Id. at 636, 431 A.2d at 680. As the name suggests, express notice “is
established by direct evidence” and “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.” Id. at 636–37, 431 A.2d at 680 (citation and internal quotation
marks omitted). Implied notice, also known as “inquiry notice,” is notice implied from
“knowledge of circumstances which ought to have put a person of ordinary prudence on
inquiry (thus, charging the individual) with notice of all facts which such an investigation
would in all probability have disclosed if it had been properly pursued.” Id. at 637, 431
A.2d at 681 (citation and internal quotation marks omitted). Stated simply, inquiry notice
is “circumstantial evidence from which notice may be inferred.” Id. at 637, 431 A.2d at
680 (citation and internal quotation marks omitted). Constructive notice is notice presumed
as a matter of law. Id. at 636, 431 A.2d at 680. Unlike inquiry notice, constructive notice
does not trigger the running of the statute of limitations under the discovery rule. Id. at
637, 431 A.2d at 681.
9
Borrowers argue that the Court of Special Appeals correctly held that genuine
disputes of material fact precluded summary judgment based on the three-year statute of
limitations under CJP § 5-101. They identify four principal reasons why they were not on
inquiry notice of the fraud when they closed the HELOCs and primary residential
mortgages. First, they argue that because they dispute that they actually read the
Applications they signed at the closings, no inquiry notice can be established as a matter
of law. Second, Borrowers maintain that, even assuming there is no dispute that they read
the Applications, the contents of those documents would not induce a reasonable person to
investigate a potential fraud. Third, they argue that because Windesheim and her Employer
concealed the fraud from them, CJP § 5-203 tolled the statute of limitations until counsel
contacted Borrowers in 2010 and 2011. Finally, Borrowers contend that they were in a
fiduciary relationship with Petitioners that prevented them from discovering the fraud. We
address these arguments in turn.
Did Borrowers Read The Applications?
The records contains an affidavit of a forensic document examiner expert who
concluded that Borrowers’ signatures on the Primary Mortgage Applications are authentic.
Also in the record is the affidavit of Concetta Cho, a settlement agent for Lakeview, who
testified that she witnessed Borrowers sign the Primary Mortgage Applications. Borrowers
do not offer competing affidavits to contradict the opinion of the document examiner or
the sworn statement by the settlement agent.
In their opposing affidavits, Borrowers state that they “did not have time during the
loan process to read and understand all of the documents provided to [them], and [they]
10
did not have the real estate and/or lending background to understand much of what was
provided to [them].” Borrowers argue that because they deny having read and understood
the Applications, a jury must determine whether they possessed knowledge of the contents
of the Applications and whether this knowledge would cause a reasonable person to
investigate a potential fraud.
Borrowers’ focus on their lack of knowledge of the contents of the Applications is
misdirected. Under long-settled law, if there is no dispute that they signed the
Applications, they are presumed to have read and understood those documents as a matter
of law. See Merit Music Service, Inc. v. Sonneborn, 245 Md. 213, 221–22, 225 A.2d 470,
474 (1967) (“[T]he law presumes that a person knows the contents of a document that he
executes and understands at least the literal meaning of its terms.”); Binder v. Benson, 225
Md. 456, 461, 171 A.2d 248, 250 (1961) (“[T]he usual rule is that if there is no fraud,
duress or mutual mistake, one who has the capacity to understand a written document who
reads and signs it, or without reading it or having it read to him, signs it, is bound by his
signature as to all of its terms.” (citations omitted)). We will refer to this rule as the
“signature doctrine.”
Borrowers do not dispute that they signed HELOC Applications at their HELOC
closings or that the HELOC Applications from their PNC loan files “appear[] to bear a
copy of [their] signatures.” Yet they assert in their affidavits that they cannot confirm that
their signatures on any of the Applications are authentic.17 Other than this, Borrowers offer
17
They state in their affidavits: “Given the substantial evidence of fraud and forgery
by all of the Defendants, we cannot confirm that the loan documents in our possession and
11
no evidence tending to show that their signatures on the HELOC Applications were
forged.18
Borrowers’ refusal to confirm the authenticity of the signatures on the Applications
represents nothing more than conjectural doubt. Any such doubt is insufficient to defeat a
motion for summary judgment when the moving party has attested to the existence of the
material fact. Beatty, 330 Md. at 738, 625 A.2d at 1011 (“[W]hen a movant has carried its
burden the party opposing summary judgment ‘must do more than simply show there is
some metaphysical doubt as to the material facts.’” (emphasis added) (citation omitted));
see id. at 739, 625 A.2d at 1011–12 (Summary judgment cannot be denied if there is only
the “slightest doubt” as to the facts because that would “mean that there could hardly ever
be a summary judgment, for at least a slight doubt can be developed as to practically all
things human.” (emphasis added) (citation and internal quotation marks omitted)); see also
Carter v. Aramark Sports & Entm’t Servs., Inc., 153 Md. App. 210, 225, 835 A.2d 262,
271 (2003) (The facts offered by a party opposing summary judgment “must be material
and of a substantial nature, not fanciful, frivolous, gauzy, spurious, irrelevant, gossamer
inferences, conjectural, speculative, nor merely suspicions.” (emphasis added) (citation
and internal quotation marks omitted)).
in the Defendants’ loan files are the same documents we executed during the loan process
for the primary mortgage or HELOC[s]. This includes the [Applications].”
18
Although Borrowers offered the opinion of a document examiner who concluded
that Borrowers’ signatures on the fake leases were forged, they did not offer this expert’s
opinion with respect to the authenticity of Borrowers’ signatures on the HELOC
Applications.
12
Based on the foregoing, we conclude there is no dispute that Borrowers signed the
Applications. Accordingly, Borrowers are presumed as a matter of law to have read these
documents and understood their contents. See Vincent v. Palmer, 179 Md. 365, 375, 19
A.2d 183, 189 (1941) (“[W]hen one signs a release or other instrument, he is presumed in
law to have read and understood its contents[.]” (citation omitted)).
Does Borrowers’ Knowledge Of The Contents Of The Applications
Constitute Inquiry Notice As A Matter Of Law?
Because presumptions of law do not trigger the discovery rule, see Poffenberger,
290 Md. at 637, 431 A.2d at 681, the presumption that Borrowers have read and understood
the Applications does not fully resolve whether they were on inquiry notice without
examining the content of those documents. We conduct a separate review of that content
to determine whether it was sufficient to place them on inquiry notice of a potential fraud.
Borrowers argue that “even had [they] read every bit of information in the
[Applications], there remains a dispute of fact as to whether these different bits of
information would cause a reasonable person to make inquiry.” Windesheim and her
Employer counter by identifying several elements of information in the HELOC
Applications that they argue placed Borrowers on inquiry notice. First, the HELOC
Applications indicated that Windesheim had completed them during a phone interview
with the Laroccas and the Nafisi-Iranpours and received application information from the
Pfeifers via mail. Borrowers, however, maintain that they only gave their financial
information to Mathews and never spoke with or had any contact with Windesheim.
Second, the HELOC Applications indicate that Windesheim worked for National City, but
13
Borrowers swore that they believed they were working with Prosperity exclusively. Third,
the HELOC Applications specify that the loans would be secured by Borrowers’ primary
residences, but Borrowers knew they intended to sell their current homes. Finally, the
Primary Mortgage Applications included false rental income that Borrowers now maintain
they never provided to Prosperity.
We turn to case law to determine whether Borrowers’ knowledge of the foregoing
content in the Applications constitutes inquiry notice as a matter of law. Bank of New York
v. Sheff, 382 Md. 235, 854 A.2d 1269 (2004) is particularly instructive. In that case, we
determined that the plaintiffs were on inquiry notice upon receiving documents indicating
that the financial transaction in which they were participating was not proceeding
consistent with their expectations.
Prince George’s County had issued $50 million in tax-exempt revenue bonds and
transferred the proceeds to a consortium of health care providers in the District of Columbia
(“D.C.” or the “District”) and Prince George’s County that comprised the Greater
Southeast Healthcare System. Id. at 237, 854 A.2d at 1270–71. Part of the security for
repayment of the bonds was a lien on the accounts receivable and other assets of the
individual health care providers. Id., 854 A.2d at 1271. To perfect that lien, it was
necessary to file a UCC Financing Statement with the Maryland State Department of
Assessments and Taxation (“SDAT”), as well as with the Clerk of the Circuit Court for
Prince George’s County, and the D.C. Recorder of Deeds. Id. Because a financing
statement was never filed with the D.C. Recorder of Deeds, however, the bondholders lost
the opportunity to perfect against third parties a first lien on the receivables of the health
14
care providers located in the District. Id. That became problematic when the consortium
defaulted on the bonds and it was discovered that another creditor had obtained a first lien
on the receivables of one of the large hospitals in D.C., the Greater Southeast Community
Hospital (“GSCH”). Id. at 238, 854 A.2d at 1271.
The Bank of New York, as trustee for the bondholders, and four municipal bond
funds holding the bonds (collectively “plaintiffs”), blamed Piper & Marbury (“P&M”), a
counsel for the county, for failing to file a financing statement in the District. Id. Plaintiffs
sued P&M for negligence and breach of fiduciary obligation. Id. We affirmed the
summary judgment in favor of P&M on limitations grounds, concluding plaintiffs were on
inquiry notice of their causes of action against P&M more than three years before they filed
suit. Id. at 247, 854 A.2d at 1276. The inquiry notice was triggered when the plaintiffs
received multiple sets of documents suggesting that the bond transaction was not
proceeding as they expected because P&M neglected to file a financing statement in the
District. Id. First, plaintiffs received a Closing Binder “that contained all of the closing
documents, including financing statements filed with SDAT and the Clerk in Prince
George’s County, but did not contain a financing statement for the District.” Id. at 245,
854 A.2d at 1275. Second, GSCH sent plaintiffs
a copy of the transaction documents, which recited that GSCH
was the legal and beneficial owner of the receivables to be
purchased by [another creditor] “free and clear of any [l]iens,”
that [another creditor] would receive valid ownership of the
receivables “subject to no third-party claims of interest
thereon,” and that “[n]o effective financing statement . . .
covering any Receivable or the Collections with respect thereto
is on file in any recording office.”
15
Id. at 245–46, 854 A.2d at 1275–76 (second and fourth alterations in original) (ellipses in
original). Third, plaintiffs received a Compliance Certificate that “confirmed what the
other documents implied—that [plaintiffs] did not have a perfected lien on the GSCH
receivables.” Id. at 246, 854 A.2d at 1276.
Similarly, in this case, there were two sets of documents that suggested that the loan
transactions were not proceeding as Borrowers expected. The HELOC Applications
suggested that a bank other than Prosperity and a loan officer other than Mathews were
providing the HELOCs. And the Primary Mortgage Applications suggested that Prosperity
was approving Borrowers’ new mortgages based on false rental income that Borrowers
never provided to Mathews.
Miller v. Pacific Shore Funding, 224 F. Supp. 2d 977 (D. Md. 2002), aff’d, 92 F.
App’x 933 (4th Cir. 2004) is also instructive. The United States District Court for the
District of Maryland, applying Maryland law, dismissed the claims of one of the plaintiffs,
concluding they were barred by CJP § 5-101’s three-year statute of limitations because the
plaintiff was on inquiry notice of his injury when he signed loan documents identifying
charges about which he alleged he was deceived.
The plaintiffs, borrowers, filed a putative class action against numerous banks and
lending institutions (the “lenders”). Id. at 983. The plaintiffs asserted three counts against
the lenders, including violations of the Maryland Consumer Protection Act (“CPA”), CL
§13-101 et seq., and SMLL and the formation and performance of illegal contracts. Id.
The gravamen of the plaintiffs’ claims was that the lenders charged and collected excessive
16
or unauthorized fees in conjunction with loans that were secured by junior mortgages on
their residences. Id.
The District Court granted the lenders’ motion to dismiss, concluding that the
plaintiff was on inquiry notice when he closed his loan because the charges about which
he alleged he was deceived were all expressly identified in the closing documents he
signed, and suit was filed more than three years after the closing. Id. at 990. By signing
the closing documents identifying the charges, the plaintiff “had sufficient knowledge of
circumstances indicating he might have been harmed.” Id. (citation omitted).
In this case, like in Miller, Borrowers signed loan documents containing information
about which they were allegedly deceived. In their First Amended Complaint, Borrowers
contend they were deceived when Mathews represented that “bridge loan financing was a
common lending tool at Prosperity,” and then “surreptitiously shifted” Borrowers’ HELOC
Applications to Windesheim and National City. But the HELOC Applications expressly
indicated that Windesheim was processing them because National City was the intended
lender.
Borrowers also contend they were deceived when Prosperity approved their primary
residential mortgages based on false rental income because it “was not included in
[Borrowers’] financial information that was used to apply for the . . . HELOCs.” But the
Primary Mortgage Applications expressly identified “gross rental income.” Because
Borrowers signed the Applications and the Applications identified false gross rental
income, they were on inquiry notice that something was amiss.
17
Based on Sheff and Miller, we conclude that Borrowers’ knowledge of the contents
of the Applications was sufficient to place them on inquiry notice of their claims against
Windesheim and her Employer when Borrowers closed their HELOCs and primary
residential mortgages in 2006 and 2007. Because Borrowers signed the Applications at the
closings, they are presumed to have read and understood their contents. With knowledge
of facts about which they claim they were deceived and that suggested that their loan
transactions were not proceeding as they expected, Borrowers had information that “would
cause a reasonable person in the position of [Borrowers] to undertake an investigation
which, if pursued with reasonable diligence, would have led to knowledge of the alleged
[fraud].” Pennwalt Corp. v. Nasios, 314 Md. 433, 448–49, 550 A.2d 1155, 1163 (1988)
(citation and internal quotation marks omitted). This does not, however, wrap up
limitations altogether. We also must decide whether there is evidence that Petitioners
concealed the fraud or that Petitioners and Borrowers were in a fiduciary relationship, as
either evidence could toll the statute of limitations.
Did CJP § 5-203 Toll The Statute of Limitations?
“Maryland law recognizes that it is unfair to impart knowledge of a tort when a
potential plaintiff is unable to discover the existence of the claim due to fraud or
concealment on the part of the defendant.” Dual Inc. v. Lockheed Martin Corp., 383 Md.
151, 170, 857 A.2d 1095, 1105 (2004) (citation omitted). Section 5-203 of the Courts and
Judicial Proceedings II Article, “a tangent of the discovery rule,”19 provides that “[i]f the
Supik v. Bodie, Nagle, Dolina, Smith & Hobbs, P.A, 152 Md. App. 698, 715, 834
19
A.2d 170, 179 (2003).
18
knowledge of a cause of action is kept from a party by the fraud of an adverse 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.” Section 5-203 “does not
require that the defendant commit a fraud distinct from that initially committed for the
purpose of keeping the plaintiff in ignorance of his or her cause of action.” Frederick Rd.,
360 Md. at 98, 756 A.2d at 975. Instead, CJP § 5-203 applies when two conditions are
satisfied: “(1) the plaintiff has been kept in ignorance of the cause of action by the fraud of
the adverse party, and (2) the plaintiff has exercised usual or ordinary diligence for the
discovery and protection of his or her rights.” Id. at 98–99, 756 A.2d at 975.
Rejecting the notion that CJP § 5-203 might toll the statute of limitations against
them, Windesheim and her Employer insist that “no employee of PNC’s predecessor was
alleged to have participated in any fraudulent concealment.” As Borrowers point out,
however, they alleged civil conspiracy and “[i]t is well established in Maryland law that a
conspirator can be liable for the conduct of a co-conspirator.” Mackey v. Compass Mktg.,
Inc., 391 Md. 117, 128, 892 A.2d 479, 485 (2006). We review the record to ascertain
whether there is a genuine dispute that any Defendants concealed the alleged fraud from
Borrowers.
Dashiell v. Meeks, 396 Md. 149, 913 A.2d 10 (2006) is instructive regarding what
evidence is required to prove Defendants concealed the fraud from Borrowers. Like this
case, the dispositive issue in Dashiell was whether the plaintiff was on inquiry notice when
he signed a critical document, the contents of which formed the basis of a later suit. Meeks
asked his attorney, Dashiell, to draft a prenuptial agreement. Id. at 156–57, 913 A.2d at
19
14. Dashiell reviewed an initial draft of the agreement with Meeks that contained a waiver
of alimony provision, but the version Meeks ultimately signed did not contain this
provision. Id. at 157, 913 A.2d at 14. Meeks sued Dashiell for negligence in omitting the
provision and counseling him to sign the agreement without reading it. Id. In an affidavit,
Meeks alleged that after reviewing the initial draft with Dashiell, the lawyer made changes
to the agreement that were more favorable to Meeks’s ex-wife without Meeks’s knowledge,
and then encouraged Meeks to sign the agreement without reading it. Id. at 170, 913 A.2d
at 22. Meeks further alleged that as a result of his reliance on Dashiell’s advice not to read
the agreement, Meeks did not discover the lack of the alimony waiver provision until over
a decade after he reviewed the initial agreement. Id.
The trial court granted summary judgment for Dashiell, concluding that under the
signature doctrine, Meeks was presumed to know the contents of the agreement he signed,
and that knowledge was sufficient to trigger the running of the statute of limitations
because Meeks was on inquiry notice when he signed the agreement. Id. at 166–67, 913
A.2d at 20. Meeks appealed, arguing that the trial court erred by not applying the discovery
rule. Id. at 157, 913 A.2d at 15. The Court of Special Appeals reversed, and we affirmed
that judgment, holding that when a party conceals the contents of a document by
discouraging another from reading it, the statute of limitations does not begin to run when
the document is signed. Id. at 168, 913 A.2d at 21. We concluded that the trial court erred
because if Meeks could prove his allegation that Dashiell concealed the omission of the
alimony waiver provision, the statute of limitations would not have begun to run until
Meeks actually discovered that the provision was missing. Id. at 170, 913 A.2d at 22.
20
Here, unlike in Dashiell, there is no evidence Defendants concealed the contents of
the Applications by discouraging Borrowers from reading them. Borrowers rely on
Mathews’s deposition in which she asserted her Fifth Amendment privilege against self-
incrimination in response to the several questions relating to her communications with
Borrowers about the contents of the Primary Mortgage Applications: (1) Whether she
“indicated to them, through words and deeds, that . . . [she was] inputting accurate
information to [the] loan documents;” (2) Whether she communicated to Borrowers “that
the closing documents that were used in their settlement contained the information that
they had submitted;” and (3) Whether she informed Borrowers that the Primary Mortgage
Applications included false rental income. Borrowers ask us to infer from Mathews’s
refusal to answer these questions that she discouraged Borrowers from reading the Primary
Mortgage Applications.
To be sure, we are permitted to draw adverse inferences when a party in a civil case
asserts her Fifth Amendment privilege in response to discovery questions. See Robinson
v. Robinson, 328 Md. 507, 515–16, 615 A.2d 1190, 1194 (1992) (“[W]here a party in a
civil proceeding invokes the Fifth Amendment privilege against self-incrimination in
refusing to answer a question posed during that party’s testimony, the fact finder is
permitted to draw an adverse inference from that refusal.”). The only reasonable inference
from Mathews’s refusal to answer these questions, however, is that Borrowers did not
know before closing their primary residential mortgages that the Primary Mortgage
Applications included rental income. That fact does not justify the inference by any
reasonable juror that she also told them at closing not to read the Applications.
21
In their affidavits, Borrowers state that they “did not have time during the loan
process to read and understand all of the documents provided to [them].” Unlike Dashiell,
however, they never state that Defendants discouraged them from reading the Applications.
Without evidence that Defendants concealed the contents of the Applications from
Borrowers by discouraging them from reading those documents, we cannot say that
Borrowers “ha[d] been kept in ignorance of the[ir] cause[s] of action by the fraud of
[Defendants].” Frederick Rd., 360 Md. at 98–99, 756 A.2d at 975.
Were Petitioners and Borrowers In A Fiduciary Relationship?
Borrowers also assert that an alleged fiduciary relationship between themselves and
Petitioners should toll the statute of limitations until counsel contacted Borrowers in 2010
and 2011. A fiduciary relationship, “by its nature, gives the confiding party the right to
relax his or her vigilance to a certain extent and rely on both the good faith of the other
party and that party’s duty to disclose all material facts.” Id. at 99, 756 A.2d at 975.20
Nevertheless, we need not explore the application of this relaxed standard—the “fiduciary
rule”—because there is no evidence that Petitioners and Borrowers were ever in a fiduciary
relationship.
“Maryland law is cautious in creating fiduciary obligations between banks and
borrowers, absent special circumstances.” Polek v. J.P. Morgan Chase Bank, N.A., 424
20
When a fiduciary relationship exists, “failure to discover the facts constituting
fraud may toll the statute of limitations, if: (1) the relationship continues unrepudiated, (2)
there is nothing to put the injured party on inquiry, and (3) the injured party cannot be said
to have failed to use due diligence in detecting the fraud.” Frederick Rd. Ltd. P’ship v.
Brown & Sturm, 360 Md. 76, 99, 756 A.2d 963, 975 (2000) (citation omitted).
22
Md. 333, 366, 36 A.3d 399, 418 (2012) (citation omitted); see also Parker v. Columbia
Bank, 91 Md. App. 346, 368, 604 A.2d 521, 532 (1992) (“[T]he relationship of a bank to
its customer in a loan transaction is ordinarily a contractual relationship between a debtor
and a creditor, and is not fiduciary in nature.” (emphasis added) (citation omitted)). There
are four “special circumstances” under which a fiduciary relationship can exist between a
lender and a borrower: the lender “(1) took on any extra services on behalf of [the
borrowers] other than furnishing . . . money . . . ; (2) received a greater economic benefit
from the transaction other than the normal mortgage; (3) exercised extensive control . . . ;
or (4) was asked by [the borrowers] if there were any lien actions pending.” Polek, 424
Md. at 366, 36 A.3d at 418. Borrowers do not cite, and our search does not reveal, any
evidence in the record suggesting that one or more of these “special circumstances” existed.
Thus, we will not transmute the contractual relationship between Borrowers and Petitioners
into a fiduciary relationship.
In sum, we hold that neither CJP § 5-203 nor the fiduciary rule tolled the statute of
limitations. There is neither evidence that Petitioners concealed the contents of the
Applications by discouraging Borrowers from reading them nor evidence that Borrowers
and Petitioners were ever in a fiduciary relationship. Because Borrowers were on inquiry
notice of their causes of action in 2006 and 2007 when they closed their HELOCs and
primary residential mortgages, and they did not file suit until December 2011, we further
hold Petitioners are entitled to judgment as a matter of law that Counts I–IX and XI are all
barred by the three-year statute of limitations.
23
Did Windesheim Or PNC Violate CL § 12-403(a) (Count X)?
In deciding whether Borrowers were entitled to judgment as a matter of law that
Petitioners violated CL § 12-403(a), the Court of Special Appeals addressed four separate
issues and decided that (1) SMLL claims are subject to a 12-year statute of limitations as a
specialty; (2) Windesheim could qualify as a “lender;” (3) “dissemination of information
to smaller groups of the public” could qualify as “advertising;” and (4) there was a genuine
dispute that Windesheim and her Employer “indirectly” advertised. See Larocca, 217 Md.
App. at 556–70, 94 A.3d at 209–17. Because we consider the “indirect” advertising issue
dispositive as to whether the intermediate appellate court erred in reversing summary
judgment for Petitioners on Count X, we limit our analysis to that issue.
Did Windesheim Or PNC Indirectly Advertise False Or Misleading Statements
Regarding Secondary Mortgage Loans Or Their Availability?
The record reveals that Mathews and Prosperity advertised in flyers and on the
Northrop Team website that they could provide “Home Equity Lines and Loans (to make
your client non-contingent).” Borrowers contend this statement was false and misleading
because Prosperity did not have a loan program to make Borrowers non-contingent—
Prosperity could not provide both the HELOCs and the primary residential mortgages and
had to fabricate rental income to approve the primary residential mortgages. Assuming
this statement was false and misleading, we address whether Petitioners could be liable
under CL § 12-403(a) for indirectly advertising it.
Section 12-403(a) provides that “[a] person may not advertise directly or indirectly
in the State any false or misleading statement regarding secondary mortgage loans or their
24
availability.” (Emphasis added.). Violation of CL § 12-403(a) or the other provisions of
the SMLL carries a severe penalty.21 Eager to prove they committed no such violation,
Windesheim and her Employer argue they cannot be liable for “indirect” advertising
because they never made any statements regarding HELOCs or their availability.
Borrowers disagree, contending that Petitioners can be liable for “indirect” advertising
because Prosperity advertised HELOCs on behalf of Windesheim and her Employer.
These arguments are premised on competing interpretations of what it means to advertise
“indirectly” under CL § 12-403(a). Petitioners’ argument assumes advertising “indirectly”
requires actually making false or misleading statements. Borrowers insist on a broader
interpretation for advertising “indirectly” that would include Windesheim’s facilitating
Prosperity’s false or misleading advertisements.
Bearing in mind that “[t]he cardinal rule of statutory interpretation is to ascertain
and carry out the true intention of the Legislature,” we begin with the words of the statute
and accord those words their ordinary and natural significance. Shenker v. Laureate Educ.,
21
CL § 12-413 provides:
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.
CL § 12-414 provides:
Any lender, his officer or employee and any other person who
willfully violates any provision of this subtitle is guilty of a
misdemeanor and on conviction is subject to a fine not
exceeding $1,000 or imprisonment not exceeding one year or
both.
25
Inc., 411 Md. 317, 347–48, 983 A.2d 408, 426 (2009). “If the language of the statute is
clear and unambiguous, we need not look beyond” the language of the statute to ascertain
the General Assembly’s intent. Anderson v. Council of Unit Owners of Gables on
Tuckerman Condominium, 404 Md. 560, 572, 948 A.2d 11, 19 (2008).
When the General Assembly does not define a statutory term, we fill in the meaning
by first looking to the “plain and ordinary meaning” of the term. Schreyer v. Chaplain,
416 Md. 94, 108, 5 A.3d 1054, 1062 (2010) (citation omitted). Because “indirect”
advertising is not defined in the SMLL, we consult dictionary definitions of “indirect.”22
The American Heritage Dictionary of the English Language defines “indirect” as an
adjective meaning “[d]iverging from a direct course; roundabout” and “[n]ot directly
planned for; secondary.” Id. 893 (4th ed. 2006).
Based on the language of CL § 12-403(a), we discern two equally reasonable
interpretations of advertising “indirectly.” First, a lender could advertise “indirectly” by
making a false or misleading statement to a potential borrower that the same potential
borrower then re-communicates to another potential borrower. Cf. Sherman v. Robinson,
80 N.Y.2d 483, 485, 606 N.E.2d 1365, 1366 (1992) (an “indirect sale” of liquor to a minor
22
See Marriott Emps. Fed. Credit Union v. Motor Vehicle Admin., 346 Md. 437,
447, 697 A.2d 455, 460 (1997) (“Although dictionary definitions do not provide dispositive
resolutions of the meaning of statutory terms, dictionaries . . . do provide a useful starting
point for determining what statutory terms mean, at least in the abstract, by suggesting
what the legislature could have meant by using particular terms.” (ellipses in original)
(citations and internal quotation marks omitted)); see also Norman J. Singer & Shambie
Singer, Statutes And Statutory Construction, § 47:28, 478–79 (7th ed. 2014) (“Absent a
statutory definition, . . . dictionaries can provide a useful starting point to determine a
term’s meaning, at least in the abstract, by suggesting what a legislature could have meant
by using a particular term.”).
26
is one in which a vendor sells alcohol to one customer who then shares that alcohol with a
minor); Bunker’s Glass Co. v. Pilkington plc, 202 Ariz. 481, 484, 47 P.3d 1119, 1122 (Ct.
App. 2002), aff’d, 206 Ariz. 9, 75 P.3d 99 (2003) (an “indirect purchas[e]” occurs when a
retailer purchases the manufacturer’s products from a wholesale distributor). In this
interpretation, the advertising is “indirect” because the original statements were “not
directly planned for” the third party. See The American Heritage Dictionary of the English
Language 893. Second, a party advertises “indirectly” by having another party advertise
false or misleading statements on the first party’s behalf. Cf. Sword v. NKC Hosps., Inc.,
714 N.E.2d 142, 147–48 (Ind. 1999) (vicarious liability, a legal theory under which a party
can be liable for the negligence of another acting on the first party’s behalf, is a form of
“indirect legal responsibility.” (emphasis added) (citation and internal quotation marks
omitted)). In this interpretation, the advertising is “indirect” because the first party
“diverg[es] from a direct course” by enlisting the support of another party to communicate
the false or misleading statements to potential borrowers. The American Heritage
Dictionary of the English Language 893.
With two reasonable interpretations of advertising “indirectly,” the language of CL
§ 12-403(a) is ambiguous. See Deville v. State, 383 Md. 217, 223, 858 A.2d 484, 487
(2004) (“A statute is ambiguous when there are two or more reasonable alternative
interpretations of the statute.”). When the language of a statute is ambiguous, we look to
the statute’s legislative history, purpose, and structure in ascertaining the General
Assembly’s intent. Walzer v. Osborne, 395 Md. 563, 573, 911 A.2d 427, 432 (2006).
27
We begin with legislative history. The General Assembly first enacted the SMLL
with Chapter 390 of the Acts of 1967 (Senate Bill 566). Section 12-403(a) was originally
Maryland Code (1957, 1972 Repl. Vol.), Article 66, § 67. In 1975, the General Assembly
transferred the SMLL into the new Commercial Law Article and Article 66, § 67 became
CL § 12-403(a) and (b). See Chapter 49 of the Acts of 1975. Other than the General
Assembly’s purpose statements and revisor’s notes in Chapter 390 of the Acts of 1967 and
Chapter 49 of the Acts of 1975, our search has uncovered no other legislative history for
CL § 12-403(a).23 These statements and notes provide no help in ascertaining which
definition of advertising “indirectly” is most consistent with the General Assembly’s intent.
We turn to statutory purpose. In Thompkins v. Mountaineer Investments, LLC, 439
Md. 118, 123–24, 94 A.3d 61, 64–65 (2014), we explained that the purpose of the SMLL
is to protect consumers:
23
The purpose of Chapter 390 of the Acts of 1967 was to
generally provide for the licensing of persons in the business
of negotiating secondary mortgage loans, and to generally
provide for the regulations of such persons and such loans, to
give the Banking Commissioner certain duties and powers in
the regulation of such persons and such loans, to provide
penalties for violations and to generally relate to secondary
mortgage transactions and the regulation of persons in this
business.
The purpose of Chapter 49 of the Acts of 1975 was to
add[] a new article to the Annotated Code of Maryland, to be
designated and known as the “Commercial Law Article,” to
revise, restate, and recodify the laws of this State relating and
pertaining to commercial and related transactions and
activities, in general, including matters relating to . . .
secondary mortgage loans[.]
In this session law, the revisor’s note associated with CL § 12-403(a) states that
“[t]his section is new language derived without substantive change from Art. 66, § 67.”
28
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. It was designed to
curb predatory practices that had caused many people, often
minorities and older people who were in debt and ignorant of
the intricacies of the law, to lose their homes and become
subject to crushing deficiency judgments for hugely inflated
interest, costs, and fees. It is a law intended to guard the foolish
or unsophisticated borrower, who may be under severe
financial pressure, from his own improvidence.
(Citations and internal quotation marks omitted.) Because false or misleading statements
regarding secondary mortgage loans or their availability have the potential to harm
consumers regardless of their source, it is reasonable that the General Assembly would
intend to proscribe both types of advertising “indirectly.” Cf. Wash. Home Remodelers,
Inc. v. State, Office of Att’y Gen., Consumer Prot. Div., 426 Md. 613, 628, 45 A.3d 208,
217 (2012) (the Maryland Consumer Protection Act, CL §13-101 et seq., should be
afforded a “liberal interpretation”). Accordingly, we conclude that a party advertises
“indirectly” under CL § 12-403(a) when it advertises false or misleading statements that
are re-communicated to another party and when it works with another party to advertise
false or misleading statements on its behalf.
The record is completely devoid of any evidence that Windesheim or PNC
advertised false or misleading statements that were later re-communicated. Thus,
Petitioners’ conduct did not satisfy our first definition of advertising “indirectly.”
We narrow our inquiry to our second definition of advertising “indirectly”—
whether Windesheim or PNC advertised through Prosperity. Borrowers argue
29
circumstantial evidence reveals that Petitioners advertised through Prosperity. This
circumstantial evidence primarily consists of emails demonstrating that Mathews would
work with new borrowers to secure financial information and preliminary paperwork for
HELOCs and then transfer that information and paperwork to Windesheim for her to
complete the process of approving the HELOCs through National City. For example, in
an October 19, 2006 email between Mathews and Windesheim discussing the Pfeifers’
HELOC, Mathews wrote, “Sue—here are some of their documents for Home Equity.” The
“documents” to which Mathews refers are various forms of proof of income such as
paystubs and bank and retirement account statements. In an April 10, 2007 email between
Mathews and Windesheim regarding a $234,000 HELOC for the Nafisi-Iranpours,
Mathews attached a “Borrower’s Consent for Credit Check” that the Nafisi-Iranpours had
already signed.
Borrowers ask us to infer that because Mathews initiated the contact with new
clients before she worked with Windesheim to approve the HELOCs through National
City, Windesheim must have known that Prosperity was falsely advertising that they could
provide HELOCs to permit their clients to buy-first-sell-later. Borrowers contend that
there was no way for the clients to learn about the HELOCs without this false advertising.
We need not determine whether Windesheim had knowledge of the false advertising by
Prosperity, however, because mere knowledge that another is falsely advertising would not
suffice for “indirect advertising” under the SMLL.
The precursor to CL § 12-403(a) was Maryland Code (1957, 1972 Repl. Vol.),
Article 66, § 67. This earlier version, slightly different from CL § 12-403(a), read: “[i]t
30
shall be unlawful for any person to cause to be placed before the public in this State,
directly or indirectly, any false or misleading advertising matter pertaining to secondary
mortgage loans or the availability thereof[.]” (Emphasis added.) In 1975, when the
General Assembly transferred Article 66, § 67 into the Commercial Law Article and
created CL § 12-403(a), the General Assembly made the statute more concise by removing
the phrase “to cause to be placed before the public” so that it read: “A person may not
advertise directly or indirectly in the State any false or misleading statement regarding
secondary mortgage loans or their availability.” Chapter 49 of the Acts of 1975, 439. The
Revisor’s Note, however, explicitly stated that the language of CL § 12-403(a) was
“derived without substantive change from Art[icle] 66, § 67.” Chapter 49 of the Acts of
1975, 440. The General Assembly has not changed the language of CL § 12-403(a) since
1975.
The phrase “to cause to be placed before the public” is an important indicator of
what conduct the General Assembly intended would be required to hold one liable for
advertising “indirectly.” To “cause” means “[t]o bring about.” The American Heritage
Dictionary of the English Language 296; accord Black’s Law Dictionary 251 (9th ed.
2009). We have applied this same definition of “cause.” See, e.g., Pittway Corp. v. Collins,
409 Md. 218, 248, 973 A.2d 771, 789 (2009) (a negligent act becomes a superseding cause
when it “brings about harm different in kind from that which would otherwise have
resulted from the actor’s negligence” (emphasis added) (citation and internal quotation
marks omitted)); Assateague Coastkeeper v. Md. Dep’t of Env’t, 200 Md. App. 665, 710,
28 A.3d 178, 205 (2011) (defining “cause” as “to bring about”).
31
We infer that by inserting “to be placed before the public” immediately after
“cause,” the General Assembly intended that a person would have to bring about the
placing of a false or misleading statement before the public to be liable for advertising
“indirectly.” The General Assembly’s non-substantive revision in which it removed the
phrase “cause to be,” did not change the law:
[R]ecodification of statutes is presumed to be for the purpose
of clarity rather than change of meaning and, thus, even a
change in the phraseology of a statute by a codification will not
ordinarily modify the law unless the change is so radical and
material that the intention of the Legislature to modify the law
appears unmistakably from the language of the Code.
Allen v. State, 402 Md. 59, 71–72, 935 A.2d 421, 428 (2007) (citation and internal
quotation marks omitted). Specifically, the General Assembly did not intend to change the
requirements for advertising “indirectly.”
In this case, there is no evidence that Windesheim or PNC did anything to bring
about the false advertising of HELOCs. We find no evidence that Petitioners encouraged
or contracted with Prosperity to falsely advertise, participated in the development of the
false advertisements, or did anything else that would allow us to conclude that they brought
about the false advertisements. Even assuming Windesheim knew about the false
advertisements, this knowledge did nothing to bring them about.
Conspiracy
Borrowers also contend, alternatively, that Windesheim and her Employer can be
vicariously liable for “indirect” advertising based on a conspiracy theory. We explained
32
the nature of civil conspiracy in West Maryland Dairy v. Chenowith, 180 Md. 236, 243, 23
A.2d 660, 664 (1942):
When individuals associate themselves together in an unlawful
enterprise, any act done by one of the conspirators is in legal
contemplation the act of all. The mind of each being intent
upon a common object, and the energy of each being enlisted
in a common purpose, each is the agent of all the others, and
the acts done and words spoken during the existence of the
enterprise are consequently the acts and words of all.
Civil conspiracy requires proof of three elements: “1) A confederation of two or
more persons by agreement or understanding; 2) [S]ome unlawful or tortious act done in
furtherance of the conspiracy or use of unlawful or tortious means to accomplish an act not
in itself illegal; and 3) Actual legal damage resulting to the plaintiff.” Lloyd v. Gen. Motors
Corp., 397 Md. 108, 154, 916 A.2d 257, 284 (2007) (citation and internal quotation marks
omitted). Civil conspiracy may be proved by circumstantial evidence because “in most
cases it would be practically impossible to prove a conspiracy by means of direct evidence
alone.” Hoffman v. Stamper, 385 Md. 1, 25, 867 A.2d 276, 291 (2005) (citation and internal
quotation marks omitted). More specifically, a civil conspiracy
may be established by inference from the nature of the acts
complained of, the individual and collective interest of the
alleged conspirators, the situation and relation of the parties at
the time of the commission of the acts, the motives which
produced them, and all the surrounding circumstances
preceding and attending the culmination of the common
design.
Id. at 25–26, 867 A.2d at 291 (citation and internal quotation marks omitted).
There are three unlawful acts that Borrowers identify as the basis for a civil
conspiracy between Petitioners and Prosperity: (1) falsely advertising that Prosperity could
33
provide Borrowers’ HELOCs and their primary residential mortgages; (2) misrepresenting
on the HELOC Applications that Borrowers were applying for HELOCs against their
primary residences; and (3) falsifying rental income on the Primary Mortgage
Applications.
Evidence that Prosperity falsely advertised that it could provide the HELOCs and
primary residential mortgages fails the first element of the civil conspiracy test. Although
the facts suggest that Windesheim knew that Mathews was working with the same clients
for which Windesheim processed HELOC applications,24 there is no evidence from which
one could reasonably infer that Windesheim knew that Mathews and Prosperity were
falsely advertising that Prosperity, not National City, would provide the HELOCs. Without
any evidence that Windesheim or her PNC knew about the false advertising, we cannot
conclude there was an agreement or understanding between Petitioners and Prosperity to
falsely advertise the availability of HELOCs.
The second—misrepresenting that Borrowers were applying for HELOCs against
their primary residences—also fails, for a somewhat different reason. There are several
emails that support an inference that Windesheim and Mathews agreed that Windesheim
24
Windesheim was included on emails in which Mathews discussed arranging
HELOCs for clients. Other emails demonstrate that Mathews would obtain initial financial
information from potential borrowers and then transfer that paperwork to Windesheim so
she could complete the applications and process the loans through National City.
34
would misrepresent to National City that Borrowers were applying for HELOCs against
their primary residences.25
An agreement to have Borrowers make that misrepresentation to National City may
be an illegal conspiracy to defraud the bank. But it is the wrong conspiracy. Borrowers’
suit is based on alleged false advertising. For the acts of one co-conspirator to be regarded
as acts of the other co-conspirators for purposes of establishing liability, the acts must be
in furtherance of the conspiracy. Mackey, 391 Md. at 144, 892 A.2d at 495; see id.
(“[C]ivil co-conspirators . . . act as agents of one [an]other when engaging in acts in
furtherance of their conspiracy.” (emphasis added)). Here, Prosperity’s falsely advertising
that it could provide the HELOCs cannot be regarded as an act of Petitioners because the
only evidence of conspiracy between Prosperity and Windesheim was to defraud
Windesheim’s employer, PNC. Thus, there can be no liability for Petitioners.
Finally, there is no evidence that Windesheim or PNC conspired with Prosperity to
falsify rental income. Borrowers offered no evidence identifying which of the numerous
25
In a March 2, 2007 email with a potential borrower, Mathews lamented that the
potential borrower did not have a contract on her current home. Mathews then committed
to arranging a HELOC for the borrower and expressed that she “hope[d] that lowering the
price will help you obtain the offer on your house soon.” Windesheim was included on
this email. In another email initiated by Mathews and on which Windesheim was included,
Mathews confirmed that Windesheim would process a HELOC for the Nafisi-Iranpours to
“go non [c]ontingent.” The Nafisi-Iranpours’s HELOC Application bears Windesheim’s
name and the box for “primary residence” is checked. Moreover, in an email between
Mathews, Windesheim, and Frank Larocca, Mathews discussed removing the “for sale”
sign from the Laroccas old home while it was appraised. The email goes on to address tax
return documents that could be used to qualify the Laroccas for a HELOC. The Larocca’s
HELOC Application bears Windesheim’s name and the box for “primary residence” is
checked.
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Defendants falsified the rental income. Although Mathews may have had a financial
interest in ensuring that the fraudulent rental income was included on the Primary Mortgage
Applications, neither PNC nor Windesheim shared this interest. See Hoffman, 385 Md. at
25, 867 A.2d at 291 (One of the circumstances we consider when determining whether
there is evidence of civil conspiracy is “the individual and collective interest of the alleged
conspirators.”). Their interest was only in the HELOCs, which were not contingent on the
Prosperity loans. Given a lack of interest in Prosperity’s loans and no direct evidence of
agreement, we find no evidence in the record from which a reasonable juror could infer
that Petitioners and Mathews or Prosperity conspired to falsify rental income.
In sum, not only is there no evidence that Windesheim or PNC brought about false
advertising of HELOCs, but also there is no factual basis upon which they could be held
liable for false advertising based on a conspiracy theory. Accordingly, we conclude as a
matter of law that Petitioners did not advertise “indirectly” under CL § 12-403(a).
CONCLUSION
In conclusion, we hold that Borrowers were on inquiry notice of their causes of
action against Windesheim and her Employer when Borrowers closed their HELOCs and
primary residential mortgages in 2006 and 2007. Borrowers are presumed to have read
and understood the contents of the Applications because it is undisputed that Borrowers
signed them at the closings. With knowledge of several elements of critical information
that suggested that their loan transactions were not proceeding as they expected, Borrowers
had sufficient information for inquiry notice. Neither CJP § 5-203 nor the fiduciary rule
tolled the statute of limitations because there is neither evidence that Petitioners
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encouraged Borrowers not to read the Applications nor evidence that Borrowers and
Petitioners were in a fiduciary relationship. Thus, because Borrowers did not file their suit
until December 2011, Windesheim and her Employer are entitled to judgment as a matter
of law that Counts I–IX and XI are barred by the three-year statute of limitations.
We further hold that Petitioners did not indirectly advertise any false or misleading
statements about secondary mortgage loans or their availability. There is neither evidence
that Windesheim or PNC brought about false advertising nor evidence that would support
liability for false advertising based on a conspiracy theory. Thus, Petitioners are entitled
to judgment as a matter of law that they did not violate CL § 12-403(a) (Count X).
Accordingly, we reverse the judgment of the Court of Special Appeals reversing the
Circuit Court’s grant of summary judgment for Windesheim and her Employer on Counts
I–XI.
JUDGMENT OF THE COURT OF
SPECIAL APPEALS REVERSED AS
TO PETITIONERS. CASE
REMANDED TO THAT COURT
WITH INSTRUCTIONS TO AFFIRM
THE JUDGMENT OF THE CIRCUIT
COURT FOR HOWARD COUNTY
AS TO PETITIONERS AND TO
CONDUCT SUCH FURTHER
PROCEEDINGS AS ARE
NECESSARY AND NOT
INCONSISTENT WITH THIS
OPINION. COSTS TO BE PAID BY
RESPONDENTS.
37