Bank of Commerce v. Maryland Financial Bank

Filing

UNPUBLISHED AUTHORED OPINION filed. Originating case number: 1:14-cv-00610-ELH. Copies to all parties and the district court. [999755049]. [15-1328]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-1328

BANK OF COMMERCE,
Plaintiff - Appellee,
v.
MARYLAND FINANCIAL BANK,
Defendant - Appellant.

Appeal from the United States District Court for the District of
Maryland, at Baltimore.
Ellen L. Hollander, District Judge.
(1:14-cv-00610-ELH)

Argued:

December 9, 2015

Decided:

February 16, 2016

Before MOTZ and FLOYD, Circuit Judges, and John A. GIBNEY, Jr.,
United States District Judge for the Eastern District of
Virginia, sitting by designation.

Affirmed by unpublished opinion.
Judge Gibney
opinion, in which Judge Motz and Judge Floyd joined.

wrote

the

ARGUED: Demetrios George Kaouris, MILES & STOCKBRIDGE, P.C.,
Easton, Maryland, for Appellant.
Margaret Moran McKee, PROCTOR
& MCKEE, P.A., Towson, Maryland, for Appellee.
ON BRIEF: K.
Donald Proctor, PROCTOR & MCKEE, P.A., Towson, Maryland, for
Appellee.

Unpublished opinions are not binding precedent in this circuit.

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GIBNEY, District Judge:
Bank of Commerce (“Commerce”) and Maryland Financial Bank
(“MFB”)

disagree

contract,

and

about

what

$227,323.82

the

word

hangs

in

“first”

the

means

balance.

in

a

MFB

and

Commerce’s predecessor in interest, Bank of the Eastern Shore
(“BOES”), entered into a Participation Agreement in which MFB
purchased an interest in one of BOES’s loans.

When Commerce

later foreclosed on the underlying property, it paid MFB its pro
rata share of the foreclosure proceeds.

MFB, however, thought

the contract entitled it to “first out” payment.

In a “first

out” payment scheme, MFB would recover its entire interest in
the

loan

greater

before
share

Commerce

of

the

recovered

anything,

foreclosure

giving

proceeds.

MFB

Because

a
the

Participation Agreement, when read in full, provides for pro
rata

distribution

of

foreclosure

proceeds,

we

affirm

the

District Court’s grant of summary judgment to Commerce.
We also reject MFB’s argument that an October 2011 letter
explains

or

Participation
refer
letter

to

modifies

the

Agreement

is

extrinsic

expressly

evidence

“affirms”

Participation
unambiguous,
to
the

interpret
terms

Agreement, and thus does not modify it.

2

so

of

Agreement.
the
it.
the

Court

The
cannot

Further,

the

Participation

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I. BACKGROUND
In

November

2006,

BOES

loaned

a

borrower

dollars to acquire and renovate a country club.

three

million

In August 2008,

BOES and MFB entered into an agreement in which MFB bought a
participation interest in the loan.
said

that

“MFB’s

interest

in

The Participation Agreement
the

loan,

expressed

percentage, is 25.00% (the ‘Participant’s Share’).”

as

a

J.A. 11

(emphasis in original).
Several
important
explains

for
how

sections

of

purposes
the

the

of

parties

Participation

this

must

appeal.

divide

Agreement

First,

payments

Section

received.

says:
7. Payments.
[BOES] shall report to MFB,
MFB’s share of all accrued interest, fees,
payments . . . [and] promptly remit to MFB
its share based on the priorities indicated
below. [Check only one box.]
a. [ ]
First Out: First, to MFB,
until each time as MFB has received an
amount
equal
to
its
Participation
Amount, then to [BOES] until such time
as [BOES] has received an amount equal
to its Retained Amount and then ratably
between [BOES] and MFB in an amount
equal to their respective allocable
shares
(based
on
MFB’s
Participant
Share) of interest, fees and any other
payments other than principal amounts.
b. [ ]

Last Out: . . .

c. [X]
Pro Rata: Ratably between MFB
and [BOES] (with appropriate allocation

3

are
7
It

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of fees, interest and other payments,
based on MFB’s Participant’s Share).
d. [ ]
J.A. 14–15.

100%: . . . .

The parties put an “X” in the space for option (c),

requiring a pro rata sharing of payments from the borrower.
Section 8 obliges the parties to divide any losses on the
loan in the same pro rata method that they split up payments.
Specifically, this section says that the parties will “share
[losses] pro-rata in accordance with . . . [their] respective
participation interests.”

J.A. 15.

Read together, Sections 7 and 8 divide payments and losses
on a pro rata basis, determined by the participation interest in
the loan.

MFB’s participation interest is 25%, so it would

receive 25% of the borrower’s payments, and suffer 25% of any
losses on the loan.
Finally, Section 9 sets forth the method to allocate the
proceeds from a foreclosure.

In pertinent part, Section 9 says:

(b) If foreclosure upon the Collateral is
the action taken, [BOES] shall promptly
remit to MFB its percentage interest first,
as
hereinabove
specified,
of
all
net
proceeds received by [BOES] as a consequence
of such foreclosure proceeding . . . .
J.A. 16.

This section also provides that if BOES acquires any

property during the foreclosure process, both BOES and MFB will
own the property “equal to their respective percentage interests
in the Loan.”

J.A. 16.
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In

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October

2011,

BOES

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emailed

MFB

a

then-president (hereinafter, “the Letter”).

letter

from

BOES’s

It reads:

This letter is to affirm the Bank of the
Eastern Shore has agreed to remit all
proceeds on a FIRST OUT BASIS to MFB if the
above loan (collateral) is obtained as a
consequence of a foreclosure proceeding by
BOES.
This condition is contained in the
Participation Agreement, dated August 17,
2008, Section 9(b), Default by Borrower.
J.A.

128.

According

to

MFB,

the

Letter

responded

to

MFB’s

“request [for] confirmation from BOES that any foreclosure of
the property owned by [the borrower] would result in MFB getting
paid its participation interest first from the proceeds of any
foreclosure sale.”
In

J.A. 125–26.

2012,

Commerce

assumed

In

loan.

April

August

2013,

Commerce

proceedings against the borrower.

BOES’s

interest

initiated

in

the

foreclosure

At the time, the outstanding

loan principal balance was $2,302,765.12.
foreclosure sale were $1,393,469.86.

The proceeds from the

Commerce paid 25% of these

proceeds, or $348,367.46, to MFB.
In March 2014, Commerce sued MFB to clarify the parties’
rights
Commerce

to

the

argued

proceeds
that,

from

under

the

the

foreclosure

Participation

proceeding.

Agreement,

MFB

should receive 25% of the foreclosure proceeds, or $348,367.46—a
pro rata distribution.

On the other hand, MFB argued that it

should receive its remaining 25% interest in the loan (i.e., 25%

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of the outstanding loan balance) from the foreclosure proceeds,
or $575,691.28—a “first out” distribution.
The parties filed cross-motions for summary judgment in the
District Court.
Agreement

Both parties contended that the Participation

clearly

Alternatively,

and

MFB

unambiguously

argued

that

supports

the

their

position.

Participation

Agreement

contains ambiguity, requiring the District Court to consider the
Letter as extrinsic evidence.

MFB also provided an alternative

spin on the Letter—that it modified the Participation Agreement.
The

District

Court

entered

summary

judgment

for

Commerce,

finding that the Participation Agreement unambiguously supported
Commerce’s position and, therefore, that the District Court need
not consider the Letter.
II. ANALYSIS
This

Court

reviews

summary judgment de novo.

a

district

court’s

decision

granting

French v. Assurance Co. of Am., 448

F.3d 693, 700 (4th Cir. 2006).

A district court should grant

summary judgment when “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.”

Fed. R. Civ. P. 56(a); see also

Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).

When

parties file cross-motions for summary judgment, “the court must
review each motion separately on its own merits to determine
whether either of the parties deserves judgment as a matter of
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law.”

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Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)

(internal citation omitted).
A. THE AGREEMENT
Pursuant

to

Section

20

of

the

Maryland law applies to this dispute.

Participation
J.A. 19.

Agreement,

Maryland courts

“apply the law of objective contract interpretation.”

Dumbarton

Improvement Ass’n, Inc. v. Druid Ridge Cemetery Co., 434 Md. 37,
51, 73 A.3d 224, 232 (2013) (internal citation and alteration
omitted);

see

jurisprudence
oft-stated.”).

id.
on

(“[The

contract

Court

of

Appeals

interpretation

is

of

Maryland’s]

well-settled

and

Thus, when interpreting a contract, courts need

not discern the actual mindset of the parties at the time of the
agreement, but instead must “determine from the language of the
agreement itself what a reasonable person in the position of the
parties would have meant at the time it was effectuated.”
at

52,

73

A.3d

at

232

(quoting

Gen.

Motors

Acceptance

Daniels, 303 Md. 254, 261, 492 A.2d 1306, 1310 (1985)).

Id.
v.
In

other words, “a contract’s unambiguous language will not give
way to what the parties thought the contract meant or intended
it to mean at the time of execution.”

Id. at 51–52, 73 A.3d at

232 (quoting Sy-lene of Wash., Inc. v. Starwood Urban Retail II,
LLC, 376 Md. 157, 167, 829 A.2d 540, 546 (2003)).
When

interpreting

a

contract,

a

court

must

read

the

contract in its entirety, “and, if reasonably possible, effect
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must be given to each clause so that a court will not find an
interpretation which casts out or disregards a meaningful part
of the language of the writing unless no other course can be
sensibly and reasonably followed.”
(internal citation omitted).
the

contract

provisions

Id. at 52, 73 A.3d at 233

The court should strive to read

“harmoniously,

and

not

construe

them

either to render one nugatory or to create unnecessary conflict
among them.”

Walker v. Dep’t of Human Res., 379 Md. 407, 420,

842 A.2d 53, 61 (2004); see also Baltimore Gas & Elec. Co. v.
Commercial Union Ins. Co., 113 Md. App. 540, 554, 688 A.2d 496,
503 (1997) (“A contract must be construed as a whole, and effect
given to every clause and phrase, so as not to omit an important
part of the agreement.”).
If, however, after reviewing the contract, “the language of
the

contract

is

susceptible

of

more

than

one

reasonably prudent person,” an ambiguity exists.

meaning

to

a

Cnty. Comm’rs

of Charles Cnty. v. St. Charles Assocs. Ltd. P’ship, 366 Md.
426, 445, 784 A.2d 545, 556 (2001); see also Slice v. Carozza
Props., Inc., 215 Md. 357, 368, 137 A.2d 687, 693 (1958) (“The
written language embodying the terms of an agreement will govern
the rights and liabilities of the parties, irrespective of the
intent

of

the

parties

at

the

time

they

entered

into

the

contract, unless the written language is not susceptible of a
clear and definite understanding . . . .”).
8

If an ambiguity

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exists, “the court must consider any extrinsic evidence which
sheds light on the intentions of the parties at the time of the
execution of the contract.”

Cnty. Comm’rs of Charles Cnty., 336

Md. at 445, 784 A.2d at 556 (quoting Heat & Power Corp. v. Air
Prods. & Chems., Inc., 320 Md. 584, 596–97, 578 A.2d 1202, 1208
(1990)).
In this case, the relevant section of the Participation
Agreement,

Section

9(b),

reads:

“If

foreclosure

upon

the

Collateral is the action taken [in response to default], [BOES]
shall promptly remit to MFB its percentage interest first, as
hereinabove specified, of all net proceeds received by [BOES] as
a consequence of such foreclosure proceeding.”

J.A. 16.

While

the contract does not define the term “percentage interest,” the
Court reads the sentence as any reasonable person would on first
bite: BOES must pay MFB its percentage share (i.e., 25%) of all
net proceeds.
MFB hangs its argument on the word “first” in the operative
sentence of Section 9(b).

MFB argues that “first” means “first

out,” so that MFB should get the foreclosure proceeds “until
[such]

time

as

MFB

Participation Amount.”

has

received

J.A. 14.

an

amount

equal

to

its

The parties, however, knew how

to say “first out” if they desired.

In fact, in Section 7 they

defined both “First Out” and “Pro Rata.”

That they defined

“First Out” as a term of art in the contract, and then chose not
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to use the term in the foreclosure section of the agreement,
requires the Court to find that “first” means something other
than “first out.”
The

use

of

the

word

“first”

in

the

foreclosure

section

could mean a number of things, such as the order in which MFB
should send out checks after a foreclosure proceeding.

Whatever

“first” means in Section 9(b), it does not mean the defined term
“First

Out.”

agreed

to

a

Everywhere
pro

rata

else

in

the

distribution

of

contract,

the

parties

profits

and

losses.

Accordingly, it makes sense that they agreed to the same pro
rata distribution in the foreclosure section, especially where
they chose not to use the defined term “First Out.”
Awarding MFB a pro rata share of the foreclosure proceeds
fits with the remainder of Section 9(b), which uses the term
“percentage interest” to dictate how BOES and MFB would share
any property acquired—as opposed to funds received, as addressed
in the first sentence—by BOES during a foreclosure proceeding. 1
The

only

sensible

reading

of

this

provision

results

in

MFB

having a 25% interest in any property acquired, because a “first
out” distribution could not feasibly work with interests in real
property.

Thus,

under

MFB’s

1

reading

of

the

Participation

This could occur if BOES had bought the property at
foreclosure, or if it accepted a deed to the land in lieu of
foreclosure.

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Agreement, it would receive two different amounts depending on
whether the foreclosure proceeding resulted in a sale or in the
lender taking over the property.

Instead, the Court’s reading

prevents this unusual inconsistency.
The Court’s interpretation of Section 9(b) to require a pro
rata distribution is consistent with the other sections of the
Participation
sharing.

Agreement,

See,

e.g.,

all
J.A.

of

which

14–15

provide

(requiring

for
BOES

pro
to

rata
remit

payments from the borrower to MFB pro rata in Section 7); J.A.
17–18 (requiring ratable application of all collections received
by BOES in Section 15(d)).

Most notably, Section 8 provides

that MFB “shall share pro-rata . . . any losses sustained in
connection

with

the

Loan.”

J.A.

15.

If

we

read

the

Participation Agreement as MFB advocates, MFB would not share
the losses on the loan pro rata.

Indeed, if Section 9(b) called

for “first out” distribution, MFB would not incur any loss on
the

loan.

This

proposed

reading

cannot

stand,

as

it

would

“disregard[] a meaningful part of the language of the writing.”
Dumbarton Improvement Ass’n, 434 Md. at 52, 73 A.3d at 233.
Thus, applying Maryland law, we hold that the Participation
Agreement
proceeds

provides
from

a

for

a

pro

rata

foreclosure.

distribution

Since

the

of

language

the

net

of

the

Participation Agreement leaves no ambiguity on this issue, the

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Court does not look to extrinsic evidence.

We therefore affirm

the District Court’s grant of summary judgment to Commerce.
B. THE ALLEGED MODIFICATION
MFB

maintains

that

even

if

the

Participation

Agreement

requires a pro rata distribution of foreclosure proceeds, MFB
and BOES modified the Participation Agreement, as documented in
the Letter. 2

The District Court did not address this argument,

but we can address it on appeal.

We may decide an issue raised

on cross-motions for summary judgment, rather than remand it,
when

“the

facts

are

uncontroverted.”

Monahan

v.

Cnty.

of

Chesterfield, Va., 95 F.3d 1263, 1265 (4th Cir. 1996) (internal
citation omitted).
Here, MFB argues that the Letter modified the Participation
Agreement.

The

express

language

directly contradicts this argument.

of

the

Letter,

however,

The Letter itself says that

it “is to affirm” the Participation Agreement’s terms.
128.

J.A.

Further, the Letter states that the condition discussed

2

The Participation Agreement contains a clause requiring
that both parties sign any modification.
J.A. 18.
The Letter
does not bear the signature of an MFB representative, leading
Commerce to argue that the Letter cannot modify the agreement.
Maryland law, however, “may operate to allow supplementation or
even modification of the express terms of a valid contract.”
600 N. Frederick Rd., LLC v. Burlington Coat Factory of Md.,
LLC, 419 Md. 413, 438, 19 A.3d 837, 852 (2011). The Court need
not reach this issue because, as explained below, it concludes
that the Letter does not even purport to modify the contract.

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“is

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contained

9(b).”

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in

the

J.A. 128.

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Participation

Agreement

.

.

Section

BOES sent the Letter in response to MFB’s

request for “confirmation” of the agreement.
added).

.

J.A. 125 (emphasis

Clearly, the parties did not view the Letter as a

modification then, nor can we now.
III. CONCLUSION
To
requires

summarize,

the

distribution

Participation
of

Agreement

foreclosure

proceeds

unambiguously
pro

rata.

Further, the Letter, by its very language, does not qualify as a
modification.
decision

of

Thus, for the reasons stated above, we affirm the
the

District

Court

granting

summary

judgment

to

Commerce.
AFFIRMED

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