Wachovia Dealer Services, Inc. v. Chesapeake Financial Services, Inc. et al
Filing
231
MEMORANDUM AND ORDER granting 120 Motion for Partial Summary Judgment; granting in part and denying in part 128 Defendant's partial Motion for Summary Judgment; granting in part and denying in part 137 Plaintiff's Motion for Partial Summary Judgment;granting in part and denying in part 179 Motion for Summary Judgment; granting in part and denying in part 183 Motion for Summary Judgment; granting in part and denying in part 195 Motion for Summary Judgment; denying 217 Motion to Strike; and denying 175 Plaintiff's Motion in Limine without prejudice. Signed by Judge Marvin J. Garbis on 7/18/13. (apls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
WELLS FARGO BANK, N.A.
*
*
Plaintiff
*
vs.
*
CHESAPEAKE FINANCIAL
SERVICES, INC., et al.
*
Defendants
*
*
*
CIVIL ACTION NO. MJG-08-2439
*
*
*
*
*
*
*
MEMORANDUM AND ORDER RE: MOTIONS FOR SUMMARY JUDGMENT
The Court has before it:
1.
2.
Defendant Atlantic Boat Documentation, Inc.'s Motion
for Partial Summary Judgment [Document 128];
3.
Plaintiff's . . . Motion for Partial Summary Judgment
as to Atlantic Boat Documentation, Inc.'s Liability
for Negligence [Document 137];
4.
1
Plaintiff Wells Fargo Dealer Services1, Inc.'s Motion
for Partial Summary Judgment as to Defendant
Chesapeake Financial Services, Inc.'s Liability for
Breach of Contract (Count I and Count III) and Philip
Colonna's Liability for Breach of Contract (Count IV)
[Document 120];
Defendants Chesapeake Financial Services' and Philip
Colonna's Motion for Summary Judgment [Document 179]
(sealed);
Effective June 30, 2011, Wells Fargo Dealer Services, Inc.,
merged into Wells Fargo Bank, N.A. and ceased to exist as a
separate corporate entity. On December 11, 2012, the Court
granted Plaintiff's Request to Amend Case Caption Wells Fargo
Dealer Services, Inc. with Wells Fargo Bank, N.A. as the named
plaintiff [Document 228].
5.
Defendant/Cross-Defendant Atlantic Boat Documentation,
Inc.'s Motion for Summary Judgment [Document 183];
6.
Plaintiff's . . . Motion for Summary Judgment
[Document 195];
7.
Defendant/Cross-Defendant Atlantic Boat Documentation,
Inc.'s Motion to Strike Portions of Plaintiff's Reply
(Document No. 214) and to Strike the Affidavits of
Meere (Document No. 214-1) and Murphy (Document No.
214-2) in their Entirety [Document 217]; and
8.
Plaintiff's Motion in Limine to Preclude Testimony of
Defendant Chesapeake Financial Services, Inc.'s
Designated Experts David Griffith, Thomas J. Lekan,
and Charles Brian Diggs [Document 175].2
and the materials submitted relating thereto.
The Court has held a hearing and has had the benefit of
the arguments of counsel.
I.
INTRODUCTION
As discussed at length herein, two conmen perpetrated a
fraud that caused a lender to fund a fraudulent boat purchase
loan.
The scam yielded the conmen approximately $885,000 as
well as, eventually, prison sentences.
The lender has brought
the instant law suit to recover its loss from the broker, who
arranged the loan, and/or the documentation company retained to
document the transaction.
The broker, if held liable, seeks to
2
A summary chart illustrating which party is seeking summary
judgment on which claim is attached hereto as Appendix A.
2
cast away blame (and liability) by placing it upon the
documentation company.
The cast consists of:
The Conmen - Michael Vorce ("Vorce") and James
Jett ("Jett")
The Boat – the Faithful, a 56-foot Viking yacht
The Purported Boat's Owner/Seller - JRP Marine
LLC ("JRP Marine") owned by Roy and Jan Pence
("the Pences")
The Purported Purchaser/Borrower - Victor Cribb
Jr. ("Cribb")
The Lender - Wells Fargo Dealer Services ("Wells
Fargo")
The Loan Broker - Chesapeake Financial Services,
Inc. ("Chesapeake"), whose principal is Philip
Colonna ("Colonna")
The Documentation Company - Atlantic Boat
Documentation, Inc. ("ABD")
In general, the scheme worked like this:
The Conmen identified the Boat (which was
actually for sale) and the identity of the Owner,
JRP Marine.
The Conmen obtained the credit report of Cribb
providing his identity information and
establishing his financial ability to purchase
the Boat.
3
The Conmen contacted Chesapeake and, using
fabricated documents, presented an application
for a loan to finance Cribb's purchase of the
Boat.
Chesapeake put together a "credit package" and
sent it to Wells Fargo and ultimately obtained
approval of the loan.
Chesapeake retained ABD to effect the proper
filing of documents to establish what, absent
fraud, would have been a security interest in
favor of Wells Fargo.
Wells Fargo paid the loan proceeds of $885,000 to
Chesapeake who in turn wired the proceeds to an
account it believed to be that of Cribb's
investment banker, but in reality was controlled
by the Conmen.
As discussed at length herein (and in the order discussed
herein), the Court concludes:
1.
Chesapeake and Colonna are entitled to summary
judgment on the RICO claims (Counts VI and VII).
2.
Wells Fargo is entitled to summary judgment on its
contract claims against Chesapeake and Colonna (Counts
I, III, and IV) subject to the still pending
affirmative defense of equitable estoppel.
3.
With respect to Chesapeake's breach of contract cross
claim against ABD (Claim I), ABD is entitled to
partial summary judgment establishing that it had no
"verification obligation" but there is a material
dispute of fact regarding the alleged "Certificate of
Documentation obligation" (as defined herein) with
respect to the Cribb transaction.
4
4.
5.
II.
As to Wells Fargo's negligence claim against
Chesapeake (Count II), Chesapeake is not entitled to
partial summary judgment establishing no liability and
Wells Fargo will be permitted to designate Mr. Lynn as
an expert in support of its negligence claim, subject
to the conditions discussed herein. Absent adequate
expert testimony, Wells Fargo's negligence claim will
be limited to Acts 2 and 3 (as defined herein).
Chesapeake is not entitled to summary judgment on its
contributory negligence defense.
As to Wells Fargo's negligence claim against ABD
(Count V), Wells Fargo is entitled to partial summary
judgment establishing that ABD owed it a tort duty to
exercise reasonable care in the provision of its
"documentation services" in the Cribb transaction.
ABD is entitled to partial summary judgment
establishing that this duty does not include an
affirmative duty to investigate or prevent fraud in
the underlying boat sale transaction. There is a
genuine issue of material fact regarding whether ABD
acted as the agent of Wells Fargo in connection with
the Cribb transaction thereby giving rise to certain
fiduciary duties. There exist genuine issues of
material fact regarding whether ABD breached its tort
duty (and potentially any duties based upon a finding
of agency) in the ways identified by Wells Fargo.
BACKGROUND
A.
Loan Approval Process – Wells Fargo and Chesapeake
On August 27, 2007, Wells Fargo entered into the "Marine
Operating Agreement" ("MOA") with Chesapeake in an attempt to
"consolidate the number of loan brokers sending it business."
5
C&C's3 Summ. J. [Document 179-1] (sealed) at 5.
The MOA governed
the obligations of Chesapeake and Wells Fargo in relation to
Chesapeake's submission of "Credit Packages"4 on behalf of
persons seeking to finance boat purchases and Wells Fargo's
origination of promissory notes and related security agreements
in connection therewith.
When an "Obligation"5 involved the
granting of a security interest in the boat as collateral for
the loan, the responsibility for documenting the boat with the
United States Coast Guard, including performing tasks related to
perfecting a preferred ship mortgage6 through recordation with
the Coast Guard, rested with Chesapeake or the boat
documentation service company Chesapeake used for such tasks.
See MOA § C(3)(e),(4).
Upon receipt of a "Credit Package" from Chesapeake, Wells
Fargo reviews the materials and either (1) disapproves the loan,
(2) approves the loan, or (3) approves the loan with conditions.
3
Defendants Chesapeake and Colonna are sometimes
collectively referred to as "C&C."
4
The MOA defines the term "Credit Package" to include
"credit applications and . . . other credit information." MOA
at 1.
5
The MOA defines "Obligation" as "installment promissory
notes and related security agreements which evidence a direct
loan" by Wells Fargo. Id.
6
As discussed infra, a preferred ship mortgage is a
"lien on the mortgaged vessel in the amount of the
outstanding mortgage indebtedness secured by the vessel"
and has special implications in the marine realm. See 46
U.S.C. § 31325.
6
Upon approval by Wells Fargo, Chesapeake prepares certain papers
for the loan, including the promissory note.
Chesapeake then
forwards the promissory note, related security agreements, the
preferred ship mortgage, and any other documents to the loan
applicant for signature.
Upon return of the executed documents
to Chesapeake from the loan applicant, Chesapeake forwards them
to Wells Fargo with any other documents required by Wells Fargo,
such as a copy of the loan applicant's driver's license (the
"Closing Package").
Wells Fargo then reviews the Closing
Package and makes a determination as to whether to fund the boat
loan.
If Wells Fargo decides to fund the boat loan, it sends a
funding notice to Chesapeake.
B.
See MOA § A, B.
Documentation Process – Chesapeake and ABD
As provided in ABD's brochure for "Vessel Documentation and
the Service that Provides It," boat documentation is "a national
form of registration" for vessels with the Coast Guard's
National Vessel Documentation Center ("NVDC"). [Document 19512].
The documentation "provides evidence of nationality" for a
boat and involves recordation of certain documents with the
Coast Guard.
Id.
In a financing situation, the boat documentation process
includes filing a preferred ship mortgage with the Coast Guard
7
for recording in order to perfect any security interest provided
therein and/or in related security agreements.7
When Wells Fargo requires a boat loan to be documented with
the Coast Guard, Chesapeake can obtain documentation services by
making a request to ABD.
Although the parties dispute the
actual role and duties of ABD in a transaction involving
Chesapeake and Wells Fargo, ABD at a minimum performs the
following tasks, not necessarily in this order:
1.
ABD uses the information provided by
regarding the boat loan to create an
sheet and load that information into
database. Such information includes
name, the boat name and Hull ID, the
name, and the lender's name;
2.
ABD obtains the Abstract of Title on the boat
involved in the transaction from the Coast Guard;
3.
If one of the parties to the boat sale is an
entity, ABD confirms the entity is in good
standing in its state of incorporation or
organization;
4.
ABD prepares paperwork for the buyer to sign
including, inter alia, (1) a limited power of
attorney (an authorization for ABD to act as the
7
Chesapeake
in-take
its computer
the seller's
buyer's
Preferred ship mortgages are governed, in part, by the Ship
Mortgage Act of 1920, amended and recodified in 46 U.S.C. § 313,
et seq. A preferred ship mortgage is a mortgage that covers a
documented vessel or a vessel for which an application for
documentation is filed. Id. § 31322(a)(3)(A)-(B). The Ship
Mortgage Act grants the holder of a preferred ship mortgage "the
right to proceed in admiralty with a preferred status over all
claims except certain maritime liens and expenses, and fees and
costs fixed by the court." See Chase Manhattan Fin. Servs.,
Inc. v. McMillian, 896 F.2d 452, 458 (10th Cir. 1990).
8
buyer's agent with the NVDC); (2) Coast Guard
Form: Application for Initial Issue, Exchange or
Replacement of Certificate of Documentation,
Redocumentation (change in title ownership); (3)
First Preferred Ship Mortgage; (4) and an ABD
document called Information Verification and
Authorization Sheet8 (collectively the "Buyer's
Paperwork")9;
5.
ABD prepares paperwork for the seller to sign
including the Bill of Sale and limited power of
attorney for ABD to act as the seller's agent
(collectively the "Seller's Paperwork");
6.
The Buyer's Paperwork and Seller's Paperwork are
sent to the buyer and seller10, respectively for
signature, some of which are required to be
notarized per the Coast Guard;
7.
ABD requests the original Certificate of
Documentation for the boat from the seller;
8.
Upon return of all paperwork to ABD and provision
of the executed promissory note and related
8
The Information Verification & Authorization Sheet permits
ABD to act as the agent of the buyer/borrower "in all matters
relating to the documentation" of the vessel and warns that:
PLEASE
NOTE
THAT
ATLANTIC
BOAT
DOCUMENTATION,
INC.
RELIES
UPON
THE
INFORMATION PROVIDED BY THE PARTIES TO THIS
TRANSACTION. PLEASE REVIEW THE INFORMATION
STATED BELOW.
IF ANY CORRECTIONS ARE
NECESSARY,
MARK
THIS
FORM
ONLY.
IF
ADDITIONAL INFORMATION IS REQUIRED, PLEASE
PROVIDE THE REQUESTED INFORMATION WHERE
ARROWED.
[Document 195-16].
9
The buyer's limited power of attorney and first preferred
ship mortgage are form or template documents provided to ABD by
Wells Fargo. ABD completes these documents by filling in the
designated blank spaces with information specific to a
transaction. These form documents contain the Wells Fargo logo
at the top left hand corner.
10
Not necessarily by ABD.
9
security agreements to ABD by Chesapeake, ABD
completes the first preferred ship mortgage, and
files certain of the Buyer's and Seller's
Paperwork with the NVDC with a cover letter and
payment for the Coast Guard registration fee11;
9.
After approval and recording of the filings by
the Coast Guard, ABD receives a new Certificate
of Documentation and copy of the recorded first
preferred ship mortgage from the Coast Guard; and
10.
ABD sends the newly-issued Certificate of
Documentation to the buyer with a copy to Wells
Fargo and sends a copy of the recorded first
preferred ship mortgage to Wells Fargo.
Childs Aff. [Document 183-3] ¶¶ 4-8.
In 2008, ABD charged a fee
of $495 for its services, which included the filing fee of $112
charged by the Coast Guard, resulting in a net payment to ABD of
$383.
Id. ¶ 8.
11
By filing these documents with the Coast Guard, ABD seeks
to achieve the redocumentation of the boat in light of the
change of ownership as well as recordation of the preferred ship
mortgage. In order for a lender to maintain and perfect a
security interest in a documented vessel, it must record the
preferred ship mortgage with the Coast Guard in substantial
compliance with applicable rules. See In re Sherman, 11-32821
LMW, 2012 WL 2132379, at *4 (Bankr. D. Conn. June 12, 2012); see
also 46 U.S.C. § 31322(a) ("A preferred mortgage is a mortgage,
whenever made, that ... is filed in substantial compliance with
section 31321 of this title . . .").
10
C.
The Transaction At Issue
1.
Loan Approval
On May 20, 2008, Vorce and Jett submitted to Chesapeake,
via the Internet, an application in Cribb's name12 for a loan of
$885,000 to finance the purchase of the Faithful, a 56-foot
Viking yacht then actually being offered for sale by its owner,
JRP Marine, at a price of $1,795,000.
The loan application
represented that Cribb was 51-years-old and resided at 777 S.
Flagstar Drive, West Palm Beach, Florida.
The fraudulent Yacht Purchase and Sale Agreement,
purportedly between Cribb and JRP Marine c/o Roy Pence, provided
for the sale of the Faithful to Cribb for $1,795,000 and
required that "the sum of five-hundred-thousand-dollars USD
500,000.00 of the SELLING PRICE shall be paid as a deposit upon
execution of this agreement."
Of course, there never was any
such payment.
After receiving the loan application, Chesapeake "pulled
Cribb's credit report, and saw a high credit score."
Summ. J. [Document 179-1] (sealed) at 8.
C&C's
Chesapeake then
"contacted [a conman posing as] Cribb and asked him to provide
tax returns and a personal financial statement."
Id. at 8-9.
The Conmen fabricated those documents and forwarded them to
12
Vorce and Jett had stolen the identity of Cribb, an actual
person, by hacking into a website and obtaining Cribb's credit
report and then fabricating tax returns, financial statements,
and contact information.
11
Chesapeake, who received them later that day.
Id. at 9.
Once
Chesapeake obtained these documents, Chesapeake faxed the loan
application, the tax returns, and personal financial statement
to Wells Fargo (i.e., the Credit Package) on May 21, 2008.
Id.
On May 21, 2008, Kimberly Crocker ("Crocker") of Wells
Fargo reviewed Cribb's Credit Package by, among other things,
using Wells Fargo's "CreditRevue" system, which pulls a credit
report for the loan applicant and analyzes the loan application
documents.
The CreditRevue system "flagged" (i.e., indicated
fraud) as to the address listed in the loan application.
In
response, Crocker used Zillow.com to search for the address, but
the website could not locate it.
Other discrepancies with the
loan application that were not "flagged" by CreditRevue existed
as well.
For instance, the Credit Report pulled by CreditRevue
showed Cribb's birth year as 1915, noted the social security
number was issued prior to 1951, and showed Cribb had an
American Express card in 1965.
However, the Credit Package
submitted by Chesapeake showed Cribb's birth year as 1956.
Wells Fargo conditionally approved the loan application
requesting that Cribb "(i) produce a utility bill to 'verify'
the address, (ii) forward documents showing that the amounts in
his banks accounts were 'liquid', and (iii) provide a boat
survey and purchase agreement."
(sealed) at 10-11.
C&C's Summ. J. [Document 179-1]
On May 29, 2008, after receiving the
12
documents requested (except the Yacht Purchase and Sale
Agreement)13 from Chesapeake, Wells Fargo approved the loan and
informed Chesapeake that it could begin the boat documentation
process.
2.
The Documentation - ABD
On May 30, 2008, Chesapeake contacted ABD and provided
information regarding the Cribb transaction, which ABD recorded
on its standard in-take sheet.
The in-take sheet reflected: (1)
the name, address, phone number, and "Abstract Request Date" of
the "dealer" (Chesapeake); (2) the name, social security
number14, address, and phone number of the buyer (Cribb); (3) the
name and number of the lender (Wells Fargo); (4) information on
the boat such as manufacturer, Hull ID, and name; and (5) the
name and number of the seller (listed as Roy Pence).15
195-13].
[Document
ABD next obtained the Abstract of Title for the
Faithful from the Coast Guard and checked to see if the entity
JRP Marine was in good standing in its state of organization,
Florida.
13
The utility bill and other documents produced by the Conmen
purporting to be Cribb were fake.
14
There is a blank space for the social security number and
there is a black mark in the blank. It is unclear if ABD filled
in this blank for the Cribb transaction.
15
Although a place existed for the seller's address, that
area was left blank on the Cribb in-take sheet.
13
From the information on the in-take sheet and the Abstract
of Title, ABD filled in portions of the Buyer's Paperwork with
information specific to the Cribb transaction.
This included
filling in portions of electronic form or template documents
provided to ABD by Wells Fargo and maintained on ABD's computer
system, such as the First Preferred Ship Mortgage.
ABD then
sent the Buyer's Paperwork to Chesapeake to obtain Cribb's
signature.
ABD also telephoned (a conman posing as) Cribb to
ask if the buyer intended on renaming the Faithful.
¶ 12.
Childs Aff.
As to the seller, ABD completed the Seller's Paperwork by
filling in information specific to the Cribb transaction; called
(a conman posing as) Roy Pence on at least one occasion; and, on
May 30, 2008, emailed the Seller's Paperwork to
"penceroy@yahoo.com" (an address provided by the Conmen)
requesting the seller to sign and return the Seller's Paperwork
and send the original Certificate of Documentation to ABD.
[Document 195-14].
Thereafter, ABD received a letter dated June
2, 2008, purportedly from Roy Pence, which stated that the
seller had executed the Seller's Paperwork and explained "[a]s I
discussed with you today on the telephone, I will send my
original Coast Guard Certificate [of Documentation] following
completion of the funding."16
[Document 190-1].
16
No Certificate
Relying on the affidavit of Elizabeth Childs, ABD contends
it forwarded the June 2, 2008 letter to Chesapeake. However,
14
of Documentation was ever produced to ABD, Chesapeake, or Wells
Fargo.17
3.
Loan Consummation and Aftermaths
On May 30, 2008, Chesapeake sent the promissory note,
security agreements, and the Buyer's Paperwork (including the
First Preferred Ship Mortgage) to a Chicago office address
Chesapeake denies that it received the letter.
17
Vorce testified at his deposition that he "think[s] there
were multiple phone calls" concerning the Certificate of
Documentation from ABD and:
A: Well, the original request was made by
Liz.
I can't speak for - - I personally
spoke with Carrie at least twice because
Liz, I don't know if she was out of the
office, she was unreachable and it seemed
like she had delegated getting the final
papers to Carrie, and so Carrie was handling
that.
It's my recollection, you know, we
stalled on the certificate. I don't - - to
my recollection, we were in Chicago right
now, down in Florida, we don't have it, and
we said this is, you know, this is going to
really – if we can't close – if we can't
close this deal, this is going to basically
jeopardize the whole transaction, and we
basically made it their concern, turned it
around and made it Atlantic Bond [sic]
Documentation's concern, put the pressure on
them.
Q: To do what?
A: To make an exception.
Q: To filing the Coast Guard –
A: To make an
certificate.
exception
for
needing
that
Vorce Dep. June 22, 2010 [Document 190-11] at 156-57.
15
provided by the Conmen.
The Conmen executed the documents
using a forged signature for Cribb and returned them to
Chesapeake.
Chesapeake then received a fax purportedly from Roy
Pence instructing Chesapeake to wire the proceeds of the boat
loan to a specified E*TRADE bank account in Chicago.
On June 5, 2008, Chesapeake submitted to Wells Fargo the
Closing Package, containing the promissory note, First Preferred
Ship Mortgage, related security agreements, and a copy of what
purported to be Victor Cribb's driver's license created by
Vorce, using a fictitious license number.
On June 6, 2008, upon
receipt of the Closing Package, Wells Fargo faxed a message to
Chesapeake stating it did not have the Yacht Purchase and Sale
Agreement.
Chesapeake asked (a conman posing as) Cribb, for the
agreement and "Cribb" provided a fake document which Chesapeake
then forwarded to Wells Fargo.
Thereafter, Wells Fargo funded
the loan by wiring $884,900 to Chesapeake's bank account.
On June 6, 2008, Chesapeake provided the executed Buyer's
Paperwork to ABD as well as the executed promissory note and
related security agreements.
ABD used the promissory note and
security agreements to complete the First Preferred Ship
Mortgage.
On June 10, 2008, ABD filed a package of documents
with the Coast Guard.
For documenting the Cribb Transaction,
ABD received $495.00, which included the Coast Guard recordation
fee of $112.
No Certificate of Documentation for the Faithful
16
was filed with the Coast Guard.
According to the Abstract of
Title issued by the Coast Guard for the Faithful after
completion of the Cribb transaction, the Coast Guard recorded
the First Preferred Ship Mortgage for the Faithful and related
documents, reflecting Wells Fargo's lien.
On June 9, 2008, Chesapeake wired the loan proceeds to the
E*TRADE bank account in Chicago as instructed by (a conman
posing) as Roy Pence.
The loan proceeds travelled a circuitous
route, ending up as gold coins delivered to Vorce in Wisconsin.
Vorce thereafter sold the gold coins and the proceeds of that
sale do not now appear to be recoverable.
On June 26, 2008, the real JRP Marine, having become aware
of the cloud on the title of the Faithful, alerted the Coast
Guard of the fraud.
To clear the title for JRP Marine, Wells
Fargo filed a release of the fraudulently issued First Preferred
Ship Mortgage in its favor.
On September 17, 2008, Wells Fargo filed the instant
lawsuit seeking to recoup its losses.
III. PROCEDURAL SETTING
In the Second Amended Complaint [Document 61], Wells Fargo
presents its claims in seven Counts.
Count I:
Breach of Contract against
Chesapeake;
17
Count II:
Negligence against
Chesapeake;
Count III:
Breach of Contract against
Chesapeake as Guarantor;
Count IV:
Breach of Contract against
Philip Colonna as Guarantor;
Count V:
Negligence and
Fiduciary Duty against ABD;
Count VI:
Civil RICO against
Chesapeake, Jack Doe, and
John Doe; and
Count VII:
RICO Conspiracy against
Chesapeake, Jack Doe, and
John Doe.
In their Answer, [Document 63] Chesapeake and Colonna
present six cross and third-party claims:
Claim I:
Breach of Contract
against ABD;
Claim II:
Contribution against
ABD;
Claim III:
Indemnification against
ABD;
Claim IV:
Fraud against Vorce and
Jett;
Claim V:
Contribution against
Vorce and Jett; and
Claim VI:
Indemnification against
Vorce and Jett.
Defaults were entered against both Vorce and Jett
[Documents 54, 80, 81], and a default judgment was obtained by
18
Wells Fargo against Vorce in the amount of $885,000 plus
interest and costs [Document 56].18
By the instant motions Wells Fargo, Chesapeake, Colonna,
and ABD each seek summary judgment with regard to all claims by,
or against them.
IV.
SUMMARY JUDGMENT STANDARD
A motion for summary judgment shall be granted if the
pleadings and supporting documents show "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).
The well-established principles pertinent to summary
judgment motions can be distilled to a simple statement: The
court may look at the evidence presented in regard to a motion
for summary judgment through the non-movant's rose-colored
glasses, but must view it realistically.
After so doing, the
essential question is whether a reasonable fact finder could
return a verdict for the non-movant or whether the movant would,
at trial, be entitled to judgment as a matter of law.
18
See,
As of this writing, forfeiture proceedings against Vorce
are pending in United States of America v. Michael Bruce Vorce,
Case No. 1:08-CR-282 (W.D. Mich.) relating to the liquidation of
Vorce's stock in InelePeer, Inc. [Document 229]. This
forfeiture proceeding does not appear to be relevant to the
instant case.
19
e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Shealy
v. Winston, 929 F.2d 1009, 1012 (4th Cir. 1991).
When evaluating a motion for summary judgment, the court
must bear in mind that the "summary judgment procedure is
properly regarded not as a disfavored procedural shortcut, but
rather as an integral part of the Federal Rules as a whole,
which are designed 'to secure the just, speedy and inexpensive
determination of every action.'"
Celotex, 477 U.S. at 327
(quoting Rule 1 of the Federal Rules of Civil Procedure).
Cross motions for summary judgment "do not automatically
empower the court to dispense with the determination whether
questions of material fact exist."
Lac Courte Oreilles Band of
Lake Superior Chippewa Indians v. Voigt, 700 F.2d 341, 349 (7th
Cir. 1983).
"Rather, the court must evaluate each party's
motion on its own merits, taking care in each instance to draw
all reasonable inferences against the party whose motion is
under consideration."
Mingus Constructors, Inc. v. United
States, 812 F.2d 1387, 1391 (Fed. Cir. 1987).
The court may
grant summary judgment in favor of one party, deny both motions,
or grant in part and deny in part each of the parties' motions.
See Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003).
20
V.
DISCUSSION
A.
RICO Claims (Counts VI and VII)
The Racketeer Influenced and Corrupt Organizations Act
("RICO") provides a private civil action to recover treble
damages for injury to one's business or property "by reason of a
violation" of RICO's substantive provisions.
1964(c).
18 U.S.C. §
In particular, the civil RICO statute renders it
unlawful:
. . . [F]or any person employed by or
associated with any enterprise engaged in,
or
the
activities
of
which
affect,
interstate or foreign commerce, to conduct
or participate, directly or indirectly, in
the conduct of such enterprise's affairs
through a pattern of racketeering activity
or collection of unlawful debt.
Id. § 1962(c).
Section 1962(d) makes it unlawful "for any
person to conspire to violate" the provisions of § 1962(c).
As explained by the Supreme Court, a § 1962(c) civil RICO
claim has four essential elements: (1) conduct; (2) of an
enterprise; (3) through a pattern; (4) of racketeering activity.
See Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496
(1985).
Accordingly, in order to prevail on a civil RICO claim,
a plaintiff must prove by a preponderance of the evidence that
the defendant engaged in a pattern of racketeering activity.
See generally, S. Atl. Ltd. P'ship of Tennessee, L.P. v. Riese,
284 F.3d 518, 530 (4th Cir. 2002).
21
Regarding a § 1962(d) RICO
conspiracy claim, a plaintiff must likewise prove by a
preponderance of the evidence that the defendants conspired to
violate § 1962(c).
See LaSalle Bank Lake View v. Seguban, 937
F. Supp. 1309, 1324 (N.D. Ill. 1996); Bridge v. Phoenix Bond &
Indem. Co., 553 U.S. 639, 651 (2008).
The Fourth Circuit has
explained that "'RICO treatment is reserved for conduct whose
scope and persistence pose a special threat to social wellbeing.'" GE Inv. Private Placement Partners II v. Parker, 247
F.3d 543, 551 (4th Cir. 2001) (quoting Menasco, Inc. v.
Wasserman, 886 F.2d 681, 684 (4th Cir. 1989)).
Wells Fargo has presented no evidence indicating, much less
adequate to prove, that Chesapeake and/or Colonna19 could be
subject to any RICO claim.
Indeed, Wells Fargo cannot even
suggest any plausible motive for them to have conspired to
commit the fraud at issue in view of the MOA and Colonna's
guaranty.
Nor is there evidence to support any RICO claim
against any Doe Defendant.
19
In the Second Amended Complaint, Wells Fargo does not
allege liability on part of Colonna under Counts VI and VII. In
its briefing, Wells Fargo appears to suggest that Colonna is the
"Doe (Employee Conspirator)" referenced in the Complaint in
those counts.
However, "Jack Doe" has been identified as Terry
Cannon, a Chesapeake employee [Documents 36, 41]. Moreover,
Wells Fargo stipulated to a dismissal of Terry Cannon from this
case [Document 173], which the Court approved [Document 174].
22
Accordingly, summary judgment shall be granted in favor of
Chesapeake and Colonna with regard to the claims in Counts VI
and VII of the Second Amended Complaint.
B.
Breach of Contract Claims
1.
Wells Fargo - Chesapeake (Count I)
On August 27, 2007, Wells Fargo and Chesapeake entered into
the Marine Operating Agreement ("MOA") to govern their boat loan
lender/broker business relationship.
In the MOA, Chesapeake
made several representations and warranties to Wells Fargo as
well as agreed to repurchase an "Obligation, and pay the
Repurchase Price" to Wells Fargo "if any representation or
warranty made by [Chesapeake] to [Wells Fargo] with respect to
an Obligation is false or misleading in any material respect"
(the "Repurchase Obligation").
MOA § C, F(7)(a).
Wells Fargo asserts that with respect to the Cribb
transaction, Chesapeake made certain representations required by
the MOA that were false or misleading in a material respect and
failed to satisfy the Repurchase Obligation upon demand.
23
a.
Legal Principles
Under North Carolina Law,20 in an action for breach of
contract the plaintiff carries the burden to prove that "a
contract existed, the specific provisions breached, the facts
constituting the breach and the amount of damages resulting to
plaintiff from such breach."
2 (N.C. Ct. App. 1991).
Harrington v. Perry, 406 S.E.2d 1,
Concerning interpretation of the terms
used in a contractual agreement, "the generally accepted rule is
that the intention of the parties controls, and the intention
can usually be determined by considering the subject matter of
the contract, language employed, the objective sought and the
situation of the parties at the time when the agreement was
reached."
Robertson v. Hartman, 368 S.E.2d 199, 200 (N.C. Ct.
App. 1988).
"'If the plain language of a contract is clear, the
intention of the parties is inferred from the words of the
contract.'"
State v. Philip Morris USA Inc., 669 S.E.2d 753,
755 (N.C. Ct. App. 2008), aff'd, 685 S.E.2d 85 (N.C. 2009)
(quoting Walton v. City of Raleigh, 467 S.E.2d 410, 411 (N.C.
1996)).
Stated differently, if the language of a contract is
clear and only one reasonable interpretation exists, the court
20
Section F(4) of the MOA provides "[t]his Agreement shall be
governed by the laws of the state of North Carolina." Wells
Fargo and C&C agree that the MOA is governed by North Carolina
law. See C&C Opp'n [Document 129] at 18; Wells Fargo Reply
[Document 134] at 3 n.1.
24
"must enforce the contract as written and cannot, under the
guise of interpretation, rewrite the contract or impose terms on
the parties not bargained for and found within the contract."
Crider v. Jones Island Club, Inc., 554 S.E.2d 863, 866 (N.C. Ct.
App. 2001) (internal quotations omitted).
However, if the
contract is ambiguous, interpretation is a question of fact and
"resort to extrinsic evidence is necessary."
Id.
An ambiguity
exists where the "language of a contract is fairly and
reasonably susceptible to either of the constructions asserted
by the parties."
Glover v. First Union Nat'l Bank, 428 S.E.2d
206, 209 (N.C. Ct. App. 1993).
Whether the language of a
contract is ambiguous is a question of law determined by the
court. Salvaggio v. New Breed Transfer Corp., 564 S.E.2d 641,
643 (N.C. Ct. App. 2002).
b.
The Representation Violation
By the instant motion, Wells Fargo seeks summary judgment
with regard to seven21 representations and warranties
(collectively, the "Representations") required by the MOA:
21
In the briefing on the instant motion, Wells Fargo contends
that Chesapeake violated representation requirements that were
not included in the Second Amended Complaint - the Ownership
Representation, the Delivery Representation, and the Payment
Representation. These contentions are not relevant to any claim
presented by the Second Amended Complaint and are not addressed
herein.
25
3(a)22("Legally Enforceable");
3(b) ("Down Payment");
3(c) ("Ownership");
3(e) ("Perfection");
3(f) ("Delivery");
3(g) ("Payment"); and
4(b) ("Indemnity")
However, it is necessary to address only the first of these
Representations.
Section 3(a) of the MOA provides in pertinent part:
As to each Obligation submitted to [Wells
Fargo],
[Chesapeake],
at
the
time
of
represents
and
warrants
submission,
that:
(a) All information and amounts shown on the
Obligation
and
on
all
other
documents
submitted in connection therewith are true
and correct to the best of [Chesapeake's]
knowledge
and
belief,
and
documents
evidencing
and
securing
the
Obligations, which are delivered to
[Wells Fargo], represent the complete
agreement concerning the loan and are
legally enforceable according to their
terms, and the persons executing the
documents, whether Maker, guarantor,
or otherwise, were legally competent
to do so.
(emphasis added to indicate the portion of the provision on
which Wells Fargo bases its claim).
There is no doubt that the documents evidencing and
securing the "Obligation," including the First Preferred Ship
Mortgage, promissory note, and related security agreements, were
22
Reference is to Section C of the MOA.
26
delivered to Wells Fargo by Chesapeake.
Moreover, there is no
dispute that these documents are not legally enforceable
according to their terms since the documents were fraudulently
executed by Vorce and Jett and JRP Marine and Cribb never
entered into any agreement for the sale of the Faithful capable
of giving rise to an enforceable lien held by Wells Fargo in the
Faithful.
Further, it is undisputed that the persons executing
these documents (Vorce and Jett) were not legally competent to
do so for the same reasons.
Accordingly, the Legally
Enforceable Representation made by Chesapeake to Wells Fargo as
to the Cribb transaction is completely, and thus materially,
false.
Chesapeake asserts that the Legally Enforceable
Representation is not a strict liability warranty because it is
qualified by the phrase "to the best of [Chesapeake's] knowledge
and belief."
The Court finds this contention to be
unpersuasive.
When interpreting contract language, the presumption is
that the parties intended what the language used clearly
expresses, and the contract must be construed to mean what on
its face it purports to mean.
Integon Nat. Ins. Co. v.
Phillips, 712 S.E.2d 381, 383 (N.C. Ct. App. 2011).
A plain
reading of § 3(a) demonstrates that the term "knowledge and
belief" does not qualify the entirety of the Representation in
27
that section.
The comma after "knowledge and belief" and before
"and" signifies that the Legally Enforceable Representation
requirement is not modified by the "knowledge and belief"
language following the "true and correct" requirement.
See
Novant Health, Inc. v. Aetna U.S. Healthcare of Carolinas, Inc.,
98 CVS 12661, 2001 WL 34054420, at *4-5 (N.C. Super. Mar. 8,
2001)(explaining rules governing grammar may be used as an aid
to interpreting written instruments where such application is
logical in connection with basic rules governing contract
construction).
As discussed herein, this construction is
logical and consistent with other applicable rules governing
contract interpretation.
Chesapeake contends such an interpretation of § 3(a) is
unreasonable because it obligates Chesapeake, not a law firm, to
warrant the fulfillment of legal concepts.
agree.
The Court does not
The representations and warranties made by Chesapeake in
the MOA involve numerous "legal concepts" relevant to the boat
loan business such as title, security interest, and perfection.
Furthermore, Chesapeake expressly warranted in § 3(d) that the
execution "of the documentation related to each Obligation and
the performance thereof shall comply with the laws of the state
where executed and performed . . . ."
28
As two commercial entities, Chesapeake and Wells Fargo were
free to enter into a mutual agreement placing the risk of legal
infirmities in boat loan documents, including fraud either by
the true buyer or seller or third parties, upon Chesapeake, the
party referring the loan applicant to Wells Fargo.
Cf.
UniCredito Italiano SPA v. JPMorgan Chase Bank, 288 F. Supp. 2d
485, 498-99 (S.D.N.Y. 2003) (dismissing fraud and negligent
misrepresentation claims where contracts at issue contained
provisions that defendant bank had no duty to ascertain
borrower's performance of terms of any instrument and warranted
only that it was the beneficial owner of the interest being
sold).
As shown by the unambiguous language of the Legally
Enforceable Representation, Chesapeake and Wells Fargo did so.
Further, the Court finds any assertion that Colonna,
Chesapeake's principal, did not understand or read the terms of
the MOA neither supported by adequate evidence nor, in any event
material.
Absent fraud or oppression, "parties to a contract
have an affirmative duty to read and understand a written
contract before signing it."
Roberts v. Roberts, 618 S.E.2d
761, 764 (N.C. App. Ct. 2005) (quoting Park v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 582 S.E.2d 375, 380 (N.C. App. Ct.
2003)).
There is no claim – and manifestly no evidence
29
supporting a claim - that Chesapeake or Colonna entered the MOA
by virtue of fraud or oppression.
Accordingly, the Court holds that Wells Fargo is entitled
to summary judgment establishing that the representations made
by Chesapeake in the Legally Enforceable Representation of the
MOA were materially false with regard to the Cribb transaction.
c.
Repurchase Obligation
The Repurchase Obligation provision, § F(7) of the MOA
provides:
7. Repurchase
(a) [Chesapeake] hereby unconditionally
agrees to purchase the Obligation, and pay
the Repurchase Price, as herein defined, to
[Wells Fargo] on demand, whether or not the
Obligation is in default, upon the
occurrence of any of the following events:
(i) if any representation or warranty made
by
[Chesapeake]
to
[Wells
Fargo]
with
respect to an Obligation is false or
misleading in any material respect . . .
(b) "Repurchase Price" shall mean an amount
equal to the entire amount of any fee paid
by [Wells Fargo] to [Chesapeake], plus the
unpaid balance of the debt owed under the
Obligation together with all costs and
expenses paid or incurred by [Wells Fargo]
including, but not limited to, costs and
expenses
for
the
maintenance,
repair,
30
protection and preservation of the Vessel
and all attorney's fees in connection with
the collection of the debt and defending or
enforcing
[Wells
Fargo's]
rights
and
remedies in this Agreement, the Obligation
and the Vessel.
As discussed above, Wells Fargo is entitled to summary
judgment establishing that Chesapeake's Legally Enforceable
Representation was materially false with regard to the Cribb
transaction.
Thus an event triggering the Repurchase Obligation
occurred.
The explicit language of the Repurchase Obligation requires
Chesapeake to purchase from Wells Fargo, on demand, the
promissory note and security agreements in the Cribb transaction
for "an amount equal to the entire amount of any fee paid" by
Wells Fargo to Chesapeake "plus the unpaid balance of the debt
owed" under the promissory note and security agreements
"together with all costs and expenses paid or incurred" by Wells
Fargo.
The parties agree that Wells Fargo made a demand upon
Chesapeake to satisfy the Repurchase Obligation for the Cribb
transaction and Chesapeake did not comply with the demand.
Chesapeake contends that the Repurchase Obligation is not
triggered when the triggering event is caused by third-party
fraud because damages resulting from third party fraud were not
31
contemplated by the parties under the MOA.
contention unpersuasive.
The Court finds that
Plainly, fraud by a person purporting
to be the buyer/mortgagor or seller can render a promissory note
or security agreement unenforceable.
See generally Hardin v.
KCS Int'l, Inc., 682 S.E.2d 726, 733 (N.C. Ct. App. 2009);
Faller v. Faller, 233 A.2d 807, 809 (Md. 1967).
The MOA does
not set forth an exclusive list of reasons causing a document to
be legally unenforceable or a person executing a document not to
be legally competent that would trigger the Repurchase
Obligation.
Obviously, there could be a myriad of reasons
ranging from inadvertence to negligence to third-party fraud
and, indeed, to fraud by the broker.
Nevertheless, the Legally
Enforceable Representation requirement unambiguously23 placed the
23
Chesapeake asserts it is entitled to summary judgment on
Count I because Wells Fargo did not provide expert testimony to
address ambiguities in the MOA. Where the Court has not found
the MOA to be ambiguous, this argument is moot. Nor do the
cases cited by Chesapeake support its position that such expert
testimony is necessary. See Schultz v. Bank of Am., N.A., 990
A.2d 1078, 1093-94 (Md. 2010) (finding trial court erred in
putting breach of contract claim before jury where commercial
code established contractual obligation of bank to exercise
ordinary care but plaintiff "failed to present any testimony,
including expert testimony, establishing the extent of the
obligation created by the duty of ordinary care" so that jury
could not have known what obligation the bank allegedly
breached); Associated Indus. Contractors, Inc. v. Fleming Eng'g,
Inc., 590 S.E.2d 866, 871 (N.C. Ct. App. 2004) aff'd, 608 S.E.2d
757 (N.C. 2005) (finding expert testimony not necessary to
establish standard of care in professional negligence claim
where surveyor's actions were in the common knowledge of lay
persons).
32
risk that loan documents, such as a promissory note or security
agreement, were unenforceable – regardless of the reason - on
Chesapeake.
The Repurchase Obligation provides Wells Fargo with
a remedy, and Chesapeake an obligation, in such a situation.
The Court finds no ambiguity and shall grant summary
judgment to Wells Fargo establishing that Chesapeake breached
the MOA by failing to comply with the Repurchase Obligation.
d.
Damages
In Count I, Wells Fargo seeks damages in the amount of
"$885,000 [the outstanding principal loan amount], plus fees
paid, including without limitation dealer reserve fees of
$13,275.00, plus interest, costs and attorney's fees."
Sec. Am.
Compl. ¶ 40.
Chesapeake contends Wells Fargo is not entitled to the
damages sought under the MOA because such damages are not
related to any action or inaction on the part of Chesapeake
and/or the Repurchase Obligation is an unenforceable penalty.
i.
Causation
In an action for breach of contract, the plaintiff bears
the burden of proving that the amount of his claimed damages
33
resulted from the defendant's breach.
See Harrington v. Perry,
406 S.E.2d 1, 2 (N.C. Ct. App. 1991).
In particular, a
plaintiff is entitled to recover damages only for those injuries
that are "'the direct, natural, and proximate result of the
breach or which, in the ordinary course of events, would likely
result from a breach and can reasonably be said to have been
foreseen, contemplated, or expected by the parties at the time
when they made the contract as a probable or natural result of a
breach.'"
Bloch v. The Paul Revere Life Ins. Co., 547 S.E.2d
51, 58 (N.C. App. Ct. 2001) (quoting Lamm v. Shingleton, 55
S.E.2d 810, 812-13 (N.C. 1949)).
Chesapeake contends that Wells Fargo's claimed damages are
unrelated to any breach of the Representations.
at best, borders on the frivolous.
This argument,
The loss to Wells Fargo is
directly related to the unenforceability of the loan agreement
due to the fraudulent nature of the operative documents.
Further, Wells Fargo's damages directly flow from the Repurchase
Obligation that Chesapeake failed to satisfy.
The cases relied upon by Chesapeake do not involve
contracts containing repurchase obligation provisions.
Bloch, 547 S.E.2d at 58 (reversing denial of
See
defendants motion
for directed verdict in breach of employment contract case where
jury awarded plaintiff lost earnings for 15 years beyond the
34
lawful termination of employment contract, which could be
terminated with 30 days' notice without cause); Crowley Am.
Transp., Inc. v. Richard Sewing Mach. Co., 172 F.3d 781, 784-85
(11th Cir. 1999)(upholding award of summary judgment to carrier
on shipper's breach of contract claim where damage to cargo
while in possession of third party was not proximately caused by
carrier's immaterial breach in failing to notify bank of cargo's
arrival); Petitt v. Celebrity Cruises, Inc., 153 F. Supp. 2d
240, 263 (S.D.N.Y. 2001) (dismissing breach of contract claim
where no evidence a contract existed and plaintiffs failed to
raise an issue of material fact that would enable a reasonable
jury to conclude their illnesses on cruise were the result of
action of cruise liner defendant).
Thus, Chesapeake does not have a viable defense based on
its causation contention.
ii.
Illegal Penalty
Chesapeake contends that the Repurchase Obligation is a
liquidated damage provision and constitutes an unenforceable
penalty under North Carolina law.
To address this contention,
the Court will assume, without deciding, that the Repurchase
Obligation is properly categorized as a liquidated damage
provision.
35
"Under the fundamental principle of freedom of contract,
the parties to a contract have a broad right to stipulate in
their agreement the amount of damages recoverable in the event
of a breach, and the courts will generally enforce such an
agreement."
Seven Seventeen HB Charlotte Corp. v. Shrine Bowl
of the Carolinas, Inc., 641 S.E.2d 711, 713 (N.C. Ct. App. 2007)
(quoting 24 Richard A. Lord, Williston on Contracts § 65:1, 213
(4th ed. 2002)) (finding defendant challenging damage provision
had the burden to show unenforceability).
However, a liquidated
damage clause is unenforceable if it constitutes an unreasonable
penalty.
Naik v. HR Providence Rd., LLC, 190 N.C. App. 822
(2008) (unpublished).
A penalty is a stipulated damage
provision that is fixed as a punishment, "the threat of which is
designed to prevent the breach of the agreement."
Knutton v.
Cofield, 160 S.E.2d 29, 34 (N.C. 1968) (finding damage provision
in contract was not an illegal penalty).
As discussed herein, the Repurchase Obligation permits
Wells Fargo to demand that Chesapeake step into its shoes as
lender/mortgagee when Chesapeake's representations and
warranties as to a particular "Obligation" are "false or
misleading in any material respect."
MOA § F(7)(a).
Liquidated
damage clauses that are reasonable in amount are enforceable as
part of a contract and are not seen as penalty clauses.
36
E.
Carolina Internal Med., P.A. v. Faidas, 564 S.E.2d 53, 56 (N.C.
App. Ct. 2002) aff'd, 572 S.E.2d 780 (N.C. 2002).
The
Repurchase Obligation requires Chesapeake to purchase the
promissory note and related security agreements from Wells Fargo
for a particular transaction for the total of the fee paid to
Chesapeake by Wells Fargo in the transaction, the unpaid balance
of the debt owed under the promissory note, and fees and
expenses incurred by Wells Fargo.
Chesapeake provides no
evidence that the amount required to be paid to Wells Fargo
under the Repurchase Obligation is unreasonable, acts as a
punishment, or was designed to prevent a breach of the MOA.24
Further, repurchase provisions in loan-broker agreements
triggered by violations of warranties have been enforced by
other courts.
See Flagstar Bank v. Premier Lending Corp.,
295211, 2011 WL 1086558, at *4 (Mich. Ct. App. Mar. 24, 2011)
(unpublished) (per curiam).
24
Chesapeake contends the Repurchase Obligation is a penalty
because it is triggered by any warranty or representation being
false in a material respect, despite the amount of actual
damages caused by such falsity. However, the "general rule is
that the amount stipulated in a contract as liquidated damages
for a breach, if not a penalty, may be recovered in the event of
a breach even though no actual damages are suffered." E.
Carolina Internal Med., P.A. v. Faidas, 564 S.E.2d 53, 56 (N.C.
App. Ct. 2002), aff'd, 572 S.E.2d 780 (N.C. 2002).
37
Accordingly, the Court finds that the Repurchase Obligation
does not operate as an illegal penalty under North Carolina law.
Thus, the "illegal penalty" defense is unavailing.
e.
Equitable Estoppel
As the invoking party, Chesapeake bears the burden of proof
on its affirmative defense of equitable estoppel.
State Farm
Mut. Auto. Ins. Co. v. Atl. Indem. Co., 468 S.E.2d 570, 574-75
(N.C. Ct. App. 1996).
Under North Carolina law, to establish a claim of equitable
estoppel, the following elements must be met:
(1) The conduct to be estopped must amount
to false representation or concealment of
material
fact
or
at
least
which
is
reasonably
calculated
to
convey
the
impression that the facts are other than,
and inconsistent with, those which the party
afterwards attempted to assert;
(2) Intention or expectation of the party
being estopped that such conduct shall be
acted upon by the other party or conduct
which at least is calculated to induce a
reasonably prudent person to believe such
conduct was intended or expected to be
relied and acted upon;
(3) Knowledge, actual or constructive, of
the real facts by the party being estopped;
(4) Lack of knowledge of the truth as to the
facts in question by the party claiming
estoppel;
38
(5) Reliance on the part of the party
claiming estoppel upon the conduct of the
party sought to be estopped; and
(6) Action by the party claiming estoppel
based thereon of such a character as to
change his position prejudicially.
Crisp v. E. Mortg. Inv. Co., 632 S.E.2d 814, 816 (N.C. Ct. App.
2006); Keech v. Hendricks, 540 S.E.2d 71, 74-75 (N.C. Ct. App.
2000).
If the evidence raises a permissible inference that the
elements of equitable estoppel are present, estoppel is a
question of fact for the jury.
See Keech, 540 S.E.2d at 75.
In its Reply, C&C present a footnote stating: "[b]y
prematurely releasing its interest in the collateral, without
notice to Chesapeake or securing its consent, [Wells Fargo] is
now estopped from demanding that Chesapeake purchase the
obligation." [Document 202] (sealed) at 22, n.13.
The Court finds that neither C&C's or Wells Fargo's motions
include a request for summary judgment with regard to the
affirmative defense of equitable estoppel.
Inasmuch as the
defense was pleaded, the Court will not find waiver.
defense remains pending.
39
Thus the
2.
Wells Fargo - Chesapeake (Guarantor) (Count III)
The MOA provides, in § C(4)(b):
If [Chesapeake] uses a boat documentation
service company to document the Vessel as
described
above,
and
the
documentation
service company and/or its insurance does
not fully protect [Wells Fargo] against any
and all loss due to an error or omission of
the
documentation
service
provider
in
documenting the Vessel, [Chesapeake] agrees
to indemnify and hold [Wells Fargo] harmless
from and against any and all claims, losses,
damages, legal fees and related costs, fees
and expenses [Wells Fargo] may sustain as a
result
of
the
failure
of
the
boat
documentation service company to perform its
obligations.
In Count III, Wells Fargo alleges that ABD "failed to
perfect the security interest" in the Faithful, Wells Fargo
has been damaged in the amount of "$885,000 plus interest,
dealer reserve fees of $13,275.00, costs and attorney's
fees," and pursuant to § C(4)(b), Chesapeake must indemnify
Wells Fargo for such damages.
Sec. Am. Compl. ¶¶ 57-59.
Wells Fargo seeks summary judgment on Count III.
At the hearing, Chesapeake stated that it does not
deny liability or a duty to indemnify Wells Fargo under §
C(4)(b), but maintains that because ABD is adequately
insured this section is not at issue.
Accordingly, the Court finds that Wells Fargo is entitled
to summary judgment establishing that Chesapeake has a
40
contractual obligation to indemnify Wells Fargo if ABD and/or
its insurance does not fully protect Wells Fargo with regard to
losses caused by an "an error or omission of [ABD] in
documenting" the Faithful as provided in § C(4)(b) of the MOA.
3.
Wells Fargo – Colonna (Guarantor) (Count IV)
The MOA provides in § F(16)
This
Agreement
includes
the
Personal
Guaranty of Philip Colonna [hereinafter
"GUARANTOR") as provided below. The parties
to
this
Agreement
hereby
agree
that
[Chesapeake] and GUARANTOR shall be jointly
and severally liable for all obligations,
representations
and
warranties
of
[Chesapeake] that are created under this
Agreement . . .
Colonna signed the MOA as "guarantor" under the following
provision entitled "personal guaranty":
The undersigned GUARANTOR, Philip Colona -,
as
a
principle
owner/investor
of
the
[Chesapeake] party to this Agreement, in
order to induce [Wells Fargo] to enter into
this
Agreement,
hereby
directly,
individually and personally guarantees the
full, complete and timely performance of
each and every duty, responsibility and
obligation of [Chesapeake] with respect to
the
Agreement,
specifically
including
without
limitation
the
validity
of
representations and warranties, all vessel
documentation
responsibilities,
and
the
repurchase and indemnification provisions of
Section F(7) and (8) of the Agreement.
41
MOA, at 10-11.
Wells Fargo demanded payment on Colonna under the MOA with
respect to the Cribb transaction through a letter dated July 10,
2008, and Colonna failed to tender payment.
Sec. Am. Compl. ¶
63.
Wells Fargo seeks summary judgment on Count IV that
Colonna, pursuant to the guaranty, personally and individually
guaranteed the performance of the MOA and thus breached the MOA
to the same extent as Chesapeake thereby rendering Colonna
jointly and severally liable with Chesapeake for the damages
arising therefrom.
C&C does not respond to this contention.
Based on the plain language of the MOA, the Court finds
that Wells Fargo is entitled to summary judgment on Count IV,
establishing that Colonna, as Guarantor, is jointly and
severally liable with Chesapeake for such amount as Wells Fargo
may be entitled to recover from Chesapeake in the instant case.
4.
Chesapeake – ABD (Claim I)
In its Third Party Complaint, Chesapeake alleges ABD
materially breached the parties' oral agreement for ABD to
"handle all matters relating to the proper documentation of the
transfer of title" of the Faithful in the Cribb transaction,
including "obtaining an Abstract of Title from the U.S. Coast
42
Guard, documenting the vessel with the U.S. Coast Guard,
verifying the identities of all persons involved in the
transaction involving the vessel, and perfecting and obtaining a
mortgage on the vessel in [Wells Fargo's] name."
Third Party Claims [Document 63] ¶ 14.
C&C's Cross &
Chesapeake claims that
ABD prepared and obtained documents from the "seller" and
"buyer" in the Cribb transaction, including a First Preferred
Ship Mortgage and Bill of Sale, "without verifying identities
and/or that said information was true and correct, when, upon
information and belief, it was not" and as a result ABD breached
its oral agreement with Chesapeake because ABD, "did not perfect
the mortgage such that [Wells Fargo] had or has an enforceable
interest in the 'Faithful.'"
Id. ¶ 18.
ABD contends it is entitled to summary judgment on
Chesapeake's breach of contract claim because
There is no evidence that there was an
express oral agreement between Chesapeake
and [ABD] that [ABD] would go behind the
signatures of the buyer and seller to verify
that
there
was
no
identity
fraud
or
otherwise verify the identity of the parties
to the transaction, some of which were
notarized documents.
ABD's Summ. J. [Document 183] at 12.
Chesapeake asserts material disputes of fact exist as to
the terms of its oral agreement with ABD for boat documentation
43
services because there is evidence in the record from which a
reasonable jury could find that ABD agreed to "properly perfect"
a lender's interest in the collateral/boat, including "mak[ing]
sure the person or entity selling the boat was who it indicated
it was, the collateral was what it was represented to be, and
there were no superior liens."
5.25
C&C's Opp'n [Document 190] at 4-
Additionally, Chesapeake asserts there is evidence in the
record sufficient to create a jury issue that ABD promised to,
inter alia, obtain the Certificate of Documentation from the
seller, either as an independent promise or as part of verifying
the identity of the seller and the existence of the collateral.
Because Chesapeake is the non-moving party who will bear
the burden of proof at trial on its breach of contract claim,
Chesapeake must designate specific evidence showing there is a
genuine issue for trial to overcome summary judgment.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
See
Although
the Court must draw all reasonable inferences in favor of
Chesapeake, the evidence presented must be more than "merely
colorable."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-
50 (1986).
25
In the Third Party Complaint, Chesapeake alleges an
obligation to verify the identity of the buyer and seller on
part of ABD. However, in its Opposition to ABD's Motion for
Summary Judgment, Chesapeake points only to evidence pertinent
to a verification obligation in connection with the seller or
the collateral.
44
a.
Pertinent Legal Principles
Under Maryland law oral contracts or agreements are
generally enforceable unless enforcement is barred by the
Maryland Statute of Frauds.26
See Campbell v. Indymac Bank, FSB,
CIV. A. CCB-09-3182, 2010 WL 419387, at *2 (D. Md. Jan. 29,
2010). "Whether oral or written, a contract is not enforceable
unless it expresses with definiteness and certainty the nature
and extent of the parties' obligations and the essential terms
of the agreement."
Maslow v. Vanguri, 896 A.2d 408, 422 (Md.
Ct. Spec. App. 2006).
The construction of an undisputed oral contract is a
question of law. Ramlall v. MobilePro Corp., 30 A.3d 1003, 1014
(Md. Ct. Spec. App. 2011).
However, "where the terms of an oral
contract are in dispute, the finder of fact must decide what
terms were actually agreed upon by the parties."
Id.
"[W]here
there is some conflict in the testimony as to just what language
was used by the contracting parties in making an oral contract,
the construction placed upon the terms and conditions of the
26
Under Md. Code, Cts. & Jud. Proc., § 5–901(3), an action
may not be brought "[o]n any agreement that is not to be
performed within 1 year from the making of the agreement,"
unless either the contract, agreement, or "some memorandum or
note of it, is in writing and signed by the party to be charged
or another person lawfully authorized by that party." Neither
party asserts ABD's agreement to provide boat documentation
services in the Cribb transaction was not to be performed within
one year from its making.
45
contract by the parties themselves may be shown and is
important."
Serv. Realty Co. v. Luntz, 123 A.2d 201, 205 (Md.
1956); see also Son v. Margolius, Mallios, Davis, Rider & Tomar,
689 A.2d 645, 656 (Md. Ct. Spec. App. 1997), rev'd on other
grounds, 709 A.2d 112 (Md. 1998) ("[W]hen parties disagree as to
the existence or terms of an oral agreement, their conduct and
intentions may be employed to determine any ambiguous and
unknown provisions of the contract.").
b.
The Oral Agreement
It is undisputed that in 2008 Chesapeake and ABD maintained
an ongoing relationship whereby, when requested, ABD would
perform boat documentation services for Chesapeake in exchange
for a fee.
However, ABD and Chesapeake did not have a written
agreement that governed the scope of ABD's "boat documentation
services."
See Childs Aff. ¶ 3.
ABD's boat documentation
services admittedly included preparing and filing certain
paperwork with the Coast Guard in order to effectuate the
"redocumentation" of a boat in light of a change in ownership
and recordation of the materials necessary to perfect a
preferred ship mortgage.
See generally id.
It is further
undisputed that, as to the Cribb transaction, Chesapeake
requested boat documentation services from ABD, ABD performed
certain services (as detailed in supra § I.C.2) that resulted in
46
ABD filing and the Coast Guard recording, inter alia, the First
Preferred Ship Mortgage.
Chesapeake paid ABD $495 in exchange
for its services in the Cribb transaction, which included the
$112 recordation fee ABD ultimately paid to the Coast Guard,
netting $383 to ABD.
Hence, there is no material dispute of
fact that Chesapeake and ABD entered into an oral agreement for
ABD to provide boat documentation services in the Cribb
transaction in exchange for $383, plus the recordation fee.
The parties' dispute centers around whether the evidence in
the record is capable of creating a jury issue as to the terms
of the oral agreement for boat documentation services in the
Cribb transaction.
That is, was there an obligation on part of
ABD to ensure that Wells Fargo held a lien capable of perfection
(the "verification obligation") and/or to obtain the Certificate
of Documentation from the "seller" (the "COD obligation").
c.
Evidence Relied on by Chesapeake
Chesapeake relies on the following evidence to show a
material dispute of fact as to whether ABD orally agreed to the
verification and COD obligations: (1) Colonna's deposition
testimony; (2) actions admittedly taken by ABD in boat
documentation transactions; (3) actions admittedly taken by ABD
in the Crib transaction; (4) requests to the "seller" by ABD for
47
the Certificate of Documentation in the Cribb transaction; (5)
deposition testimony of Vorce; and (6) the nature of a
Certificate of Documentation as potential proof of ownership of
a vessel.
The Court shall review the evidence submitted by
Chesapeake as to each obligation, though certain of the evidence
is overlapping.
i.
Verification
At his deposition, Colonna testified that as part of its
boat documentation services, ABD would call the seller and
seller's broker to get information related to the boat
transaction and Colonna understood that ABD "would do some form
of a check on the information that the seller was providing
them."27
Colonna Dep. Aug. 3, 2010 at 242:17-243:19.
Colonna
further testified that he got this understanding from:
27
Specifically, Colonna testified:
Q. Now going back to the onset of the
relationship. If I understand what you were
saying, you would call Atlantic Boat and
they in turn would call the seller and the
boat broker; is that what you were saying?
A. That's correct.
Q. And that was in order to get information;
is that correct?
A. That's correct.
48
A. Yeah, their brochure and the way Poe28
would explain [Poe's] services to me.
Q: Specifically what did she state?
A. That they were there to protect the bank.
Also that documentation would be the way of
the future.
She had told me that she had
lobbied with the lenders to use strictly
documentation.
. . .
Q. Now, did she state anything else?
A. Nothing relevant, no.
Q: Did she give you any details about how
she would go about verifying information
that she obtained from would be sellers?
A: No, she just led me to believe that that
would be taken care of.
Q. And what specifically did she state that
led you to that conclusion?
A. I remember specifically - - I believe she
used the terms ears and eyes.
Q. And what information did you understand
they would give?
A. Verifying the existence of the seller,
the existence of the boat, doing an abstract
through the Coast Guard to verify if any
liens were on the boat, verifying names,
addresses.
Colonna Dep. Aug. 3, 2010 at 242:17-243:10.
28
Poe refers to Poe Martin of ABD. Colonna testified that he
did not discuss the scope of ABD's services with anyone other
than Poe Martin. Colonna Dep. Aug. 3, 2010 at 249:02-250:2.
His discussions with Poe Martin regarding the scope of ABD's
services occurred years before the Cribb Transaction. See
Colonna Dep. Aug. 3, 2010 at 249:18-250:2.
49
Q. And what did you understand by her using
the terms ears and eyes?
A. That meant to me that she would keep an
ear out for suspicious things and look for
irregularities.
Colonna Dep. Aug. 3, 2010 at 243:20-245:09.
Later in his
deposition, Colonna testified he was "led to believe" that ABD
"would verify that the seller was indeed who he said he was.
And the way they would do that was to verify through directory
assistance phone numbers, and most importantly get a copy of the
document or the original title.
It might have even been the
original of both, either/or from the seller."
Id. 252:15-
253:03.
Chesapeake also points to certain services admittedly
performed by ABD in the boat documentation process in general
and the Cribb Transaction in particular.
Specifically, as part
of its boat documentation services, ABD confirms that an entity
seller is in good corporate standing in its state of
organization.
Childs Aff. ¶ 5.
With respect to checking the
"accuracy" of certain information, Elizabeth Childs of ABD
testified as follows:
Q. Aside from these two cases, you've been
in the documentation business for a long
time.
Have
you
ever
seen
documents
presented with false information?
A. Not that I can recall.
50
Q. Have you ever seen documents presented
with inaccurate information?
A. Inaccurate?
Q. Yes, ma'am.
A. Yes.
Q. Can you give me an instance of that?
A. A hull number was presented to us that
was inaccurate. You know, in many different
areas where it was inaccurate.
Q.
If
a
hull
number
was
identified
inaccurately, what steps would ABD take to
correct that problem?
A.
I would ask for a digital photo of the
hull identification number or a pencil
tracing.
Childs Dep. June 18, 2010 [Document 199-3] at 46:13-21.
Concerning the Cribb transaction, ABD confirmed the boat
owner/seller entity JRP marine was in good standing in Florida,
its state of organization.
ABD also contacted who it thought
was Roy Pence by telephone to ask where to send the Bill of Sale
for signature and received confirmation during that call from
"Roy Pence" that he and his wife were the two members of JRP
Marine. Id. at 76:3-12.
51
ii.
Certificate of Documentation
With respect to the Certificate of Documentation, Colonna
testified at his deposition as to his understanding of the scope
of services ABD would perform with regard to the Certificate:
A. That they would obtain that document, and
in doing so verify that the seller was who
he said he was.
Q. And how did you acquire that
understanding?
A. By what Poe Martin told me that they
would be doing for me in the very onset.
Q. And did she make specific reference to
the certificate of documentation?
A. I believe she did - - yes, I believe she
did.
Colonna Dep. Aug. 3, 2010, at 254.
Colonna then explained that
he understood from Poe Martin that the Coast Guard would not
accept a preferred ship mortgage for recordation without the
Certificate of Documentation, but he did not know if that was in
fact true.
Id. at 255-56.
The record contains evidence that ABD requested the
Certificate of Documentation from who it thought was the seller
in the Cribb transaction on more than one occasion.
On May 30,
2008, ABD sent an email to "penceroy@yahoo.com" requesting that
the seller return the "Original Certificate of Documentation" to
ABD prior to settlement.
[Document 190-9].
52
Additionally, the
"seller" sent a letter dated June 2, 2008, to ABD stating "[a]s
I discussed with you today on the telephone, I will send my
original Coast Guard Certificate following completion of the
funding."
[Document 190-1].29
Vorce also testified that ABD
verbally requested the Certificate of Documentation from him
while he was posing as Roy Pence:
Q. So, Atlantic said to Roy Pence: "we want
to see the certificate of documentation so
we can make sure you actually own the boat"?
A. That's right.
Well, they are able to
verify - - the primary verification comes
when they do an abstract of title.
Q. Uh-huh.
A. Because, I could have your certificate
and you could sign it over to someone else
in the Coast Guard.
They do the primary
with the Coast Guard, and they did that.
She explained that we verified the title and
everything
but
they
also
need
the
certificate because - - to make sure that
nothing has transpired since it was last
reported to the Coast Guard and the present
day. . . .
Vorce Dep. June 22, 2010 [Document 190-11] at 157:9-25.
Chesapeake also relies upon the import of the Certificate
of Documentation and evidence of its ability to act as proof of
ownership to corroborate the deposition testimony of Colonna and
29
There is a factual dispute over whether the June 2, 2008
letter was ever provided by ABD to Chesapeake: ABD states it
forwarded a copy of the letter to Chesapeake and Chesapeake
states the letter was not received and was not in its files.
See C&C Opp'n [Document 190] at 11-12.
53
Vorce.
A Certificate of Documentation is a federally regulated
document issued and signed by the Coast Guard that contains
information pertaining to a vessel and, unless exempt, must be
carried on the vessel.
See 46 U.S.C. § 12133(a).
The
information contained in a Certificate of Documentation includes
the vessel's name, official number, hailing port, length,
breadth, depth, place built, and the owner(s), as well as the
date of issuance and expiration of the Certificate itself.
[Document 190-10].
See
According to the applicable federal
regulations, the purpose of a Certificate of Documentation is
that it is "required for the operation of a vessel in certain
trades,30 serves as evidence of vessel nationality, and permits a
vessel to be subject to preferred mortgages."
46 C.F.R. § 67.1.
Certificates of Documentation are reissued or replaced annually
by the Coast Guard.
See Willis Dep. Feb. 4, 2011 [Document 190-
8] at 170:19-171:3.
A Certificate of Documentation becomes invalid immediately
upon the change in ownership of a vessel.
46 C.F.R. § 67.167(b).
According to existing federal rules, when a buyer purchases a
vessel from a seller, the buyer must submit an application for
30
See generally Offshore Serv. Vessels, L.L.C. v. Surf
Subsea, Inc., CIV.A. 12-1311, 2012 WL 5183557, at *11 (E.D. La.
Oct. 17, 2012) (explaining that a qualified vessel may
participate in the US coastwise trade only if the vessel has
been issued a certificate of documentation with an endorsement
for that trade).
54
exchange of the Certificate of Documentation to the Coast Guard
along with the outstanding Certificate of Documentation.
id. § 67.167(a).
See
ABD has submitted evidence that the
requirement that an outstanding Certificate of Documentation be
submitted to the Coast Guard as part of the change in ownership
and obtainment of a new Certificate of Documentation "has not
been enforced by the United States Coast Guard since at least
1984, even though it was not removed from the regulations."
Willis Aff. [Document 183-8] ¶ 9.
Mary Bacon, ABD's
documentation industry expert, stated that the Coast Guard has
not required the outstanding Certificate of Documentation upon
transfer of boat ownership for "approximately 15 years" or
beginning in 1986 (the affidavit is dated January 31, 2011).
Bacon Aff. [Document 183-4] ¶ 9.
Chesapeake provides no
evidence contradicting these opinions.
With respect to ownership of a vessel, the reverse side of
a Certificate of Documentation contains a blank form that may be
utilized to transfer ownership or title of a boat by recording
the transfer thereon.31
6] at 120:17-121:2.
Willis Dep., Feb. 4, 2011 [Document 204-
ABD submitted evidence that as part of the
boat documentation process it obtains the Abstract of Title on a
31
A transfer of ownership in a boat can also be accomplished
by a Bill of Sale, which – though fraudulent – was the means
used in the Cribb transaction.
55
vessel from the Coast Guard's records, which is "relied upon in
the vessel documentation services industry as the evidence of
ownership."
Childs Aff. ¶ 5.
In support of its position that a
Certificate of Documentation can indicate ownership information
not contained in the Abstract of Title, Chesapeake points to the
testimony of Thomas Willis ("Willis"), ABD's expert and fact
witness.
Mr. Willis testified that it is possible for a
Certificate of Documentation to show, contrary to the Abstract
of Title, that someone selling a boat "doesn't own the boat
anymore" if the seller had previously transferred ownership of
the boat using the reverse side of the Certificate of
Documentation, instead of a Bill of Sale, within the preceding
year.
See Willis Dep. Feb. 4, 2011, 169-171.
Stated
differently, Willis testified that it is possible that
evaluating the reverse side of a Certificate of Documentation
could, under certain limited circumstances, indicate or reveal
that a purported seller no longer owns the boat being
documented.
d.
Adequacy of the Evidence
Based on the aforementioned evidence identified by
Chesapeake, the Court must determine whether a reasonable jury
could find that ABD orally agreed to the verification and/or COD
obligations.
The Court must construe all the facts and
56
inferences drawn therefrom in a light most favorable to
Chesapeake, the non-moving party.
See Seabulk Offshore, Ltd. V.
Am. Home Assur. Co., 377 F.3d 408, 418 (4th Cir. 2004).
i.
Verification Obligation
Preliminary, the Court notes that Chesapeake's verification
obligation claims are vague and conclusory.
It is unclear what,
exactly, Chesapeake claims ABD agreed to do to "verify"
information related to the seller and the Faithful above and
beyond the tasks it admittedly performed in the Cribb
transaction.
See generally Patterson v. Kennedy, CIV.A. DKC-11-
2487, 2013 WL 1830132, at *6 (D. Md. Apr. 30, 2013) (recognizing
that actual injury claim was so vague that it could not
withstand summary judgment).
Chesapeake merely asserts that ABD
had to "make sure" the seller and the Faithful were what they
purported to be in order to "properly perfect" Wells Fargo's
lien in the Faithful.
These phrases mean little, if anything,
without specification of the means by which ABD agreed to
accomplish such measures.
To the extent that Chesapeake takes the position that the
verification obligation meant that ABD orally agreed to
affirmatively investigate and discover fraud in the underlying
boat sale transaction, Chesapeake has failed to point to
57
evidence from which a reasonable jury could find that ABD agreed
to undertake such a responsibility as part of its boat
documentation services in exchange for only $383.
ABD's role in the Cribb transaction began only after
Chesapeake connected "Cribb" to Wells Fargo for financing
"Cribb's" purchase of the Faithful from "JRP Marine" and Wells
Fargo accepted Cribb's Credit Package.
Once Chesapeake
solicited ABD and provided ABD with details of the Cribb
transaction, the evidence indicates that ABD confirmed, in the
superficial sense, certain information related to the seller and
the Faithful as part of its documentation services.
For
instance, ABD obtained and reviewed the Abstract of Title for
the Faithful, which showed "the current title status, prior
title and lien history of a vessel."
See Childs Aff. ¶ 5.
ABD
used the Abstract of Title to complete the Buyer's and Seller's
Paperwork.
Id. ¶ 5-7, 11.
ABD also confirmed that JRP Marine
was in good corporate standing in Florida.
When viewed in the
light most favorable to Chesapeake, this evidence shows that ABD
confirmed the accuracy of certain information, which is
consistent with Colonna's testimony that ABD, as part of
documenting a boat transaction, verified certain information
through other documents it obtained in the ordinary course of
business and/or communications with the seller or buyer.
58
However, evidence from which a reasonable jury could find
that ABD orally agreed to "confirm" that there was documentation
indicating that the person named as seller and vessel existed
and that the Abstract of Title revealed no prior liens does not
amount to evidence of an agreement to "confirm" that the
existing person named as seller had, in fact, entered into the
transaction or that other pertinent documents were genuine.
The
verification contention is not supported by evidence that would
permit a reasonable jury to conclude that, for the sum of $383,
ABD would accept responsibility to conduct an investigation of
the scope necessary to verify the genuineness of the transaction
documents.
In sum, ABD is entitled to summary judgment that it had no
"verification obligation," as discussed herein, under its oral
agreement with Chesapeake to provide boat documentation services
in the Cribb transaction.
ii.
Certificate of Documentation
The evidence submitted by Chesapeake is sufficient to
present a genuine issue of material fact regarding the existence
of an agreement to obtain the seller's Certificate of
Documentation.
59
ABD submitted evidence that its standard operating
procedure is to request the Certificate of Documentation, but
that the Certificate "was of no importance to the recordation
process because the Coast Guard, as a matter of practice, did
not require it to be submitted."
Childs Aff. ¶ 16.
ABD also
provided evidence that:
Of 9 files involving Wells Fargo as the lender and
Chesapeake as the broker, 3 files show ABD received
the Certificate of Documentation from the seller;
and
Id.
Of 283 ABD files involving Wells Fargo, 105 show ABD
received the seller's Certificate of Documentation;
Of the 27 files involving Chesapeake and a non-Wells
Fargo lender, one shows ABD received the Certificate
of Documentation.
Lastly, ABD's brochure does not reference the Certificate
of Documentation.
As discussed supra, Chesapeake has pointed to evidence in
the record indicating that ABD promised Chesapeake it would
obtain the Certificate of Documentation when documenting boats
for Chesapeake.
promise to him.32
That is, Colonna testified that ABD made such a
Though ABD asserts the Certificate is of no
32
Although ABD asserts there are reasons not to believe
Colonna, such credibility issues are traditionally reserved to
the jury. See Magill v. Gulf & W. Indus., Inc., 736 F.2d 976,
979 (4th Cir. 1984) ("Summary judgment also is inappropriate if
an issue depends upon the credibility of witnesses, because such
credibility can best be determined after the trier of fact
observes the witnesses' demeanor.").
60
import, it admittedly requests the document and, if received,
files it.
Indeed, Chesapeake produced evidence that ABD
requested the Certificate from the "seller" in the Cribb
transaction on more than one occasion.
Lastly, even ABD's
expert admitted that, in limited circumstances, the Certificate
could include information not present in the Abstract of Title,
a document ABD admittedly reviews in order to fill out pertinent
paperwork.
ABD contends that the Court should disregard Colonna's
deposition testimony because it is "based on a fact not in
existence, e.g., the Coast Guard requires a Certificate of
Documentation to be filed as a condition to recordation of
ownership or of a mortgage."
16.
ABD's Reply [Document 204] at 15-
The Court agrees that ABD has submitted evidence suggesting
that Colonna's understanding as to why ABD promised to obtain
the Certificate of Documentation does not coincide with the
practices of the Coast Guard at that time.
Yet Colonna admitted
he was not sure if the reason for obtaining the Certificate was
true and, though not enforced, the applicable rules are still on
the books.
In any event, it is for the jury to weigh evidence
of the debated importance of the Certificate of Documentation in
61
the documentation process, Colonna's testimony, and the actions
of ABD in the Cribb transaction.33
There also exists a factual dispute as to whether ABD
delivered to Chesapeake a copy of the June 2, 2008 letter from
Roy Pence advising that the seller would not be providing the
Certificate of Documentation until after funding.
Kelleher Aff. ¶¶
Compare
3-6 (Chesapeake employee involved in Cribb
transaction) (explaining she never received the June 2, 2008
letter from ABD prior to this litigation) & Colonna Aff. ¶¶ 5-6
(explaining he has no recollection of the letter being provided
by ABD prior to this litigation and did not see the letter among
the documents produced by Chesapeake in this litigation), with
Childs Aff. ¶ 13 (stating ABD sent a copy of the letter to
Chesapeake with the seller's executed Bill of Sale and Power of
Attorney).
Accordingly, viewing the evidence in the light most
favorable to Chesapeake, there is a genuine issue of material
fact as to the COD obligation.
Chesapeake's favor.
A reasonable jury could find in
Therefore, the case must proceed with
33
ABD also asserts that Colonna's testimony does not
establish an enforceable contract because it is too uncertain to
show a meeting of the minds. As to the COD obligation, his
testimony explicitly referenced that document and a promise to
obtain it. In any event, the Court has determined there is no
dispute that an agreement between Chesapeake and ABD for boat
documentation services existed, the factual dispute is over
whether the COD obligation was a term of that agreement.
62
regard to Chesapeake's claim based upon an alleged agreement for
ABD to provide the Certificate of Documentation.
C.
Negligence Claims
1.
Wells Fargo - Chesapeake (Count II)
Wells Fargo alleges that Chesapeake negligently processed
or handled the Cribb loan and, as "a direct, consequent and
proximate result," damaged Wells Fargo "in the amount of
$885,000, plus fees, including without limitation dealer reserve
fees of $13,275.00, plus interest, costs."
Sec. Am. Compl.
[Document 61] ¶¶ 51-55.
Chesapeake's motion seeks summary judgment on Count II on
two grounds,34 contending that:
1. Wells Fargo has failed to designate an expert to
establish the applicable standard of care, and/or
2. The undisputed material facts demonstrate Wells
Fargo's contributory negligence.
a.
Need For Expert Testimony
Chesapeake contends that it is entitled to judgment as
matter of law on Count II because Wells Fargo has failed to
34
Chesapeake has not sought summary judgment on the grounds
that (1) it did not owe Wells Fargo a tort duty or (2) that the
tort claim is superfluous as duplicative of the contract claim.
63
produce expert testimony from which a reasonable jury could
determine the applicable standard of care owed by Chesapeake to
Wells Fargo.
Wells Fargo claims such expert testimony is not
necessary because the MOA establishes the applicable standard
and/or Chesapeake's negligence is obvious.
When a plaintiff alleges negligence by a professional,
"expert testimony is ordinarily necessary to establish the
applicable standard of care" owed by the professional unless the
negligence "so obviously deviated from the applicable standard
of care that the trier of fact could appreciate the deviation
without an expert's assistance."
Schultz v. Bank of Am., N.A.,
990 A.2d 1078, 1091 (Md. 2010) (finding expert testimony
necessary where case involved internal banking procedures
surrounding actions taken by bank to protect customer from fraud
in connection with the addition of a name to a checking
account).
"If the plaintiff presents no such evidence, the
trial 'court may rule, in its general power to pass upon the
sufficiency of the evidence, that there is not sufficient
evidence to go to the [trier of fact].'"
Id. at 1086 (quoting
Rodriguez v. Clarke, 926 A.2d 736, 755 (Md. 2007)).
i.
The MOA
Wells Fargo claims expert testimony is not necessary
because the "tort in this case is in essence the negligent
64
performance of the obligations, which are clearly enumerated and
expressed in the [MOA]."
Wells Fargo provides no legal support
for this proposition.
The Court will assume, for present purposes, that
Chesapeake owed Wells Fargo a tort duty in regard to its
performance under the MOA.
However, in addition to proving a
tort duty; Wells Fargo must establish the degree of care which a
reasonably prudent marine broker would have exercised under the
same or similar circumstances to meet that duty.
See Schultz,
990 A.2d at 1093-94 (discussing duty of care imposed under
Maryland commercial code); see also Associated Indus.
Contractors, Inc. v. Fleming Eng'g, Inc., 590 S.E.2d 866, 870
(N.C. App. Ct. 2004) aff'd, 359 N.C. 296, 608 S.E.2d 757 (2005)
("The standard of care provides a template against which the
finder of fact may measure the actual conduct of the
professional."). "'Where a contractual relationship exists
between the persons and at the same time a duty is imposed by or
arises out of the circumstances surrounding or attending the
transaction, the breach of such duty is a tort and the injured
party may have his remedy by an action on the case, or he may
waive the tort and sue for breach of contract.'"
Blondell v.
Littlepage, 991 A.2d 80, 94-95 (Md. 2010) (quoting Jacques v.
First Nat. Bank of Maryland, 515 A.2d 756, 759 (Md. 1986)).
However, not every responsibility contained in a contract
65
necessarily gives rise to a duty in tort.
See 100 Inv. Ltd.
P'ship v. Columbia Town Ctr. Title Co., 60 A.3d 1, 10 (Md.
2013).
Thus, the existence of the MOA does not eliminate Wells
Fargo's need to present expert testimony as to what a reasonably
prudent marine broker would have done to determine that a loan
application was not fraudulent.
ii.
Obvious Negligence
Under Maryland law, if "a jury can use its 'common
knowledge or experience' to recognize a breach of a duty, then
expert testimony is unnecessary to calibrate the exact standard
of care owed by the defendant." Jones v. State, 38 A.3d 333, 348
(Md. 2012) (quoting Cent. Cab Co. v. Clarke, 270 A.2d 662, 667
(Md. 1970)).
Maryland courts have found such a situation
present where an attorney failed to inform his client that he
had terminated his representation of the client, Cent. Cab Co.,
270 A.2d at 667; where a bank released the collateral of a
customer and took in substitution of that collateral a paper
writing that did no more than allow the bank to collect monies
due on the collateral, Free State Bank & Trust Co. v. Ellis, 411
A.2d 1090, 1092-93 (Md. Ct. Spec. App. 1980), and where a
66
dentist extracted the wrong tooth from a patient's mouth,
McClees v. Cohen, 148 A. 124 (Md. 1930).
Here, Wells Fargo contends the following acts of Chesapeake
patently constitute negligence, requiring no expert testimony:
Act 1 - Failure to verify the existence of
sale proceeds beyond the loan
amount;
Act 2 - Failure to verify the deposit/down
payment to be made by the "buyer" as
provided in the Yacht Purchase and
Sale Agreement had been paid;
Act 3 - Disbursing the loan proceeds to a
third non-sale party without
notifying Wells Fargo;
Act 4 - Failure to properly confirm the
identity of the buyer before
allowing him to apply for a loan
with Wells Fargo;
Act 5 - Failure to properly confirm the
identity of the seller before
disbursing loan proceeds; and
Act 6 - Failure to identify indicia of
fraud, like the absence of a selling
broker or buyer's broker identified
in the sales contract, and failure
to inform Wells Fargo of such
information prior to disbursing the
loan proceeds.
Wells Fargo's Opp'n [Document 194] at 26-27.
Acts 1 and 6:
It would not be obvious to an ordinary
person that the failure to identify the absence of a selling or
buyer's broker and/or verification of the sale proceeds
67
constitutes negligence.
Rather, expert testimony and, if
extant, proof of industry standards would be essential to allow
a reasonable jury to find that Chesapeake's conduct fell below
an applicable standard of care. See generally C & M Builders,
LLC v. Strub, 22 A.3d 867, 875 (Md. 2011) (relying on Schultz
and explaining evidence of industry standards may be admissible
evidence of an applicable standard of care).
Act 2:
The MOA provides for a specific representation by
Chesapeake that the borrower has "paid the specified down
payment in cash."
Moreover, there is evidence that Colonna,
acting for Chesapeake, fabricated a purported check to mislead
Wells Fargo into believing that there had been a payment of
$500,000.
A reasonable jury would not need expert testimony to
find that this action is below any reasonable standard of care
imposed on a loan broker.
Act 3:
After Wells Fargo distributed the Cribb loan
proceeds to Chesapeake, Chesapeake, upon instruction from "Roy
Pence," distributed the loan proceeds via wire to an E*TRADE
bank account in the name of Tom Olofson, apparently Mr. Pence's
investment banker.
Colonna Dep. Aug. 3, 2010 at 74.
Colonna
testified that it was unusual to disburse loan proceeds to a
non-seller.
See id.
Chesapeake did not inform Wells Fargo that
it would be disbursing the funds to someone not party to the
68
boat sale transaction.
A reasonable jury would not need expert
testimony to find that disbursing Wells Fargo's funds to a
person not authorized by Wells Fargo to receive the funds would
be below any reasonable standard of care.
Acts 4 and 5:
Proof of Chesapeake's failure "to properly
confirm" [properly to confirm] the identity of the buyer or
seller requires evidence establishing what should have been done
or what confirmatory actions would have been taken by a
reasonably prudent boat loan broker in a similar situation.
Since the MOA contains no explicit obligation on part of
Chesapeake to take any particular action with respect to
"confirming" the identities of the buyer and seller in a boat
loan transaction, expert testimony is needed.
Accordingly, the Court finds that Chesapeake is entitled to
summary judgment establishing that, absent expert testimony, it
is not liable on Wells Fargo's negligence claims as to Acts 1,
4, 5, and 6 but not as negligence claims based on Acts 2 and 3.
iii.
Nonobvious Negligence
In its Surreply, Wells Fargo asserts that if an expert is
needed regarding its negligence claim "Defendants' questioning
of Lynn, in areas regarding the MOA and the duties enumerated
69
therein have opened the door to Lynn['s] providing expert
testimony as to this subject, and Defendants have effectively
waived their right to object."
8.
Well Fargo's Surreply [213-9] at
Wells Fargo designated James F. Lynn as a rebuttal expert in
consumer loan origination and underwriting in connection with
Chesapeake's contributory negligence defense.
In his expert
report and deposition testimony, Mr. Lynn provides opinions as
to Wells Fargo's and Chesapeake's contractual duties under the
MOA, as well as the reasonableness of Wells Fargo's actions in
connection with the Cribb transaction.
The Court does not find it appropriate to hold that
Chesapeake waived its right to object to Wells Fargo's use of
Mr. Lynn to provide expert testimony on Chesapeake's duties
under the MOA as evidence of the scope of Chesapeake's tort
duty.
However, the Court recognizes that Wells Fargo did not
timely designate Mr. Lynn as an expert witness giving the
opinions it now wishes to rely upon.
Thus, while Chesapeake
took Mr. Lynn's deposition, it cannot be held to have taken a
full deposition including questioning regarding Well Fargo's
negligence claim against Chesapeake.
Under the circumstances, the Court will permit Wells Fargo
to designate Mr. Lynn as an expert witness to provide specified
opinions in support of its negligence claim.
70
Chesapeake will
then be permitted to take the deposition of Mr. Lynn relating to
those opinions.
Chesapeake may, at that point, file any
appropriate substantive objection to the proffered expert
testimony.
However, Wells Fargo will bear Mr. Lynn's fees and
expenses related to the deposition.
iv.
Resolution
The "bottom line" is that the Court shall not grant
Chesapeake partial summary judgment establishing that it is not
liable on Wells Fargo's negligence claim.
However, the Court
determines that, absent adequate expert testimony, Wells Fargo's
negligence claim is limited to Acts 2 and 3.
b.
Contributory Negligence
Chesapeake asserts it is entitled to summary judgment
establishing its affirmative defense that Wells Fargo was
contributorily negligent.
Under Maryland law, contributory negligence of a plaintiff
ordinarily will bar recovery on a negligence claim.
Bd. of
Cnty. Comm'rs. v. Bell Atl.-Md., 695 A.2d 171, 181 (Md. 1997).
"Contributory negligence is that degree of reasonable and
ordinary care that a plaintiff fails to undertake in the face of
an appreciable risk which cooperates with the defendant's
71
negligence in bringing about the plaintiff's harm."
Id.
Generally, the contributory negligence defense presents a
question of fact for the jury.
See McQuay v. Schertle, 730 A.2d
714, 721 (Md. Ct. Spec. App. 1999).
As pertinent to the claim of contributory negligence, the
following facts are not disputed:
1.
In May of 2008, Wells Fargo utilized
"CreditRevue"
in
connection
with
evaluating loan applications and fraud
detection.
CreditRevue would purchase
a consumer credit report of a loan
applicant and generate the applicant's
credit score.
CreditRevue also had
algorithms embedded into its system to
detect potential fraudulent conditions
or issues with a loan application.
2.
Wells Fargo used CreditRevue to assess
the "Cribb" application.
3.
CreditRevue highlighted the purported
borrower's address as "FRAUD" in red
letters and with a red flag.
Wells
Fargo used Zillow.com, an internet
site, to find the address. The website
provided the address could not be
located.
4.
The credit report pulled by CreditRevue
showed
the
purported
borrower's
birthdate as 1915, noted the social
security number was issued prior to
1951, and showed the borrower had an
American Express card in 1965.
5.
The borrower's application submitted by
Chesapeake showed the birth date as
1956.
72
6.
The purported borrower's application
showed the borrower's work phone number
was the same as his cell number.
7.
Regarding the flagged address, Wells
Fargo asked Chesapeake to have the
purported borrower produce a utility
bill to verify the address.
"Cribb"
produced
a
fake
utility
bill
and
Chesapeake forwarded the bill to Wells
Fargo.
8.
On June 5, 2008, Chesapeake sent Wells
Fargo a "Closing Package" for the Cribb
loan, which included a copy of the
purported borrower's driver's license.
The license number was fictitious.
i.
"Age" Inconsistencies
Chesapeake contends that Wells Fargo's failure to notice
the discrepancies between the birth year in the credit report
and the Cribb loan application (i.e., the birthdate provided in
the application would mean that the government issued "Cribb"
his social security number before he was born) establishes
contributory negligence as a matter of law.
Wells Fargo disagrees claiming CreditRevue did not flag the
age inconsistencies and Mr. Lynn, Wells Fargo's proffered
rebuttal expert on consumer loan origination and consumer loan
underwriting, opined that Wells Fargo's reliance on CreditRevue
to flag anything warranting further investigation in the
application process was compliant with industry standards in
73
2008.35
In response, Chesapeake (for the first time in its
reply) claims there is evidence showing that CreditRevue did
highlight a birth year inconsistency in a Fraud Shield Summary.
In its Surreply, Wells Fargo contends the Fraud Shield Summary
was generated after funding of the Cribb loan by Betty Ashley as
part of her fraud investigation and by using Experian Social
Search.
The Fraud Shield Summary, attached to the Reply, is
dated June 24, 2008; Wells Fargo funded the loan on June 5,
2008.
35
Furthermore, in her affidavit, Betty Ashley states that
Mr. Lynn further opined in his report that:
From an underwriting perspective, the only
issue with respect to age is the ability to
contract.
Based on the information I was
presented, it was clear to me that the loan
applicant, Mr. Cribb, was over 18 years of
age.
Otherwise, age is irrelevant to me
because it is a discriminatory basis as
defined by the Equal Credit Opportunity Act.
Lynn Expert Report at 12.
In his deposition testimony, Mr. Lynn testified:
. . . . [T]he Credit Review system was
widely accepted in the marketplace the best
that I could determine and it was widely
used. But the point is that Wachovia had to
rely on its system, which is normal,
customary, standard of care in the industry,
to identify the potential discrepancy.
The
system did not identify the discrepancy.
Lynn Dep. Feb. 25, 2011 at 140:2-10.
74
she generated the Fraud Shield Summary on June 24, 2008.
Ashley
Aff. ¶ 7.
Chesapeake also contends that the evidence demonstrates
that Wells Fargo customized CreditRevue to detect age-related
inconsistencies and/or trained its underwriters to look for that
type of discrepancy in Credit Packages.36
In support thereof,
Chesapeake provides one page of what appears to be a power point
presentation entitled "CreditRevue Red Flags" with a bullet
point stating "Social security number issued prior to
birthdate."
Yet, as part of the fact section in its brief,
Chesapeake asserts that Wells Fargo's
. . . Underwriting manual provides no
instructions as to how to detect fraud, it
just tells its underwriters what to do when
fraud is detected . . . and [the] one
employee [in the fraud department] did not
routinely inform the underwriters as to what
to look for when reviewing applications.
C&C's App'x 1 to Reply [Document 202-1] at 3.
It is readily apparent that there are genuine issues of
material fact preventing summary judgment for Chesapeake on its
36
Chesapeake relies on the deposition testimony of Mr. Lynn
to support its assertion that Wells Fargo customized its own
specifications in CreditRevue, presumably to detect age-related
inconsistencies. However, in his deposition Mr. Lynn testified
that Wells Fargo "customized [CreditRevue] to the extent that
they required an individual with lending authority to approve
every loan." Lynn Dep. Feb. 25, 2011 at 38:15-21. This
deposition testimony excerpt does not support Chesapeake's
position.
75
contributory negligence defense based on the "age
inconsistencies."
ii.
Verification of Driver's License, Cell
Phone Numbers, Address
Chesapeake asserts the following failures on part of Wells
Fargo are so patently negligent that no reasonable juror could
fail to find contributory negligence:
Failure 1 - To verify the authenticity of Cribb's driver's
license provided with the Closing Package;
Failure 2 - To notice the cell phone and work numbers given
by "Cribb" were the same; and
Failure 3 - To check other internet sites or ask for
physical confirmation for "Cribb's" address (as
opposed to requesting a utility bill) after
CreditRevue "flagged" the address and Wells
Fargo could not locate it on Zillow.com.37
Failure 1: Chesapeake admits the evidence shows that "Vorce
had spent 11 hours mocking up the driver's license, including
figuring out a way to make it seem there was a hologram on the
card."
C&C's Summ. J. [Document 179-1] at 13.
A reasonable
jury could, but need not, find that Wells Fargo's failure to
37
Apparently the address used in the Cribb application, 777
S. Flagstar Drive, West Palm Beach, Florida, was obtained by
Vorce and Jett from Regus, a company that operates "virtual
offices" and was thus not a physical address.
76
"authenticate" a driver's license beyond visual inspection
constituted contributory negligence.
Failures 2 and 3:
Mr. Lynn opined in his expert report
that it was normal and customary for a lending institution like
Wells Fargo to rely on a broker like Chesapeake to verify and
authenticate information in loan applications and all other
elements associated with the transaction.
A reasonable jury
could rely upon this opinion and other evidence to conclude that
Wells Fargo was not contributorily negligent in relying upon
Chesapeake to do the verification.
Accordingly, Chesapeake is not entitled to summary judgment
establishing its affirmative defense of contributory negligence
against Wells Fargo.
2.
Wells Fargo – ABD (Count V)
In Count V, entitled "Negligence & Fiduciary Duty," Wells
Fargo alleges that ABD failed to exercise reasonable care in the
performance of its duties as agent for or fiduciary of Wells
Fargo "by failing to review satisfactory identification from the
Borrower and/or JRP Marine, LLC" and "failing to properly
perfect" the First Preferred Ship Mortgage. Sec. Am. Compl. ¶¶
69-71.
77
a.
ABD Motion to Strike [Document 217]
i. Portions of Plaintiff's Reply
ABD asserts Wells Fargo's Reply "is nothing more than a
veiled sur-reply memorandum to [ABD's] Reply Memorandum
(Document No. 205) in Support of [ABD's] Motion for Summary
Judgment (Document No. 195)."
ABD filed, separately, an
opposition and a reply to Wells Fargo's Opposition/Cross Motion
for Summary Judgment [Documents 204, 206].
filed a reply to ABD's opposition.
Wells Fargo then
The issues in all of these
filings are inextricably intertwined. Therefore, it is
understandable that to the extent the disputes bleed together,
each contention cannot be neatly extrapolated for purposes of a
reply.
Accordingly, the Court shall not strike any portion of
Wells Fargo's Reply.
ii.
Affidavits
ABD sweepingly seeks to have the Court strike the entirety
of affidavits of James Meere and Brian Murphy.
The Court finds
no reason to strike the entirety of these affidavits and, in the
absence of a specification as to any allegedly "strike worthy"
portion, will strike no part.
To the extent the Court relies
upon any part of one of these affidavits, it shall so indicate.
78
Therefore, ABD's Motion to Strike Portions of Plaintiff's
Reply (Document 214) and to Strike the Affidavits of Meere
(Document 214-1) and Murphy (Document 214-2) in their Entirety
(Document 217) shall be denied.
b.
Duty to Wells Fargo
ABD seeks summary judgment on Count V because "Wells Fargo
cannot establish any facts that would give rise to an
independent source of a breach of tort or fiduciary duty to
sustain an action sounding in tort."
183-1] at 11.
ABD's Summ. J. [Document
Wells Fargo – in its cross summary judgment
motion - contends the undisputed facts show that ABD "owed seven
(7) independent duties to WDS.
These include fiduciary, direct
contract, third party beneficiary, course of dealing, ethical,
statutory, and based on its marketing brochure."
at 23.
[Document 195]
These contentions shall be addressed in turn.
i.
Legal Principles
"[T]here can be no negligence where there is no duty that
is due; for negligence is the breach of some duty that one
person owes to another."
669, 671-72 (Md. 1903).
Va. Ctr. & P. Ry. Co. v. Fuller, 54 A.
Generally, whether a tort duty exists
is a question of law, to be decided by the court.
79
Pendleton v.
State, 921 A.2d 196, 204 (Md. 2007).
A tort duty is "'an
obligation, to which the law will give recognition and effect,
to conform to a particular standard of conduct toward another.'"
Id. (quoting Doe v. Pharmacia & Upjohn Co., Inc., 879 A.2d 1088,
1092 (Md. 2005)).
As stated by the Maryland Court of Appeals:
In determining whether a tort duty should be
recognized in a particular context, two
major considerations are: the nature of the
harm likely to result from a failure to
exercise due care, and the relationship that
exists
between
the
parties.
Where
the
failure to exercise due care creates a risk
of economic loss only, courts have generally
required an intimate nexus between the
parties as a condition to the imposition of
tort liability. This intimate nexus is
satisfied by contractual privity or its
equivalent.
Jacques v. First Nat. Bank of Md., 515 A.2d 756, 759-60 (Md.
1986) (holding that bank which agreed to process loan
application owed customer duty of reasonable care in processing
and determination of that application).
With respect to a fiduciary duty, in a claim for money
damages, Maryland does not recognize a standalone cause of
action for breach of fiduciary duty.
See George Wasserman &
Janice Wasserman Goldsten Family LLC v. Kay, 14 A.3d 1193, 1219
(Md. Ct. Spec. App. 2011); Vinogradova v. Suntrust Bank, Inc.,
875 A.2d 222, 230-31 (Md. Ct. Spec. App. 2005) (treating
complaint alleging negligence and breach of fiduciary duty as
80
one claim for negligence alone).
However, the breach of a
fiduciary duty may give rise to a cause of action such as
negligence, fraud, or breach of contract. See Kay, 14 A.3d at
1219.
ii.
Tort Duty Based on Contract-Related
Theories (Direct Contractual Privity,
Third Party Beneficiary, and Course of
Dealing)
Wells Fargo seeks to recover on a tort theory for the
economic loss it sustained as a result of ABD's alleged
negligence.
Where a plaintiff sustains purely economic loss due to a
defendant's negligence, Maryland law requires a showing of an
intimate nexus between plaintiff and defendant.
Jacques, 515
A.2d at 760 (Md. 1986) (recognizing in circumstances of case a
duty of care owed to non-customer drawer of check by bank);
Chicago Title Ins. Co. v. Allfirst Bank, 905 A.2d 366, 381 (Md.
2006).
As the instant case presents such a situation, the Court
must examine the relationship between Wells Fargo and ABD and
assess whether that relationship is sufficiently intimate to
justify the imposition of a tort duty.
Wells Fargo appears to take the position that ABD owed it a
duty to exercise reasonable care when documenting the Cribb
transaction based upon a direct contractual or third party
81
beneficiary relation between it and ABD.
There is no evidence
of a direct contractual relationship between Wells Fargo and ABD
in regard to the Cribb transaction.
Under Maryland law, an "intended third party beneficiary"
may sue on a contract he or she is not a party to, despite a
lack of privity, where the parties to the contract entered into
the agreement with the intent to confer a benefit on the
beneficiary.
1985).
See Flaherty v. Weinberg, 492 A.2d 618, 622 (Md.
Here, Wells Fargo has not asserted a breach of contract
action against ABD as an intended third party beneficiary to the
oral agreement between ABD and Chesapeake.
Rather, Wells Fargo
has asserted a direct tort cause of action against ABD.
Even
assuming arguendo that Wells Fargo was an intended third party
beneficiary of the ABD-Chesapeake oral agreement, "any status
which they might have as third-party beneficiaries under the
contract is not by itself sufficient to create a duty in tort
owed" by ABD to Wells Fargo.
See Jones v. Hyatt Ins. Agency,
Inc., 741 A.2d 1099, 1107 (Md. 1999) (holding insurance agent
owed no tort duty to automobile accident victims to procure
liability insurance for the insured even if the victims were
third-party beneficiaries of contract to procure insurance).
Thus, the Court will examine the evidence related to the
relationship between Wells Fargo and ABD in order to determine
82
whether the imposition of a tort duty in this situation is
appropriate.
Wells Fargo points to the following evidence in support of
its contention that ABD owed it a tort duty of care based upon
their close relationship:
Since 2000, ABD performed boat documentation
services for recreational marine loans directly for
Wells Fargo, or its related entities.38 Childs Aff.
at ¶¶ 9-10;
ABD maintained on its computer system in digital
format two template Wells Fargo documents39 provided
by Wells Fargo: (1) Preferred Ship Mortgage and (2)
Irrevocable Limited Power of Attorney (collectively
the "Wells Fargo Form Documents")40;
Through oral agreement, Chesapeake retained ABD to
provide boat documentation related services as to
the Cribb transaction and explicitly informed ABD on
May 30, 2008, that Chesapeake was the broker and
Wells Fargo was the lender in the Cribb transaction,
as reflected in ABD's in-take form;
In the Cribb transaction, ABD utilized the Wells
Fargo's Form Documents, filled in portions of such
documents with information particular to the Cribb
transaction, and sent these documents to Chesapeake
for the buyer's signature;
38
Not necessarily involving Chesapeake or a boat loan broker.
The documents contained Wells Fargo's name and logo in the
upper left hand corner.
40
The Limited Power of Attorney authorized ABD to, inter
alia, "perform any and all acts determined to be necessary
. . . or required by [Wells Fargo] or the United States
Coast Guard in connection with the documentation of the
Vessel and the execution, delivery, filing, and recordation
of a preferred mortgage on the Vessel." [Document 195-7].
39
83
After ABD received the purported executed versions
of the Wells Fargo Form Documents as well as other
documents, ABD used the Marine Note and Security
Agreement and Loan Rate and Repayment Rider
(provided by Chesapeake) to fill in additional terms
of the First Preferred Ship Mortgage; and
On June 10, 2008, ABD submitted the First Preferred
Ship Mortgage and other documents to the Coast Guard
for redocumentation.
The undisputed evidence establishes that, as of May 30,
2008, ABD knew Wells Fargo to be the lender and mortgagee in the
Cribb transaction.
This undisputed evidence also establishes
that ABD knew properly recording the First Preferred Ship
Mortgage and other documents would be highly beneficial to Wells
Fargo as the lender/mortgagee.
As explained in ABD's
advertising materials, "Banks and other lending institutions
require Documentation as it is only through the recordation of
the First Preferred Ships Mortgage that a lender can protect its
security interest in a vessel."
[Document 195-12].
Thus, ABD
reasonably knew that failure to record properly the First
Preferred Ship Mortgage could harm Wells Fargo's interest, if
one existed, in the Faithful.
To this end, ABD knowingly acted
for the benefit of Wells Fargo when it performed documentation
services in the Cribb transaction and knew that Wells Fargo
relied on it to protect any security interest Wells Fargo
acquired in the Faithful by properly recording the documents
necessary to achieve perfection. See Chicago Title Ins. Co. v.
84
Allfirst Bank, 905 A.2d 366, 381 (Md. 2006) (explaining a
"defendant's knowledge of a third party's reliance on the
defendant's action may be important in the determination of
whether that defendant owes that party a duty of care");
Iglesias v. Pentagon Title & Escrow, LLC51 A.3d 51, 67-68 (Md.
Ct. Spec. App. 2012). The Court finds evidence of this intimate
relationship sufficient to establish the requisite intimate
nexus between Wells Fargo and ABD necessary for imposition of a
tort duty.
Wells Fargo, as the known lender and beneficiary of ABD's
documentation services, was also a foreseeable plaintiff in the
event ABD failed to exercise reasonable care in carrying out its
services.
See Jacques v. First Nat. Bank of Md., 515 A.2d 756,
760 (Md. 1986).
This is so because it would be the lien held by
Wells Fargo negatively impacted by such negligence.
In
addition, the "nature of the business" of ABD supports
imposition of a tort duty in this instance.
As explained by the Maryland Court of Appeals:
The law generally recognizes a tort duty of
care arising from contractual dealings with
professionals such as physicians, attorneys,
architects,
and
public
accountants.
Additionally, we have recognized that in
those occupations requiring peculiar skill,
a tort duty to act with reasonable care will
be imposed on those who hold themselves out
as possessing the requisite skill.
85
100 Inv. Ltd. P'ship v. Columbia Town Ctr. Title Co., 60 A.3d 1,
12 (Md. 2013) (quoting Jacques, 515 A.2d at 763).
Here, ABD
orally contracted with Chesapeake for professional services that
were for the benefit of Wells Fargo.
As discussed supra, the "question of whether a tort duty is
owed is a question of law for the court."
Fried v. Archer, 775
A.2d 430, 438 (Md. Ct. Spec. App. 2001) aff'd sub nom.
Muthukumarana v. Montgomery Cnty., 805 A.2d 372 (Md. 2002).
Based upon the foregoing, the Court finds it proper to impose a
tort duty on ABD owed to Wells Fargo to exercise reasonable care
when providing documentation services in the Cribb transaction,
which includes a duty to exercise reasonable care in recording
the First Preferred Ship Mortgage and any other documents
necessary to perfect any interest held by Wells Fargo in the
Faithful.
However, the scope of that duty does not span as far
as Wells Fargo may wish.
As discussed herein, there is no
credible evidence that part of ABD's documentation services
included the affirmative investigation or prevention of fraud in
the underlying boat sale transaction.41
Consequently, there is
no basis to impose such a tort duty on ABD.
41
Wells Fargo disbursed the funds for the Cribb loan no later
than June 9, 2008 – before ABD had even completed its
documentation services and filed the First Preferred Ship
Mortgage with the Coast Guard.
86
iii. Fiduciary/Agency Duty
With respect to the Cribb transaction, Wells Fargo asserts
that while handling the Wells Fargo Form Documents and taking
the steps necessary to perfect any security interest held by
Wells Fargo in the Faithful, ABD acted as an agent of Wells
Fargo and, as a result, "had an affirmative obligation to
disclose information material to the transaction" to Wells Fargo
and owed Wells Fargo a "high standard of care . . . one of
scrupulous honesty, skill, and diligence."
Wells Fargo's
Opp'n/Cross Summ. J. [Document 195] at 29.
Under Maryland law, agency "is the fiduciary relation which
results from the manifestation of consent by one person [the
principal] to another [the agent] that the other shall act on
his behalf and subject to his control and consent by the other
so to act."
Ins. Co. of N. Am. v. Miller, 765 A.2d 587, 593
(Md. 2001) (quoting Green v. H & R Block, Inc., 735 A.2d 1039,
1047 (Md. 1999)).
principal.
An agent owes certain fiduciary duties to its
See id. at 597.
The primary duties of an agent are
to act solely for the benefit of the principal in all matters
within the scope of the agency and to disclose any information
the principal may reasonably want to know.
See King v. Bankerd,
492 A.2d 608, 613 (Md. 1985); Miller, 765 A.2d at 597.
A
principal-agent relationship can be inferred from the words and
conduct of the parties and the circumstances.
87
Green, 735 A.2d
at 1048.
Factors relevant to the existence of a principal-agent
relationship include: "(1) the agent's power to alter the legal
relations of the principal; (2) the agent's duty to act
primarily for the benefit of the principal; and (3) the
principal's right to control the agent."
Id.
As the party alleging the agency relationship, Wells Fargo
has the burden of proof to show the existence of a principalagent relationship and the nature and extent of such a
relationship.
Med. Mut. Liab. Ins. Soc. of Md. v. Mut. Fire,
Marine & Inland Ins. Co., 379 A.2d 739, 742 (Md. Ct. Spec. App.
1977).
Wells Fargo contends a principal-agent relationship
between it and ABD can be inferred from the following evidence:
ABD documented vessels for Wells Fargo for eight
years prior to the Cribb transaction with and
without brokers;
ABD maintained the "Wells Fargo Form Documents" on
its computer systems;
ABD filled in the Wells Fargo Form Documents with
information specific to the Cribb transaction; and
ABD documented the Cribb transaction and recorded
Wells Fargo's security interest in the Faithful.
ABD does not respond to the principal-agent contention.42
42
ABD takes issue with Wells Fargo's related position that a
fiduciary relationship exists between it and ABD because ABD is
analogous to a settlement agent in a real estate transaction.
The Court does not find it necessary to address this contention
because factual issues exist as to the agency question.
88
Ordinarily, "'[t]he existence of an agency relationship is
a question of fact which must be submitted to the fact finder if
any legally sufficient evidence tending to prove the agency is
offered.'"
Essex Ins. Co. v. Hoffman, 168 F. Supp. 2d 547, 557
(D. Md. 2001) (quoting Faith v. Keefer, 736 A.2d 422, 439 (Md.
Ct. Spec. App. 1999)).
Here, Wells Fargo has presented legally
sufficient evidence that ABD acted as its agent in connection
with handling the Wells Fargo Form Documents and taking the
steps necessary to perfect any security interest held by Wells
Fargo in the Faithful.
Yet, there is not "but one inference
[that] can be drawn" from this evidence.
See generally Globe
Indem. Co. v. Victill Corp., 119 A.2d 423, 429 (Md. 1956)
(discussing existence of master/servant relationship).
Accordingly, the question of whether ABD acted as Wells
Fargo's agent in connection with the Cribb transaction (as well
as the scope of such agency) and thus had an affirmative
obligation to disclose certain information to Wells Fargo in
connection therewith, presents genuine issues of material fact.
iv.
Canons of Ethics and ABD Brochure
Wells Fargo claims that the American Vessel Documentation
Association ("ADVA") Canons of Ethics and/or ABD's brochure give
89
rise to an independent and affirmative duty on part of ABD to
investigate or prevent fraud in the underlying boat transaction.
The ADVA is a nonprofit mutual benefit corporation that is
made up of members from the marine industry.
See
http://www.americanvessel.com/ (last visited July 10, 2013).
One becomes a "member" of the AVDA after being sponsored by an
"Active Member" and approved by the Board of Directors;
membership requires payment of annual dues.
times, ABD was a member of the ADVA.
Canons of Ethics" on its website.
At the relevant
The ADVA posts the "ADVA
Canon 8 provides "A Member
shall avoid any transaction involving fraud, misrepresentation
or unethical conduct."
The plain language of Canon 8 does not
express any affirmative obligation undertaken by members of the
ADVA to prevent or investigate third party fraud for the benefit
of a lender/mortgagee as part of documenting a vessel.
Further,
there is no evidence in the record that Wells Fargo relied on
the ADVA Canons of Ethics at any point prior to this litigation.
Accordingly, the Court finds that the ADVA Canons of Ethics
provide no basis to impose an affirmative duty on ABD to prevent
and investigate fraud in boat sale transactions as part of
documenting any particular vessel.
In the brochure, ABD advertises that it provides
documentation services; explains documentation is "a national
form of registration" that "provides evidence of nationality for
90
your vessel"; and that banks require documentation "as it is
only through the recordation of the First Preferred Ships
Mortgage that a lender can protect its security interest."
[Document 195-12].
The brochure also contains a representation
that ABD's "Service Representatives are prepared to provide the
very best of service."
Id.
imposing a tort duty on ABD.
The brochure is pertinent to
Yet, nothing in the brochure can
reasonably be construed as a representation that ABD provides
fraud prevention and investigation services.
Accordingly, there
is no basis to impose such a duty upon ABD based upon the
language in its advertising materials regarding the quality of
its service.
v. Statutory Duty
Wells Fargo contends that ABD owed it an independent
statutory duty to obtain and submit the seller's Certificate of
Documentation to the Coast Guard in the Cribb transaction based
on the regulatory requirement of 46 C.F.R. § 67.141(a)(4) (the
"COD Statute").
Under Maryland law, a tort duty may be established by
statute or regulation "'when the plaintiff is a member of the
class of persons the statute was designed to protect and the
injury was of the type the statute was designed to prevent.'"
91
Remsburg v. Montgomery, 831 A.2d 18, 27 (Md. 2003) (quoting Erie
Ins. Co. v. Chops, 585 A.2d 232, 234 (Md. 1991)).
In order to
impose a statutory duty, the regulation must "set forth
mandatory acts clearly for the protection of a particular class
of persons rather than the public as a whole."
Gourdine v.
Crews, 955 A.2d 769, 789 (Md. 2008) (declining to impose a duty
under the FDCA because statutory obligations regarding labeling
drug products were framed to protect the public in general)
(internal quotations omitted).
If the plaintiff makes such a
showing and demonstrates the defendant violated the regulation
at issue and that violation proximately caused the injury
complained of by the plaintiff, the plaintiff will have
established a prima facie negligence claim. See Brooks v. Lewin
Realty III, Inc., 835 A.2d 616, 621 (Md. 2003).
However, this
showing does not require a finding of negligence, the "trier of
fact must then evaluate whether the actions taken by the
defendant were reasonable under all circumstances."
Id.
Wells Fargo asserts the COD Statute is designed primarily
to protect lienholders.43
The COD Statute (and related
43
To support this position, Wells Fargo relies on the
attached affidavit of James Meere, designated by Wells Fargo as
a vessel documentation expert. Mere states in his affidavit: "I
believe the purpose of the certificate of documentation ("COD")
requirement and statute (46 CFR 67.141(a)(4) . . . is primarily
to protect lienholders." Meere Aff. [Document 214-1] ¶ 7. Mr.
Meere's affidavit is subject to ABD's Motion to Strike [Document
217]. The Court does not find Mr. Meere's belief as to the
92
provisions) provide, generally, that in order for the Coast
Guard to accept a ship mortgage presented for filing and
recording in the context of a vessel change of ownership, the
ship mortgage must be accompanied with an application for the
exchange of a Certificate of Documentation, and said application
requires submission of the outstanding Certificate of
Documentation.44
See 46 C.F.R. § 67.141(a)(4). This requirement
class of persons the COD Statute was designed to protect
pertinent to the statutory duty issue and therefore does not
rely upon it.
44
In particular, 46 C.F.R. § 67.231(a) requires that a
mortgage presented for filing and recording with the Coast Guard
must meet the requirements in Subpart O. In turn, Subpart O
provides in § 67.203(a) that "no instrument will be accepted for
filing unless the vessel to which it pertains is the subject of
(1) A valid Certificate of Documentation; or (2) An application
for initial documentation, exchange of Certificate of
Documentation, return to documentation, or for deletion from
documentation, which is in substantial compliance with the
applicable regulations, submitted to the [NVDC]." A Certificate
of Documentation becomes invalid immediately when the ownership
of a vessel changes in whole or in part, which requires the
owner to "send or deliver the Certificate to the [NVDC], and
apply for an exchange of the Certificate in accordance with
subpart K of this part." 46 C.F.R. § 67.167(a).
Subpart K provides:
The owner of a vessel applying for an
initial
Certificate
of
Documentation,
exchange or replacement of a Certificate of
Documentation, or return of a vessel to
documentation
after
deletion
from
documentation must:
(a) Submit the following to the National Vessel
Documentation Center:
(1) Application for Initial Issue, Exchange,
or Replacement of Certificate of
Documentation; or Redocumentation (form CG–
1258);
93
coincides with the fact that by federal regulation a Certificate
of Documentation becomes invalid immediately upon the change of
ownership in a vessel.
Id. § 67.167(b),(c).
The regulatory
stated purpose of a Certificate of Documentation is that it is
"required for the operation of a vessel in certain trades,
serves as evidence of vessel nationality, and permits a vessel
to be subject to preferred mortgages."
46 C.F.R. § 67.1.
Indeed, unless exempt, the Certificate of Documentation for a
vessel is required to be carried on the vessel.
46 U.S.C. §
12133(a).
It is doubtful that the statutory requirement requiring an
outstanding (and invalid) Certificate of Documentation be
submitted to the Coast Guard as part of change in vessel
ownership and recording of a preferred ship mortgage is designed
to protect any discrete group of people, let alone a discrete
group consisting of lienholders named on preferred ship
mortgages.
Rather, the COD Statute is more akin to an
administrative procedure that assists in implementing the
(2) Title evidence, if applicable;
(3) Mortgagee consent on form CG–4593, if
applicable; and
(4) If the application is for replacement of
a mutilated document or exchange of
documentation, the outstanding Certificate
of Documentation.
46 C.F.R. § 67.141 (emphasis added).
94
regulatory requirement that a valid Certificate of Documentation
be aboard a vessel and available for inspection by law
enforcement.
As discussed supra, ABD has submitted unchallenged evidence
that the Coast Guard does not enforce the COD Statute and
therefore will record a preferred ship mortgage sans the
original Certificate of Documentation from the prior owner.
In
this case, the Coast Guard accepted and recorded the First
Preferred Ship Mortgage in the Cribb transaction without the
seller's Certificate of Documentation.
The lack of enforcement
of the COD Statute by the Coast Guard makes it less likely that
the statute is intended to protect lienholders, such as Wells
Fargo.
Even if the COD Statute had been designed to protect
potential lienholders identified in preferred ship mortgages,
there is no reasonable basis to conclude the injury suffered by
Wells Fargo, funding of a fraudulent loan in a fake transaction,
is the type of injury the COD Statute was designed to prevent.
If anything, the COD Statute appears designed to prevent harm
resulting from having an invalid or inaccurate Certificate of
Documentation aboard a vessel.
The Court finds that the COD Statute did not create an
independent statutory duty owed by ABD to Wells Fargo to obtain
95
the Certificate of Documentation from the "seller" in the Cribb
transaction and to submit the Certificate to the Coast Guard as
part of recording the First Preferred Ship Mortgage and/or
redocumenting the Faithful.
Therefore, violation of that
statute does not give rise to a prima facie negligence claim.
However, that violation may still be submitted as evidence of
negligence.
See Veytsman v. New York Palace, Inc., 906 A.2d
1028, 1041 (Md. Ct. Spec. App. 2006) ("Violation of a statute,
however, is merely evidence of negligence and is not sufficient
to create a legal duty unless the statute was designed to do
so.").
vi.
Resolution
In sum, the Court finds that based on the "intimate nexus"
between Wells Fargo and ABD, ABD owed Wells Fargo a tort duty to
exercise reasonable care in the provision of its "documentation
services" in the Cribb transaction.
As discussed in connection
with other claims, there are factual issues regarding the extent
of these "documentation services," specifically with respect to
the Certificate of Documentation.45
45
There is also a genuine
The Court has found that there is no evidence to support a
claim that ABD's documentation services included an affirmative
duty to investigate or prevent fraud in the underlying boat sale
transaction and thus the scope of ABD's tort duty does not
include such obligations.
96
issue of fact as to whether ABD acted as the agent of Wells
Fargo in connection with the Cribb transaction thereby giving
rise to certain fiduciary duties such as a duty to inform.
c.
Alleged Breaches
Wells Fargo identifies numerous "breaches" it maintains
show ABD's negligence as a matter of law and/or create
sufficient factual issues for submission to a jury.
In an
oft-quoted passage, the Maryland Court of Appeals has explained
that:
Ordinary [negligence] is a question of fact
to be determined by the jury, and before it
can be determined as a matter of law that
one has not been guilty of negligence, the
truth of all the credible evidence tending
to sustain the claim of negligence must be
assumed and all favorable inferences of fact
fairly
deducible
therefrom
tending
to
establish negligence drawn ... And Maryland
has gone almost as far as any jurisdiction
that we know of in holding that meager
evidence of negligence is sufficient to
carry the case to the jury. The rule has
been stated as requiring submission if there
be any evidence, however slight, legally
sufficient as tending to prove negligence,
and the weight and value of such evidence
will be left to the jury.
Fowler v. Smith, 213 A.2d 549, 553 (Md. 1965).
With this
principle at hand, the Court shall evaluate the parties' various
contentions.
97
In its filings, Wells Fargo identifies the following
"breaches" by ABD:
Breach 1. Failing "to verify JRP's identity" and "to
verify the existence of the [Faithful] and
the seller's authority to sell the
[Faithful]" [Document 137-1] at 11;
Breach 2. Improperly allowing "identity thieves to
execute, inter alia, the Bill of Sale,
Limited Power of Attorney, Buyer's
Declaration and First Preferred Ship
Mortgage" [Document 137-1] at 11-12;
Breach 3. Failing to obtain the Certificate of
Documentation or title from JRP Marine
and/or notify anyone that after request, the
"seller" had not produced the Certificate
[Document 137-1] at 12;
Breach 4. Failing to "properly perfect" a security
interest in the Faithful on behalf of Wells
Fargo [Document 195], at 35;
Breach 5. Negligently performing the "Investigative
Tasks and Other Services," [Document 195] at
36. These include:
a.
Drafting documents not required by the
Coast Guard to transfer title such as
the Information Verification &
Authorization Sheet; Irrevocable
Limited Power of Attorney, First
Preferred Ship Mortgage;
b.
Obtaining, reviewing, and analyzing the
Abstract of Title;
c.
Contacting the seller to obtain the
Certificate of Documentation;
d.
Contacting the buyer to inquire about
the new name for the Faithful;
e.
Investigating whether JRP Marine was in
good standing;
98
f.
Calling the seller about the hailing
port and mooring location;
g.
Making efforts to obtain signatures on
documents; and
h.
Determining the seller's address from
Coast Guard records. [Document 195] at
11-19.
Breach 6. Failing to discover the Fraud Indicia or
disclose the Fraud Indicia Information to
Wells Fargo or Chesapeake [Document 195] at
36-37. These are:
a.
There was no closing sheet or
settlement sheet for the Cribb
transaction (though not required by ABD
because not required on the documents
filed by ABD with the Coast Guard);
b.
There were no government issued
identifications for the Pences obtained
by ABD;
c.
The seller did not provide the
Certificate of Documentation to ABD;46
d.
The same notary notarized the signature
of the "seller" and "buyer" on
documents;
e.
Certain documents were notarized in
Illinois and loan documents were sent
to Illinois for execution by seller and
buyer yet:
i.
The buyer lists a West Palm Beach
area code for his phone number,
46
Wells Fargo states the seller "refused" to provide the
Certificate of Documentation. However, based on the June 2,
2008 letter, the "seller" told ABD it would provide the
Certificate after closing.
99
ii.
The hailing point of the Faithful
is listed as West Palm Beach on
ABD's intake sheet,
iii. ABD knew the seller was a Florida
entity from looking into whether
it was in good standing, and
iv.
f.
The Seller's information on ABD's
intake lists a phone number with a
Chicago area code;
The Irrevocable Power of Attorney was
executed and returned without a
"witness" to the signature [Document
195] at 15-17.
It suffices to state that as to virtually all of these
alleged Breaches, there are genuine issues of material fact
preventing summary judgment.
However, to the extent any of the
Breaches are based upon the alleged duty on part of ABD to
affirmatively investigate or prevent fraud in the underlying
boat sale transaction, ABD is entitled to summary judgment where
the Court has found it had no tort or contract duty to undertake
such action.
d.
Contributory Negligence of Wells Fargo
In ABD's response to Wells Fargo's Cross-Motion for Summary
Judgment [Document 206], ABD states that even if Wells Fargo has
made a prima facie negligence claim, Wells Fargo's own
negligence becomes "a question of fact for the jury and then
100
goes on to summarize alleged contributory negligent acts of
Wells Fargo.
In its Reply [Document 214], Wells Fargo takes the
position that it was not contributorily negligent as a matter of
law because "ABD failed to disclose an underwriting expert, and
ABD is therefore estopped from raising contributory negligence
as a defense."
Because this contention was first raised in the
Reply, ABD had no opportunity to respond. Accordingly, the
contention will not now be considered. It can be raised, if
appropriate, in a motion for judgment as a matter of law at
trial.
D.
Motion in Limine
Wells Fargo has filed a motion in limine to preclude the
testimony of Defendant Chesapeake Financial Services, Inc.'s
Designated Experts David Griffith, Thomas J. Lekan, and Charles
Brian Diggs [Document 175].
However, by the instant Memorandum
and Order the Court has significantly reduced and redefined the
issues to be tried.
Consequently, the said motions shall be
denied without prejudice to re-assertion in whole or part after
review of the instant Memorandum and Order.
101
VI.
CONCLUSION
For the foregoing reasons:
1.
Plaintiff Wells Fargo Dealer Services, Inc.'s
Motion for Partial Summary Judgment as to
Defendant Chesapeake Financial Services, Inc.'s
Liability for Breach of Contract (Count I and
Count III) and Philip Colonna's Liability for
Breach of Contract (Count IV) [Document 120] is
GRANTED.47
2.
Defendant Atlantic Boat Documentation, Inc.'s
Motion for Partial Summary Judgment [Document
128] is GRANTED IN PART and DENIED IN PART.
3.
Plaintiff's . . . Motion for Partial Summary
Judgment as to Atlantic Boat Documentation,
Inc.'s Liability for Negligence [Document 137] is
GRANTED IN PART and DENIED IN PART.
4.
Defendants Chesapeake Financial Services' and
Philip Colonna's Motion for Summary Judgment
[Document 179] (sealed) is GRANTED IN PART and
DENIED IN PART.
5.
Defendant/Cross-Defendant Atlantic Boat
Documentation, Inc.'s Motion for Summary Judgment
[Document 183] is GRANTED IN PART and DENIED IN
PART.
6.
Plaintiff's . . . Motion for Summary Judgment
[Document 195] is GRANTED IN PART and DENIED IN
PART.
7.
Defendant/Cross-Defendant Atlantic Boat
Documentation, Inc.'s Motion to Strike Portions
of Plaintiff's Reply (Document No. 214) and to
Strike the Affidavits of Meere (Document No. 2141) and Murphy (Document No. 214-2) in their
Entirety [Document 217] is DENIED.
47
Though, as discussed herein, Chesapeake's affirmative
defense of equitable estoppel remains pending.
102
8.
Plaintiff's Motion in Limine to Preclude
Testimony of Defendant Chesapeake Financial
Services, Inc.'s Designated Experts David
Griffith, Thomas J. Lekan, and Charles Brian
Diggs [Document 175] is DENIED WITHOUT PREJUDICE.
9.
Plaintiff shall arrange a case planning
conference to be held by August 30 to arrange the
scheduling of further proceedings, including
trial.
SO ORDERED, on Thursday, July 18, 2013.
/s/__________
Marvin J. Garbis
United States District Judge
103
APPENDIX A
Summary Chart of Summary Judgment Motions
Count/Cross
Claim
Count I Breach
of Contract
By
Against
WF
Chesapeake
Party Seeking Summary
Judgment48
Wells Fargo [Document
120]
C&C [Document 179]
Count II:
Negligence
Count III:
Breach of
Contract
(Guarantor)
Count IV:
Breach of
Contract
(Guarantor)
Count V:
Negligence/
Fiduciary Duty
WF
Chesapeake
C&C [Document 179]
WF
Chesapeake
Wells Fargo [Document
120]
WF
Colonna
Wells Fargo [Document
120]
WF
ABD
ABD [Documents 128,
183]
Wells Fargo
[Documents 137, 195]
C&C [Document 179]
C&C [Document 179]
ABD [Document 183]
Count VI: Civil
RICO
WF
Count VII: RICO
Conspiracy
WF
Cross Claim I:
Breach of
Contract
Cross Claim II:
Contribution
Cross Claim
III:
Indemnification
C&C
Chesapeake,
Jack Doe,
and John
Doe
Chesapeake,
Jack Doe,
and John
Doe
ABD
C&C
ABD
None
C&C
ABD
None
48
Including on an affirmative defense to the count/cross
claim.
104
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