Key Tidewater Ventures LLC et al v. PNC Bank, National Association
MEMORANDUM. Signed by Judge James K. Bredar on 10/15/14. (jnls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
VENTURES LLC, et al.,
CIVIL NO. JKB-14-2170
PNC BANK, N.A.,
Key Tidewater Ventures LLC, Tidewater Yacht Service Center, Inc., Tidewater Holdings
LLC, Robert P. Brandon, and Jacqueline S. Brandon (“Plaintiffs”) brought this suit against PNC
Bank (“Defendant”) for breach of contract and unjust enrichment under Maryland law. Now
pending before the Court is Defendant’s motion to dismiss pursuant to Federal Rule of Civil
Procedure (12)(b)(6), asserting that Plaintiffs failed to state a plausible claim for relief. (ECF
No. 7.) The issues have been briefed (ECF Nos. 7, 9, 10), and no hearing is required, Local Rule
105.6. For the reasons explained below, Defendant’s motion to dismiss is DENIED.
Plaintiffs obtained three loans from Mercantile Bank in June 2005.2 (ECF No. 1 ¶ 10.)
The first loan was for $5.5 million (“the Key Tidewater Loan”) (id. ¶ 6), the second was for
$500,000 (“the Original Equipment Line Loan”) (id. ¶ 7), and the third was for $1 million (“the
Original Equipment Loan”) (id. ¶ 8).
In November 2006, Plaintiffs’ collective debt was
The facts are recited here as alleged by the Plaintiff, this being a motion to dismiss. See Ibarra v. United States,
120 F.3d 472, 474 (4th Cir. 1997).
PNC Bank became the successor by merger to Mercantile in March 2007. (ECF No. 1 ¶¶ 3, 13.)
consolidated into a single promissory note (“the Consolidated Note”), with Plaintiffs owing
Mercantile Bank $7,050,000 over twenty years with a maturity date of October 31, 2025. (Id. ¶
10; ECF No. 1-1.) The Consolidated Note included a prepayment fee that could be triggered if
Plaintiffs chose to prepay this note before its maturity date (the “Prepayment Premium
Provision”)3—the conditions under which this premium could be triggered are now in dispute.
(ECF No. 1 ¶ 11; ECF No. 1-1 at 4-5.)
In April 2011, Plaintiffs defaulted on the Consolidated Note, but Defendant did not
accelerate loan repayment. Instead, the parties agreed to refinance the loan “[a]t PNC Bank’s
insistence,” which culminated in “the Forbearance Agreement.” (ECF No. 1 ¶¶ 15-16; ECF No.
1-2.) The Forbearance Agreement was reached in December 2012 to: (1) re-consolidate all
loans; (2) set new maturity dates4; and (3) terminate the relationship between Plaintiffs and
Defendant upon the loans’ repayment. (ECF No. 1 ¶¶ 16-17.) The agreement does not explicitly
reference the Prepayment Premium Provision or address its continued relevance. (Id. ¶ 18.) It
does, however, contain two contested provisions: Section 6 preserves Plaintiffs’ existing defaults
and establishes Defendant’s obligation to forbear from “exercising and enforcing any rights,
remedies, or recourse” associated with those defaults, (ECF No. 1-2 at 8-9); Section 28
acknowledges that the Forbearance Agreement does not alter the Consolidated Note unless
expressly stated, (id. at 18).
“The Borrower may prepay this Note in whole or in part at any time; however, in the event that the Borrower elects
to prepay this Note during the Initial Rate Period or during the first fifteen (15) years of the term following the
Initial Rate Period, the Borrower shall pay a prepayment premium . . . . Such prepayment premium shall apply if the
Borrower refinances the Loan with a lender other than [Defendant] (or its affiliates) or replaces [Defendant] as the
lender institution. The above notwithstanding, the prepayment premium shall not apply . . . to the extent that a cash
flow payment is made . . . except as a result of a default and acceleration hereunder, in which case the prepayment
premium shall be due.” (ECF No. 1-1 at 4-5.)
The agreement set three distinct maturity dates for the three original loans. The Original Equipment Loan and the
Original Equipment Line Loan were advanced to October 1, 2013 and May 1, 2013. (ECF No. 1-2 at 10.) The nowcontested Key Tidewater Loan was advanced to June 30, 2014. (Id.)
At some point prior to the Fall of 2013, Plaintiffs repaid both the Original Equipment
Loan and the Original Equipment Line Loan, seemingly without incident. (ECF No. 1 ¶ 20.)
Plaintiffs then sought refinancing from a new bank in order to repay the Key Tidewater Loan by
the advanced maturity date of June 30, 2014. Before making their final payment, Plaintiffs asked
Defendant to identify all monies owed.
Defendant’s accounting included, together with
uncontested debts, a Prepayment Premium totaling over $117,000, which was subsequently
adjusted to $116,462.84.
(Id. ¶¶ 20, 22.) Plaintiffs allege that a representative of Defendant
apologized for the fee’s inclusion, expressed his attempts to keep the fee off of Plaintiffs’ final
bill, and shared his belief that Plaintiffs could successfully challenge Defendant’s application of
the Prepayment Premium in court. Id.
Plaintiffs paid the Prepayment Premium under protest on February 21, 2014, along with a
full repayment of all loans. (Id. ¶¶ 23-24.) Plaintiffs now bring claims to retroactively recover
the contested Prepayment Premium.5
Plaintiffs’ complaint includes two alternative legal
theories: (1) a breach of contract claim (id. ¶¶ 25-30); and (2) a claim for unjust enrichment (id.
¶¶ 31-32). Defendant filed its motion to dismiss on July 29, 2014. (ECF No. 7.) Plaintiffs filed
their response to the motion on August 15. (ECF No. 9.) All relevant contracts confirm, and the
parties do not contest, that Maryland law applies. (See ECF No. 1-1 at 9; ECF No. 1-2 at 14.)
The parties have not produced any precedent addressing whether a plaintiff can seek relief in the form of a refund
on payments made under protest. The Court has independently found analogous instances where other courts have
appeared to accept ex post facto breach of contract claims to recover payments made under protest, though none
directly addressed the question in the context of the common law of contracts. See, e.g., Seal & Co., Inc. v. A.S.
McGaughan Co., Inc., 907 F.2d 450, 452 (4th Cir. 1990) (mentioning that the plaintiff performed “work under
protest and then filed its breach of contract suit” before moving on to the merits of the claim); Consolidated Waste
Industries v. Standard Equipment Co., 26 A.2d 352 (Md. 2011) (assessing the merits of plaintiff’s breach of contract
claim where plaintiff had paid for defendant’s performance under protest). Thus, the Court does not find any
justification to encumber Plaintiffs’ claims simply because they seek similar retroactive relief.
A complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Facial plausibility exists “when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. An inference of a mere
possibility of misconduct is not sufficient to support a plausible claim. Id. at 679. As the
Twombly opinion stated, “Factual allegations must be enough to raise a right to relief above the
speculative level.” 550 U.S. at 555. “A pleading that offers ‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action will not do.’ . . . Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556
U.S. at 678 (quoting Twombly, 550 U.S. at 555, 557). Although when considering a motion to
dismiss a court must accept as true all factual allegations in the complaint, this principle does not
apply to legal conclusions couched as factual allegations. Twombly, 550 U.S. at 555.
A. Count I: Breach of Contract
Under Maryland law, a plaintiff suing for breach of contract must show simply “that the
defendant had a contractual obligation and that the obligation was breached.”
Hargrove, 888 A.2d 377, 396 (Md. Ct. Spec. App. 2005). The Fourth Circuit instructs that “the
construction of ambiguous contract provisions is a factual determination that precludes dismissal
on a motion for failure to state a claim.” Martin Marietta Corp. v. Int’l Telecomms. Satellite
Org., 978 F.2d 140, 143 (4th Cir. 1992). A court must, however, make a threshold determination
about whether a contract provision is ambiguous before it denies a motion to dismiss. See
Diamond Point Plaza Ltd. P’ship v. Wells Fargo Bank, N.A., 929 A.2d 932, 952 (Md. 2007); see
also Calomiris v. Woods, 727 A.2d 358, 362 (Md. 1999) (noting that “the question of whether a
contract is ambiguous ordinarily is determined by the court as a question of law”). “A contract is
ambiguous if, ‘when read by a reasonably prudent person, it is susceptible of more than one
meaning.’” Diamond Point Plaza, 929 A.2d at 951 (quoting United Servs. v. Riley, 898 A.2d
819, 833 (Md. 2006)). Courts may consider “the character of the contract, its purpose, and the
facts and circumstances of the parties at the time of execution” in making such a determination.
Calomiris, 727 A.2d at 363 (quoting Pac. Indem. v. Interstate Fire & Cas., 488 A.2d 486, 488
Maryland utilizes the objective interpretation principle in construing contracts. John L.
Mattingly Co., Inc. v. Hartford Underwriters Ins. Co., 999 A.2d 1066, 1074 (Md. 2010). If the
contract’s language is unambiguous, then courts give effect to its plain, ordinary, and usual
meaning, taking into consideration the context in which the language is used. Id. “Where the
contract comprises two or more documents, the documents are to be construed together,
harmoniously, so that, to the extent possible, all of the provisions can be given effect.” Rourke v.
Amchem Prods., Inc., 863 A.2d 926, 941 (Md. 2004).
Plaintiffs’ complaint survives this motion to dismiss because the contested contracts—the
Consolidated Note (ECF No. 1-1) and the Forbearance Agreement (ECF No.1-2)—do not clearly
and unambiguously entitle Defendant to the Prepayment Premium. Key terms in the Prepayment
Premium Provision are susceptible to multiple interpretations, and the Forbearance Agreement
implies that it modified or perhaps even eliminated the Prepayment Provision. For these reasons,
the Court finds the contracts to be ambiguous.
First, the Prepayment Provision on its own is susceptible to multiple interpretations.
Section 5(a) of the Consolidated Note states that the premium is triggered “in the event that the
Borrower elects to prepay this Note during” a specified time period before the original maturity
date. (ECF No. 1-1 at 4 (emphasis added).) Neither the Consolidated Note nor the Forbearance
Agreement define the terms prepay or elects.
On the definition of prepay, Defendant contends that prepayment would have occurred
had the Note been paid any time before March 31, 2022.6 (ECF No. 7-1 at 2-3.) While
Defendant introduces one possible interpretation of the prepayment provision, the Court finds
that alternative interpretations would also be reasonable. For example, a reasonably prudent
person may understand the term prepay to mean “to pay before the maturity date.” The maturity
date was advanced by the Forbearance Agreement to June 30, 2014, and perhaps the Prepayment
Premium was only meant to be triggered if the note had been paid prior to this new date. Of
course, Plaintiffs still technically prepaid the note when they paid off the remaining loan
approximately 100 days before the advanced maturity date. This raises additional ambiguities
for the Court though, about how to interpret when the premium would be triggered. A strict
interpretation might trigger the premium if the loan is paid any time before March 31, 2022—
unless of course payment was made exactly on the advanced maturity date in which case
payment would not have been prepaid. A reasonable alternative interpretation might trigger the
premium only if the loan is paid more than five years before the maturity date—inferring that the
The Consolidated note was originally to be paid over twenty years beginning in November 2006. The Prepayment
Premium would be triggered if Plaintiffs elected to prepay either “during the Initial Rate Period or during the first
fifteen (15) years of the term following the Initial Rate Period.” (ECF No. 1-1 at 4-5.) The Initial Rate Period ended
on March 31, 2007. Therefore, “prepayment” occurring under the Consolidated Note between November 2006 and
March 31, 2007 (the Initial Rate Period) or between March 31, 2007 and March 31, 2022 (during the first fifteen
years of the term following the Initial Rate Period) would be subject to penalty. (See generally, ECF No. 7-1 at 2-3.)
fifteen year prepayment term on a twenty year loan was intended to bar Plaintiffs from payment
until the final five years of the loan’s term.
The term elect is also unclear and ambiguous. Plaintiffs were compelled to pay before
the original maturity date, in accordance with the terms of the Forbearance Agreement that
Defendant allegedly proposed. Defendant was empowered to accelerate the loan for immediate
payment upon Plaintiffs’ default in 2011, but instead Defendant opted to amend the maturity date
and advance payment to 2014. Section 5(a) does trigger the Prepayment Premium “as a result of
a default and acceleration,” but default and acceleration did not take place here. By the terms of
the Consolidated Note, acceleration would have occurred if Defendant had made payment
“immediately due and payable” upon default. (ECF No. 1-1 at 5-6.) Section 5(a) does not
address whether an involuntary advance on the maturity date, at the behest of Defendant, would
also trigger the Prepayment Premium.
Second, the terms of the Forbearance Agreement imply that it modified, if not fully
eliminated, the Prepayment Premium Provision from the Consolidated Note. If the Forbearance
Agreement truly did not alter the Prepayment Premium Provision, Plaintiffs’ adherence to the
new terms would have necessarily triggered the premium. That is to say, the advanced maturity
date placed Plaintiffs in the precarious position where they were forced to repay their loans either
too early—in relation to the original maturity date, and thus triggering the Prepayment
Provision—or too late—in relation to the advanced maturity date, and thus breaching the
A reasonably prudent person could infer that the Forbearance
Agreement was intended to alter the terms of Section 5(a) by adjusting the time period in which
Plaintiffs would be liable for prepayment, such that Plaintiffs had the opportunity to comply with
both the Prepayment Premium Provision and the Forbearance Agreement.
Sub-sections 5(b) and (g) of the Forbearance Agreement cast further doubt on any
interpretation that would expose Plaintiffs to new liabilities in signing the Forbearance
Agreement. Both sub-sections state that “the making and performance of this AGREEMENT
will not immediately, or with the passage of time, the giving of notice, or both: (a) violate any
laws or result in a default under any contract, agreement, or instrument to which any OBLIGOR
is a party or by which any OBLIGOR or any property of any OBLIGOR is bound; . . .” (ECF
No. 1-2 at 7-8.) These clauses may suggest to a reasonably prudent person that Plaintiffs signed
the Forbearance Agreement with an expectation that compliance with the terms would not trigger
new liabilities, penalties, or fees. The spirit of the Forbearance Agreement presented Plaintiffs
with a conflict-free avenue to pay off their debt, which underscores that the Prepayment
Provision’s continued applicability is ambiguous.7
For these reasons, the contract is not so clear and unambiguous such that the Court can
dismiss Plaintiffs’ claims as a matter of law at this early stage of litigation. Rather, the Court
anticipates that discovery and the introduction of extrinsic evidence may shed light on whether
the Prepayment Provision was even considered during the drafting of the Forbearance
Agreement, and if so what the parties intended regarding its continued application.
Upon a finding that a contract is ambiguous, a court may look to extrinsic evidence to
“determine the intentions of the parties to the document.”
Trouard v. Dickey’s Barbecue
Restaurants, Inc., 2014 WL 3845785, at *7 (D. Md. 2014) (quoting Points Reach Condo.
Council of Unit Owners v. Point Homeowners Ass’n, Inc., 73 A.3d 1145, 1163 (Md. Ct. Spec.
The Court notes that, according to Defendant’s interpretation of the contracts, the Prepayment Premium could have
also been triggered when Plaintiffs repaid the other two loans prior to March 2022. The parties’ briefs do not
discuss the payment of the other two loans. That said, even if Defendant failed to seek a prepayment premium in
other instances, the Court would not take this as a waiver of Defendant’s right to do so in the instant action. Instead,
the Court merely notes this apparent oversight in considering whether the terms of the contracts were truly clear and
App. 2013)). “The extrinsic evidence admitted must help interpret the ambiguous language and
not be used to contradict other, unambiguous language in the contract.” Calomiris, 727 A.2d at
366. Thus, Plaintiffs’ claim for breach of contract survives this motion to dismiss.
B. Count II: Unjust Enrichment
In Maryland, generally, a quasi-contract claim of “unjust enrichment cannot be asserted
when an express contract defining the rights and remedies of the parties exists.” Cnty. Comm’rs
of Caroline Cnty. v. J. Roland Dashiell & Sons, Inc., 747 A.2d 600, 610 (Md. 2000). That
general principle does not apply here, because no express contract provision unambiguously
addresses what rights and remedies the parties have under the Prepayment Provision where the
loans’ maturity dates were advanced. Until the parties and the Court resolve whether Section
5(a) of the Consolidated Note applies to this dispute, Plaintiffs have adequately pled unjust
enrichment as an alternative ground for relief.
Accordingly, an order shall issue DENYING Defendant’s motion to dismiss. (ECF No.
DATED this 15th day of October, 2014.
BY THE COURT:
James K. Bredar
United States District Judge
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