Vales et al v. Preciado et al

Filing 341

MEMORANDUM OPINION 30 Correspondence re: Memorandum on Judgment Calculation. Signed by Magistrate Judge Charles B. Day on 09/11/2013. (bas, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
ROGER R. VALES, et al.,
Plaintiffs,
v.
ALMA PRECIADO, et al.,
Defendants.

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Civil Action No. CBD-05-3110

MEMORANDUM OPINION
Before the Court is Vales’ Memorandum in Support of Pre-Judgment Interest and Other
Relief (“Plaintiffs’ Memorandum”)(ECF No. 330) and the opposition and reply thereto. No
hearing is deemed necessary. Local Rule 105.6 (D. Md.). Plaintiffs are ordered to submit a
revised calculation of damages consistent with the findings made herein. Plaintiffs’ revised
calculations shall be submitted within seven (7) days.
I.

Facts

On May 28, 2013, the Court found in favor of Plaintiffs Roger and Lourdes Vales against
Defendant Dorita Down as to their claims of Intentional Misrepresentation (Count One) and
Deceit (Count Two); in Plaintiffs’ favor against Pidegro, LLC for Unjust Enrichment (Count
Five) in the amount of $189,000.00, and against Defendant Down under the same claim in the
amount of $350,000.00. The Court required additional submissions regarding the monies owed
by each Defendant.
On April 5, 2005, Plaintiffs provided a check, made payable to Defendant Down in the
amount of $350,000.00 in reliance upon the following documents signed by Defendant Down.

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1.

Uniform Residential Loan Application – reflecting a loan amount of $350,000.00,
to be repaid in 360 months with an interest rate of 17%, with an expected monthly
payment of $4,958.00 (Pls.’ Ex. 5a);

2.

A Truth in Lending Disclosure Statement reflecting the same terms (but
indicating the monthly payments would be $4989.86) (Pls.’ Ex. 8);

3.

A collection of financial disclosures reflecting late charges for overdue payments
at “5% of the overdue monthly payment of principal and interest” (Pls.’ Ex. 9);

4.

Balloon Payment Riders to the Mortgage/Deed of Trust, declaring that any unpaid
balance is due in full in two years (Pls.’ Exs. 26 and 27); and

5.

The Balloon Note (“Balloon Note”) reflecting that in exchange for the loan,
Defendant Down agrees to repay the loan at 17% interest “both before and after
any default.” This Balloon Note also requires all outstanding amounts to be paid
on May 31, 2007. Defendant Down’s monthly payment under the Balloon Note is
$4,958.00, and it also indicates that overdue payments will incur a late charge of
5% of the amount of any overdue principal and interest. (Pls.’ Exs. 28 and 29).

The net result of the agreements reached on April 5, 2005 was that Defendant Down was
receiving a loan, for which she was to pay interest only for two years. At the end of two years, if
timely payments were made, the full balance of $350,000 became due. Plaintiffs’ Memorandum
seeks prejudgment interest under the Balloon Note and other relief which Defendant Down
opposes. The parties are at odds over whether tort or contract damages apply to Counts One and
Two.

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II.

Plaintiffs are entitled to a “Benefit of the Bargain” Theory of Prejudgment
Interest at the Rate Set Forth under the Balloon Note.
Defendant Down does not challenge the accuracy of Plaintiffs’ prejudgment interest

calculations, merely whether it is appropriate to include a “benefit-of-the-bargain” approach
under fraud and deceit theories of recovery. The applicable law is set forth in Goldstein v.
Miles, 159 Md. App. 403, 859 A.2d 313 (2004). As stated in Goldstein, when fraud type charges
are asserted, “benefit-of-the-bargain” damages are available when there is an enforceable
bargain. Id. at 316. Maryland has long adhered to a “flexibility theory” in fraud and
misrepresentation cases, leaving for Plaintiff’s election a decision whether to recover either “outof-pocket” expenses or “benefit-of-the-bargain” damages. Id. at 324. The Goldstein court when
on to quote Professor McCormick when he stated that the “benefit-of-the-bargain” damages are
available “if the trial judge, in his discretion considers that, in view of the probable moral
culpability of the defendant, and the definitiveness of the representations and the ascertainability
of the represented value, (then) the case is an appropriate one for such treatment.” Id. at 326
(quoting Charles T. McCormick, Handbook on the Law of Damages §121, at 454
(1935)(footnotes omitted)). Finally, the Maryland appellate courts have impliedly recognized
“the legitimacy of such damages in fraud and negligent misrepresentation cases in which there is
an actual contract between the parties.” Id. at 327 (additional citations omitted).
Without doubt there is in place an enforceable bargain between Plaintiffs and Defendant
Down. The only remaining question is whether in view of “the probable moral culpability” of
Defendant Down, and the “definiteness of the representations and ascertainability of the
represented value,” whether this Court in its discretion should permit the recovery of “benefit-ofthe-bargain” damages. The Court has ruled that Defendant Down was complicit and morally

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culpable in this fraudulent scheme to obtain hundreds of thousands of dollars from Plaintiffs.
While she may not have been as responsible as her co-defendant Alma Preciado, it was
Defendant Down’s conduct that made the fraud possible. Equally true, the agreements between
the parties could not have been clearer. While the negotiated interest rate on the Balloon Note
was friendly to Plaintiffs, there have been no assertions of impropriety from their hand. In fact it
was the improving interest rate which greatly motivated Plaintiffs to agree to the transaction in
the first place. Mr. Vales testified to Ms. Preciado increasing the interest rate offered from 12%,
to 15%, and then eventually to 17%. Defendant Downs was culpable, and the oral and written
representations were clear and unambiguous.
Defendant Down correctly notes in her opposition that early in the process Plaintiffs were
aware that the anticipated security for the loan was not in place. This lack of security, however,
does not extinguish or diminish Plaintiffs’ negotiated expectations under the Balloon Note. It
merely made clear to Plaintiffs that should Defendant Down fail to make timely payments,
Plaintiffs ability to recover their investment would be at risk. This is exactly where Plaintiffs find
themselves today, seeking relief from the Court with a lower degree of certainty of compensation
than they contracted to receive. Arguably, Plaintiffs sought to rescind the agreement in May and
June of 2005. Nonetheless, their failure to do so does not compromise their ability to seek
damages under “benefit-of-the-bargain” theory of fraud.
Defendant Down is entitled to credit for three payments made under the terms of the
Balloon Note. Plaintiffs have accounted for this in their calculations. Defendant Down is also
entitled to a credit of all monies plus accrued interest which were being held pursuant to writs of
attachments that have now been released to Plaintiffs.

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The “benefit-of-the-bargain” theory has no applicability with respect to the claim of
unjust enrichment, where the appropriate measure of recovery is the “gain to the defendant, not
the loss to the Plaintiff.” Mass Transit Admin. v. Granite Constr., 57 Md. App. 766, 775 (1984).
Accordingly, the damages due under a theory of unjust enrichment are fixed at $350,000.00.
III.

The Litigation Stay Has No Effect on the Obligation to Pay.

Defendant Down’s suggestion that a stay of litigation should result in a stay of penalties
and interest under the Balloon Note is misplaced. In the absence of an agreement between the
parties or an Order of the Court, there is no support for the notion that a stay of litigation tolls the
continuing financial obligations in the event of a finding of liability. Defendant Down has
offered no authority for such a conclusion. This Court finds nothing inequitable about requiring
Defendant Down to pay debts that are continuing to accrue over the course of this litigation.
IV.

Plaintiffs’ Claim for Late Fees Must be Tempered.

Defendant Down correctly notes that once a default has occurred under the Balloon Note,
the calculation of late fees should cease. Such an approach would be inequitable. See In re 1095
Commonwealth Ave. Corp., 294 B.R. 284, 305 (Bkrtcy. D. Mass. 1997). All debt under the
Balloon Note became due on May 21, 2007. Accordingly, no late fees shall be permitted as of
May 30, 2007.
V.

The Prejudgment Interest Rate is Appropriate and Enforceable.

Under Md. Code. Ann. Com. Law § 12-103, the rate of interest under the Balloon Note is
permissible. Defendant Down’s reliance on Maryland Rule 2-604 regarding the method in
which pre-judgment interest is required to be separately stated in the verdict is misplaced.
Plaintiffss access to this federal court is based on the complete diversity of citizenship between
the parties. The law of the state of Maryland controls the substantive law of this case. However,
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this Court is not bound by the rules of the procedure applicable in the Maryland state courts.
Fed. R. Civ. P. 1.
VI.

Amounts Owed by Pidegro, LLC.

On May 28, 2013, the Court determined that Pidegro, LLC was on notice of its unjust
enrichment as of May 17, 2005, when Pidegro, LLC had $189,000.00 left in its account. These
monies were owed to Plaintiffs. As stated in Plaintiffs Memorandum, Pidegro’s judgment
amount should be reduced by funds received, leaving a balance due of $175,483.02 as of the date
of judgment.
VII.

Punitive Damages

The Court has received and reviewed Defendant Down’s affidavit regarding her assets
and Plaintiffs’ opposition. Defendant Down’s affidavit suggests she is a woman of very limited
means. Plaintiffs provide a report from the Maryland Department of Transportation, Motor
Vehicle Administration (MVA) in support of their belief that Defendant Down is not being
candid. The Court has access to the MVA information and is satisfied, that as to the vehicles
registered to Defendant Down in Maryland, she has not made a misrepresentation. The Hyundai
Elantra is co-owned with her husband and bears a current registration. The other vehicle
mentioned is not registered, is very old, and was most likely discarded years ago. Nonetheless,
in light of Defendant Down’s testimony in these proceedings and the Court’s findings of fraud,
the Court shares Plaintiffs deep reservations about Defendant Down’s overall candor. The Court
will award punitive damages at the time of its determination of the final sums due Plaintiffs.

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VIII. Conclusion
In view of the findings set forth herein, Plaintiffs are Ordered to submit a revised
calculation of damages within seven (7) days. Within seven (7) days of said filing, Defendant
Down is permitted to submit further objections as to the accuracy of said calculation.

September 11, 2013

_________/s/_____________
Charles B. Day
United States Magistrate Judge

CBD/bab

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