Farwell v. Challenge Financial Investors Corporation et al
Filing
75
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 6/8/11. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
LINDA E. FARWELL
:
v.
:
Civil Action No. DKC 10-1274
:
LEON STORY, et al.
:
MEMORANDUM OPINION
Presently pending and ready for resolution in this mortgage
lending case are two motions to dismiss filed by Defendants Jon
Lane
(doing
business
as
Street”)) and Leon Story.1
Bridge
Street
Appraisals
(ECF Nos. 66, 67).
(“Bridge
The issues have
been fully briefed and the court now rules pursuant to Local
Rule 105.6, no hearing being deemed necessary.
For the reasons
that follow, Story’s motion will be granted in part and denied
in part.
The motion to dismiss filed by Bridge Street will be
granted.
1
Bridge Street also filed a motion to strike Plaintiff’s
surreply, which she filed in response to Bridge Street’s motion
to dismiss. This motion to strike will be granted. Farwell did
not seek leave of court before filing the surreply as required
by Local Rule 105.2(a).
Instead, in response to the motion to
strike, she asserts that the surreply is necessitated by
misstatements in Bridge Street’s reply.
Plaintiff had the
opportunity in her own opposition to address the agency issue
and there is no need for the surreply.
I.
Background
The facts Plaintiff Linda Farwell alleges were described in
full in a prior opinion in this case.
See Farwell v. Story, No.
DKC 10-1274, 2010 WL 4963008 (D.Md. Dec. 1, 2010).
Accordingly,
this
summary
background
discussion
offers
only
a
brief
and
assumes some familiarity with the facts.
Of
relevance
here,
Farwell
mortgage broker, sometime in 2004.
negotiating
a
potential
Darnestown,
Maryland.
says
contacted
Story,
a
Farwell and Story then began
refinancing
Over
she
on
time,
Farwell’s
Farwell
home
and
in
Story’s
relationship grew closer, and Story began making large promises
about the potential value of refinancing Farwell’s home.
Story
eventually convinced Farwell to refinance her home three times.
In advance of the second refinancing, Story hired Bridge
Street to appraise Farwell’s home.
Bridge Street and Story
allegedly conspired together to inflate the appraised value.
As
a result, Bridge Street overlooked several problems with the
property,
reported
non-existent
inaccurate comparators.
home
improvements,
and
used
Bridge Street’s appraisal produced a
value of $755,000.
Farwell
maintains
that
the
actions
of
Story
and
Bridge
Street led her refinance her mortgage - more than once - to a
level she could not afford.
2
Farwell originally filed a complaint in the Circuit Court
for Montgomery County on April 9, 2010, which was removed to
this
court
complaint
Bridge
on
May
included
Street,
(“Challenge”).
and
20,
2010.
claims
(ECF
against
Challenge
No.
1).
Defendants
Financial
(ECF No. 2 ¶¶ 21–28).
That
PNC
Investors
original
Mortgage,
Corporation
Challenge was dismissed
from the case on November 10, 2010 for failure to serve.
No. 48).
(ECF
A December 1, 2010 opinion and order dismissed six of
the seven counts of the original complaint, as well as part of
the remaining count.
See Farwell v. Story, No. DKC 10-1274,
2010 WL 4963008 (D.Md. Dec. 1, 2010).
After dismissing most of the original complaint, the court
invited Farwell to amend her complaint to state any remaining
claims.
Farwell accordingly filed her motion for leave to amend
on December 22, 2010.
(ECF Nos. 55, 56).
The court granted
Farwell’s motion to amend in part (ECF Nos. 59, 60), and Farwell
filed the amended complaint on March 15, 2011 (ECF No. 64).
In
the
negligence
amended
claims
complaint,
against
Story
Farwell
and
asserts
Bridge
separate
Street,
a
constructive fraud claim against Bridge Street, an intentional
misrepresentation
claim
against
Bridge
Street,
and
conspiracy claim against both Bridge Street and Story.
3
a
civil
(ECF No.
64).2
Both Story and Bridge Street have now filed motions to
dismiss
all
of
those
opposes both motions.
II.
counts.
(ECF
Nos.
66,
67).
Farwell
(ECF Nos. 69, 71).
Standard of Review
Defendants Story and Bridge Street have moved to dismiss
under Rule 12(b)(6) of the Federal Rules of Civil Procedure.
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is
to test the sufficiency of the complaint.
Presley v. City of
Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).
At this
stage, the court must consider all well-pleaded allegations in a
complaint as true, Albright v. Oliver, 510 U.S. 266, 268 (1994),
and must construe all factual allegations in the light most
favorable
to
the
plaintiff.
See
Harrison
v.
Westinghouse
Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999) (citing
Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993)).
In
evaluating
the
complaint,
unsupported legal allegations.
the
court
need
not
accept
Revene v. Charles Cnty. Comm’rs,
882 F.2d 870, 873 (4th Cir. 1989).
Nor must it agree with legal
conclusions couched as factual allegations, Ashcroft v. Iqbal,
129 S.Ct. 1937, 1950 (2009), or conclusory factual allegations
devoid
of
any
reference
to
actual
2
events,
United
Black
She also asserts a claim against PNC Mortgage that is not
relevant to this opinion.
4
Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979); see
also Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009).
III. Analysis
A.
Tort Claims Against Bridge Street
Counts
Street,
III-V
including
intentional
allege
several
tort
negligence,
misrepresentation
December 2006 appraisal.
claims
against
constructive
arising
from
(ECF No. 64).
Bridge
fraud,
Bridge
and
Street’s
Bridge Street argues
that the “economic loss rule” precludes any tort claim against
Bridge Street, as Farwell’s loss was purely economic and there
was no privity between Bridge Street and Farwell.
(ECF No. 66-
1).
Generally, a plaintiff may not recover in tort when the
loss is purely economic.
156 (1994).
U.S. Gypsum v. Baltimore, 336 Md. 145,
Maryland recognizes, however, that a plaintiff may
recover in tort for economic loss when there is an “intimate
nexus”
between
the
parties.
Jacques
Maryland, 307 Md. 527, 534 (1986).
v.
First
Nat.
of
“This intimate nexus is
satisfied by contractual privity or its equivalent.”
534-35.
Bank
Id. at
The strict requirement of privity limits a defendant’s
exposure to risk to foreseeable parties and events.
Walpert,
Smullian & Blumenthal, P.A. v. Katz, 361 Md. 645, 671 (2000).
When no contractual privity exists, Maryland courts have
recognized a duty of care to a non-contracting third party when
5
the defendant has knowledge that the third party would rely on
his or her work.
See id. at 693-94.
In Walpert, for example,
the Court of Appeals of Maryland held an accountant liable for
economic losses suffered by the third party plaintiffs because
the plaintiffs met face-to-face with the accountant and told him
that they were relying on his audit.
Id.
also
a
recognize
a
duty
of
care
to
Maryland courts will
third
party
suffering
economic loss when the contracting parties intend to confer a
benefit on the third party.
Shofer v. Stuart Hack Co., 124
Md.App. 516, 529 (1998), cert. denied, 354 Md. 331 (1999).
A
plaintiff asserting a third party beneficiary claim must show
that he or she is a part of a class specifically intended to be
the beneficiaries of the contract.
Id.
Farwell contends that she has contractual privity or its
equivalent with Bridge Street because of her agency relationship
with Story.
as
her
(ECF No. 69-1).
agent
when
Farwell’s property.
he
According to Farwell, Story acted
contacted
Bridge
Street
to
appraise
(ECF No. 69-1).
Under Maryland law, an agency relationship is established
by express agreement or by inference.
355
Md.
agreement,
488,
503
courts
(1999).
determine
In
the
whether
Green v. H&R Block, Inc.,
absence
an
of
agency
an
express
relationship
exists by examining three required factors: 1) an agent who is
subject to the principal’s right of control; 2) an agent who has
6
a duty to act primarily for the benefit of the principal; and 3)
an agent who holds the power to alter the legal relations of the
principal.
Patten
v.
Bd.
of
Liquor
License
Comm’rs
for
Baltimore City, 107 Md.App. 224, 238 (1995); Schear v. Motel
Mgmt. Corp., 61 Md.App. 670, 687 (1985).
A party asserting a
claim resting upon an agency relationship has the burden of
proving the existence, nature, and extent of that relationship.
Green, 355 Md. at 503.
The
agreement
Story.
amended
created
complaint
an
Furthermore,
does
agency
the
not
allege
relationship
facts
asserted
that
between
are
an
express
Farwell
and
insufficient
imply an agency relationship between the two parties.
to
Farwell
does not assert that Story was ever subject to her control,3 that
he was under a duty to act in her best interest, or that he had
the power to alter her legal relations.
In fact, the complaint
does not once explain who Story was working for:
the borrower,
the lender, both the borrower and the lender, or neither party.
Instead, Farwell asserts in her opposition that Story must
have been her agent because he was acting “[i]n his capacity as
3
If anything, the complaint suggests the opposite.
It
alleges that Farwell was controlled by Story, who “preyed on
[her] vulnerable status” and “convinced [her] that refinancing,
rather than selling, her home was in [Farwell’s] best interests”
by assuring her that “the value of her house would soon increase
to over $1,000,000.” (ECF No. 64 ¶¶ 9-10, 13).
7
loan broker.”
(ECF No. 69-1, at 2).
Maryland courts do not
assume that the mortgage broker always acts as an agent to the
borrower.
See, e.g., Harmon v. BankUnited, No. WDQ-08-3456,
2009 WL 3487808, at *4 (D.Md. Oct. 22, 2009) (“Maryland courts
do not apply a bright line rule that brokers are always agents
of the buyer but instead examine the relationships among the
parties to a transaction.”).
In any event, Farwell’s argument
that Story was her agent by virtue of his status as a loan
broker is nowhere to be found in the complaint.
bound
by
the
allegations
contained
in
[her]
A plaintiff “is
complaint
and
cannot, through the use of motion briefs, amend the complaint.”
Zachair, Ltd. v. Driggs, 965 F.Supp. 741, 748 n.4 (D.Md. 1997).
Because
Farwell
does
not
sufficiently
allege
facts
demonstrating that Story was her agent acting in furtherance of
that
agency
when
he
contacted
Bridge
Street
to
conduct
the
appraisal of her house, Bridge Street has no duty of care to
Farwell by way of agency.4
Nor does Farwell allege facts establishing any other type
of intimate nexus with Bridge Street.
Farwell does not assert
that she was a party to any contract with Bridge Street.
She
does not allege that she was a foreseeable party relying on the
4
Even if there were an agency relationship, there is no
indication in the complaint that Story acted as Farwell’s agent
in getting the house appraised.
8
appraisal.
And, she makes no allegation that that she was an
intended beneficiary of the contract.
Although at least one
court has suggested that the scope of an appraiser’s liability
extends
beyond
specific
foreseeable
parties
and
third
party
beneficiaries to a “universe of persons who could be expected to
rely
on
the
appraisals,”
Farwell
satisfying even this broad standard.
fails
to
allege
facts
See Superior Bank, F.S.B.
v. Tandem Nat. Mortg., Inc., 197 F.Supp.2d 298, 336 (D.Md. 2000)
(holding that appraisers could be liable in tort to a purchaser
of secondary mortgage loans when the purchaser is within a group
expected to rely on the appraisal); but see Huntington Mortg.
Co. v. Mortg. Power Fin. Servs., Inc., 90 F.Supp.2d 670, 672-73
(D.Md.
2000)
(rejecting
privity
for
broad
appraisers).
liability
Indeed,
the
without
complaint
contractual
does
not
indicate that Farwell had any interaction with Bridge Street or
that she even saw the appraisal before she signed the closing
documents for her April 2007 refinancing.
Therefore, the economic loss rule does apply.
Counts III,
IV, and V will be dismissed.
B.
Count
Negligence Against Story
II
of
Farwell’s
amended
complaint
alleges
that
Story’s acts constituted negligence and that his negligence was
the proximate cause of Farwell’s financial losses.
9
Story
argues
negligence;
Story’s
rather,
conduct
Generally,
that
an
Farwell
the
was
did
amended
not
complaint
“intentional.”
intentional
act
sufficiently
may
states
(ECF
be
that
that
Nos.
64,
67).
willful,
fraudulent, but it may not be negligent.
allege
wanton,
or
Walser v. Resthaven
Memorial Gardens, 98 Md.App. 371 (1993), 393, cert. denied, 334
Md. 212 (1994) (citing Adams v. Carey, 172 Md. 173, 186 (1937)).
Nevertheless, when one or more consequences are unintended, the
tortious act may give rise to an action in negligence.
Id. at
393-94; see also McCance v. Lindau, 63 Md.App. 504, 514 (1985);
Gassemieh
reason
v.
why
Schafer,
an
52
Md.App.
intentional
act
31,
42
that
(1982)
(“We
produces
see
no
unintended
consequences cannot be a foundation for a negligence action.”).
In this case, Farwell alleges only that Story intended to
maximize his commissions, fees, and charges by selling a larger
mortgage to Farwell.
(ECF No. 64 ¶ 70).
Nowhere in the amended
complaint does Farwell allege that Story intended the economic
loss
and
financial
ruin
allegedly
result of Story’s negligence.
incurred
by
Farwell
as
a
Consequently, Story’s intentional
acts may be the basis of an action for negligence.
C.
Count
Civil Conspiracy Claim Against Story and Bridge Street
VI
of
Plaintiff’s
amended
complaint
alleges
that
Story and Bridge Street entered into a conspiracy “to commit
10
fraud and constructive fraud by inflating the appraisal value of
Plaintiff’s house[.]”
(ECF No. 64 ¶ 84).
A plaintiff alleging civil conspiracy must prove: “(1) A
confederation
of
understanding;
two
(2)
some
or
more
persons
unlawful
or
by
agreement
tortious
or
act
in
done
furtherance of the conspiracy or use of unlawful or tortious
means to accomplish an act not in itself illegal; and (3) Actual
legal damage resulting to the plaintiff.”
Lloyd v. Gen. Motors
Corp., 397 Md. 108, 154 (2007) (citing Van Royen v. Lacey, 262
Md.
94,
distinct
97-98
tort
(2007)).
that
can
In
Maryland,
sustain
an
conspiracy
award
of
is
damages
not
in
a
the
absence of an underlying tort.
Alexander & Alexander, Inc., v.
B.
336
Dixon
Evander
&
Assocs.,
Md.
635,
645
(1994)(“[A]
conspiracy cannot be made the subject of a civil action unless
something is done which, without the conspiracy, would give a
right of action.”).
A defendant who is not “legally capable” of
committing the underlying tort cannot be found liable for civil
conspiracy.
Shenker v. Laureate Educ., Inc., 411 Md. 317, 351
(2009).
Here, Bridge Street was not legally capable of committing
the underlying torts of fraud and constructive fraud because it
did
not
complaint
owe
a
duty
does
not
constructive fraud.
of
care
allege
to
Farwell.
that
Story
Farwell’s
committed
amended
fraud
or
Consequently, the underlying torts alleged
11
to have been the aim of the conspiracy were never committed and
never
could
Street.
have
Because
independent
from
been
a
committed
claim
its
of
by
either
conspiracy
underlying
tort,
Story
cannot
Farwell
or
be
has
Bridge
sustained
failed
to
allege sufficiently that Bridge Street and Story conspired to
commit fraud and constructive fraud against her.
IV.
Conclusion
For the foregoing reasons, the court will grant in part and
deny in part Defendant Story’s motion to dismiss.
The
court
will
grant
dismiss and to strike.
Defendant
Bridge
(ECF No. 67).
Street’s
(ECF Nos. 66, 73).
motions
A separate order
will follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
12
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