Haddad et al v. M&T Bank
MEMORANDUM OPINION. Signed by Judge Peter J. Messitte on 5/6/14. (c/m 5/7/14 am2s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
MICHAEL HADDAD, et. al., pro se
Civil No. PJM 13-3542
Michael and Theresa Haddad are citizens of Maryland who own a small business
("Astornet") that provides technology services to state and federal agencies. M&T Bank
("M&T") is a New York corporation that maintains its principal place of business in New York.
The Haddads filed suit against M&T in the Circuit Court for Montgomery County, Maryland
based on a dispute arising out of a line of credit M&T extended to Astornet. M&T subsequently
removed the case to this Court. The Haddads have filed a Motion to Remand the case to Circuit
Court [Paper No. 12]. Shortly after removal, M&T filed a Motion to Dismiss Plaintiffs'
Complaint [Paper No.9].
For the reasons that follow, the Haddads' Motion for Remand is
DENIED and M&T's Motion to Dismiss is GRANTED.
On April 28, 2005, the Haddads executed a promissory note in favor of Provident Bank
of Maryland ("Provident") to secure a $150,000 line of credit extended to Astornet, the Haddads'
business. The loan was partially guaranteed by the Small Business Administration ("SBA").
While executing the note on behalf of Astornet, the Haddads both signed an agreement
personally guaranteeing the loan. The Loan and Guarantee Agreements stated that Provident
could collect the amount borrowed from any guarantors even if Astomet did not default.
2009, Provident was acquired by M&T Bank, which is incorporated and headquartered in New
Yark. M&T became Provident's successor in interest with respect to loans such as the one made
Astomet eventually exhausted the line of credit and ran into financial trouble, leaving it
unable to make its loan payments. In 2012, M&T informed the Haddads that, pursuant to the
guarantee agreements, they were individually required to repay the entire amount borrowed by
Astomet. In response, the Haddads asserted that they were only responsible for 15% of the
amount borrowed and refused to pay. After M&T indicated that it would exercise its contractual
right of foreclosure on the Haddads' home if the Haddads remained in default, the Haddads
borrowed money from family to repay M&T. They ultimately repaid the entire amount of the
loan which, with accumulated interest, totaled approximately $171,000.
In their Complaint, the Haddads assert that before executing the note, M&T told them
that they were only personally responsible for 15% ofthe amount borrowed in the event of a
default and that the SBA was responsible for the remaining 85%. They argue that M&T had an
obligation to collect the other 85% of the amount borrowed from the SBA. Their Complaint,
inter alia, asserts that M&T's actions violated the federal False Claims Act, 31 U.S.C.
and that liability was also created by virtue of Maryland contract law. The Haddads seek
reimbursement for 85% of the amount repaid to M&T and to have their damages trebled
pursuant to the False Claims Act.
I Under the heading "LENDER'S
RJGHTS IF THERE IS A DEFAULT," the loan agreement states: "Without
notice or demand and without giving up any of its rights Lender may: Collect all amounts owing from any Borrower
or Guarantor." Def.'s Mem. Supp. Mot. Dismiss. Ex. A at 3. The guarantee agreements state "Lender is not
required to seek payment from any other source before demanding payment from Guarantor" and specifically
provides "Guarantor's liability will continue even if SBA pays Lender. SBA is not a co-guarantor with Guarantor.
Guarantor has no right of contribution from SBA." Def.'s Mem. Supp. Mot. Dismiss. Ex. B at 2, 4, 6, 8.
Now, however, the Haddads ask to have the case remanded to state court based on lack of
diversity of citizenship of the parties. M&T submits that diversity in fact exists, and federal
question jurisdiction as well such that jurisdiction lies in this Court.
M&T, for its part, asks the Court to dismiss the False Claim Act claim, then judge the
state causes of action insufficient as a matter of law and dismiss them as well.
Federal district courts have jurisdiction over "all civil actions where the matter in
controversy exceeds the sum or value of $75,000 ... and is between citizens of different states."
28 U.S.c. ~ 1332. A defendant may remove to federal court "any civil action brought in a State
court of which the district courts of the United States have original jurisdiction."
~ 1441 (a).
The Haddads contend that the Court does not have jurisdiction under ~ 1332 because the
parties are not citizens of different states. While they do not dispute that M&T is headquartered
and incorporated in New York, they submit that because they entered into the loan agreement
with Provident, which was a Maryland corporation before it was acquired by M&T, there is no
diversity of citizenship. They also argue that, since M&T has shareholders who are Maryland
residents, there is no diversity. Both arguments are without merit.
For diversity purposes, a party's citizenship is established as ofthe time the suit is filed.
See Grupo Dataflux v. Atlas Global Group, 541 U.S. 567, 570 (2004). When two corporations
merge, the citizenship of the surviving corporation is the only relevant factor for diversity
purposes and the citizenship of the predecessor corporation becomes irrelevant. See 13F C.
Wright, A. Miller, & E. Cooper, Federal Practice and Procedure ~ 3623 (3d ed. 2013); see also
Hoefferle Truck Sales, Inc.
DivcoWayne, 523 F.2d 548-49 (7th Cir. 1975). Corporate
citizenship is determined only by the corporation's place of incorporation and principal place of
business; it is not based on the citizenship of its shareholders. See 28 U.S.C.
View Apartments v. Realty ReFund Trust, 602 F.2d 668,669 (4th Cir. 1979). The Court
therefore concludes that M&T is a New York corporation, has citizenship diverse from the
Haddads, that the jurisdictional amount exceeds $75,000 (85% of $171 ,000 = $143,350) and that
the Court therefore has jurisdiction under
M&T also asserts that the Court also has federal question jurisdiction because the
Haddads have alleged a violation of the False Claims Act. While M&T is correct that claims
brought under the FCA present a federal question, see, e.g., United States ex. rei. Black v. Hosp.
Corp. of Marion County, Civ. No. RDB-08-0390,
20 II WL 1161737, at *1 n.2 (D. Md. Mar.
28, 2011), when an ostensibly federal claim is "so insubstantial, implausible, foreclosed by prior
decisions of [the Supreme Court], or otherwise completely devoid of merit," there is no federal
Oneida Indian Nation v. Oneida County, 414 U.S. 661, 666 (1974); see
also Holloway v. Schweiker, 724 F.2d 1102, 1105 (4th Cir. 1984) (holding that federal claim was
so frivolous as to not present a federal question). As will be discussed in Section lILA, the
Haddads' claim is clearly and indisputably not cognizable under the FCA because the Complaint
fails to allege, as is required of such a cause of action, that M&T engaged in fraud against the
Federal Government.. Cf Davis v. Pak, 856 F.2d 648, 651-52 (4th Cir. 1988) (upholding
jurisdictional dismissal of a
1983 action where claim obviously did not present a constitutional
violation); Foster v. Howard Cmty. Call., Civ. No. RDB-13-1395,
2014 WL 758027, at *3 (D.
Md. Feb. 24, 2014) (holding there was no federal question jurisdiction where jurisdiction was
predicated on statutes wholly inapplicable to plaintiffs claims). So there is no federal question
jurisdiction in this case. But of course, since the Court does have jurisdiction based on diversity
of citizenship, the absence of federal question jurisdiction is merely academic.
In evaluating the sufficiency of a complaint, a court gives liberal construction to
pleadings drafted by pro se litigants such as the Haddads. Erickson v. Pardus, 551 U.S. 89, 94
(2007). Nevertheless, Rule 12(b)(6) dismissal is required when the allegations in the complaint
are far-fetched or implausible. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A plaintiff
cannot rely on naked assertions, speculation, or mere legal conclusions. See Bell At!. Corp. v.
Twombly, 550 U.S. 544, 556-57 (2007). A complaint must provide factual allegations that
"produce an inference of liability strong enough to nudge the plaintiffs claims' across the line
from conceivable to plausible. '" Nemet Chevrolet v. ConsumerajJairs.com, Inc., 591 F.3d 250,
256 (4th Cir. 2009) (quoting Iqbal 662 U.S. at 680). In evaluating the plausibility of a claim, the
Court engages in a fact-specific inquiry that "drawls] on its experience and common sense."
Iqbal, 556 U.S. at 663-64.
The Court first turns to the viability of Count I, in which the Haddads allege that M&T
violated the federal False Claims Act by misrepresenting the terms of the loan guarantee to them.
The following discussion demonstrates why there is not only no federal question jurisdiction; the
False Claims Act claim is simply untenable as a matter of law.
The False Claims Act allows private plaintiffs to sue a defendant who has defrauded the
federal government. 31 U.S.c. ~ 3729. It does not provide a cause of action for parties who
believe they have been the victim of someone's dishonesty.
Since the Haddads have not alleged
that M&T defrauded the Government or was even involved in business with the Government, the
Court concludes that Count I must be dismissed pursuant to Rule 12(b)(6).
Even if the Court were to reinterpret Count I as a state law fraud claim, it would still be
pled with insufficient specificity. Under Federal Rule of Civil Procedure 9(b), claims for fraud
must be pled with particularity and must describe "the time, place, and contents of the false
representations, as well as the identity of the person making the misrepresentation and what he
obtained thereby." Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.
1999). The Complaint does not address when or where the fraud occurred, who made the
fraudulent claim, or what M&T gained by misrepresenting the terms of the guarantee agreement.
The Haddads attempted to cure some of these defects by presenting new facts in the Opposition
to Defendant's Motion to Dismiss. The specifics of fraud must be alleged in the Complaint; the
Plaintiffs cannot fix the deficiencies of the Complaint in a brief in opposition to a motion to
dismiss. See My/an Labs., Inc. v. Azko, N. v., 770 F. Supp. 1053, 1068 (D. Md. 1991). Even if
the Court considered these new facts, the Haddads have still failed to identify when the
fraudulent statements were made or describe how M&T benefitted from the fraud.
But again the absence of a federal question is of no consequence since the Court still has
jurisdiction based on diversity.
Counts II and III must also be dismissed because they state no cognizable claim for relief.
Count II alleges that M&T wrongfully failed to collect the loan balance from the SBA
despite knowing that the Haddadscould
not make the required payments on the loan. Count III
alleges that M&T's attempt to collect the balance from the Haddads caused them financial
distress and forced them to borrow money from family to avoid losing their home. The Haddads
specify no law that they believe M&T failed to comply with. Indeed the Court is unaware of any
cause of action in Maryland that allows a plaintiff to sue a bank for collecting on a loan against a
guarantor or that provides relief for borrowers who experience financial hardship as a result of a
lender's attempt to collect on such a loan.
In their Opposition to Defendant's Motion to Dismiss, the Haddads attempt to recast
Count III as a claim for intentional infliction of emotional distress. Plaintiffs cannot, in a brief in
opposition to a motion to dismiss, amend a complaint and recharacterize its claims. Mylan
Labs., Inc, 770 F. Supp. 2d at 1068. Even if they could, Maryland law is clear that creditors may
collect debts even if doing so causes mental anguish for the borrower. See Dick v. MercantileSafe Deposit & Trust Co., 492 A.2d 674, 677 (Md. Ct. Spec. App. 1985). The facts alleged
come nowhere close to satisfying the elements required for the extraordinary action for
intentional infliction of emotional distress. See Harris v. Jones, 380 A.2d 611,614 (Md. 1977).
Count IV does no more than recite some (but not all) of the elements of a detrimental
reliance claim, and provides zero factual details to support the allegations. See Ashcroft v. Iqbal,
556 U.S. 662, 677-78 (2009) ("A pleading that offers ... 'a formulaic recitation of the elements of
a cause of action will not do. "'). Aclaim for detrimental reliance in Maryland requires:
1. a clear and definite promise; 2. where the promisor has a reasonable
expectation that the offer will induce action or forbearance on the part of the
promisee; 3. which does induce actual and reasonable action or forbearance by the
promisee; and 4. causes a detriment which can only be avoided by the
enforcement of the promise.
Pavel Enters., Inc. v. A.S. Johnson Co., 674 A.2d 521, 532 (Md. 1996). The plain language of
the loan guarantee agreement states that the Haddads would be fully liable for repayment of the
loan to Astornet. Their suggestion that the lender made a promise directly to the contrary is not
only precluded by the Parol Evidence Rule, Equitable Trust Co. v. Imbesi, 412 A.2d 96, 107
(Md. 1980); the Complaint does not explain how M&T knew its statements would induce
inappropriate action on the part of the Haddads nor does it provide any details about what action
the Haddads took that they would not have taken otherwise. The Haddads also fail to explain
why their reliance on the alleged misrepresentations was reasonable, especially given the flatly
contradictory language of the Guarantee Agreement.
The Court concludes that Count IV must be dismissed for failing to state a claim.
For the foregoing reasons, Plaintiffs' Motion for Remand [Docket No. 12] is DENIED,
and Defendant's Motion to Dismiss [Docket No.9] is GRANTED.
A separate Order will ISSUE.
ER J. MESSITTE
ATES DISTRICT JUDGE
May 6, 2014
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