Mortgage Guaranty Insurance Company v. Whitaker et al

Filing 16

MEMORANDUM OPINION. Signed by Judge George Jarrod Hazel on 2/9/2018. (heps, Deputy Clerk)

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IN THE UNITED STATES DISTlHCT COURT FOR TilE ()JSTRICT OF MARYLAND' , ,. J' Southern Division Zilla FEB -g A \0: * 1.l11 ,.. MORTGAGE GUARANTY INSURANCE, CO., * Case No.: G.III-17-22-tJ Plaintiff, * * ,IOHN WIHTAKER, et a/., * Defendants. * * * * * * * * * * * * * * MEMORANDUM OPINION PlaintilT Mortgage Guaranty Insurance Company ("MGIC') brings suit against .John and Margit Whitaker ("Defendants") to recover losses f()lIowing its paymcnt on a claim stemming Irom Defendants' denlllit on their mortgage. ECI' No. 12. No hearing is necessary. Loc. R. 105.6 (D. Md. 2016). For the 1()lIowing reasons. Defendants' Motion to Dismiss is granted. BACKGROUND1 I. On February 15. 2008. Defendants borrowed moncy from Weichert Financial Services ("Weichert") I(Jrthe purchase of a propcrty located at 18 North Luzerne Avenue in Baltimore. Maryland and executed a Note and Dced of Trust secured by the property. ECF No 2 ~ 5: ECF NO.2-I. MGIC. a mortgage insurance company. insured Weichert. and its successors or assigns. against financial losses should Dcfendants dcfault on the Note. ECF No. ~ 11. Dcfendants failed to pay thc installment paymcnts due on the Note. and the Circuit Court I(Jr Baltimore City entercd an order ratifying the foreclosure sale on .July 17.2012. Ie/. ~~16. : see aiso Rosel1herg. et 7 ai. I I'. Whitaker, et ai.. Casc No. 24012000110 (dockct atlachcd as ECF No. 14-1). Alier Unless stated otherwise. the Hlcts are taken from the Complaint and assumed to be true. applying all crcdits of the sale to Defendants' total debt. the Court Auditor lor Baltimore City determined a deliciency due on the Note in the amount 01'$141.691.37. and the court issued an order ratifying the COlll1Auditor's report on November 28. 2012. See ECF No. 2 'i~ 9.10: ECF No. 2-2. Following ratitication of the deliciency. Dovenmuehle Mortgage. Inc.. Weichert's successor in interest. tiled an insurance claim with MGIC. who then paid the claim in the amount of $88.272.50 to Federal f10me Loan Mortgage Corporation. ECF NO.2 '112. As a result of Defendants' default on the Note and MGICs payment of the insurance claim. MGIC alleges that it became subrogated as to Weiehert's claim for the deficiency due on the Note. See ECF No. 2 ~ 13. MGIC hrought suit against Defendants for hreach of contract on June 26. 2017 in the Circuit Court for Montgomery County. and Defendants removed the action to this Court on August 8. 2017 on the hasis of diversity of citizenship under 28 U.S.c. ~ 1332. Defendants now move to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)( I) and 12(h)( 6). arguing that MG IC lacks standing to enforce the Note and Deed of Trust and that even if MGIC has standing. it may not enforce the Note through a breach of contract action. See ECF No. 12. II. DISCUSSION A. Motion to Dismiss I'ursuant to Rule 12(11)(1) Because standing is an clement of suhject maller jurisdiction. a defendant's motion to dismiss tor lack of standing should he analyzed under Rule 12(h)( I). See "'ellllles \'. Lord Ballimore Employee Reliremel7l IlIcome Aecol/l7I I'ltm. 823 F. Supp. 2d 360, 362 (D, Md. 20 II) (citing While Taill'ark. Ille. \'. SImI/he. 413 F.3d 45 I. 459 (4th Cir. 2005)). When sueh a motion has heen liled. the plaintiff bears the burden of proving that jurisdiction exists. Williams 1'. Ulliled Slales. 50 F.3d 299, 304 (4th Cir. 1995), The court should grant the motion onlv "if the ~ . 2 material jurisdictional facts are not in disputc and the moving party is entitlcd to prcvail as a mattcr of law:' Richmond. Fredericksh/llX & Potomac R. Co. I'. United States. 945 F.2d 765. 768 (4th Cir. 1991). In making this determination. thc court "is to regard thc pleadings cvidencc on the issue. and may consider evidence outsidc the pleadings proceeding to one for summary judgmcnt:' MG1C's underlying as mcrc without converting thc Id. claim is one of breach of contract. alleging that it has suffered an "injury in fact" as a result of Defendants' failure to pay Weichert the installment payments on the Note. See ECF No. 14 at 5 (citing Mcinnes. 823 F. Supp. 2d at 362).2 Defendants dispute that they owcd a contractual obligation to Weichert: rather. Defendants duc do not argue that MGIC docs not have standing to bring suit against it because MGIC is not in privity of contract with Defendants nor designated Ilowever. by Weichert as a third-party beneficiary both parties agree that the doctrine of subrogation. to the Note. ECl' No. 12 at 3. if properly estahlished. MGIC to "step into the shoes" of Weichert to pursue Weichert's would allow hreach of contract action. See ECF No. 14 at 8 (citing Fireman's Fund Ins. Co. \'. Colll'l 1m. Co.. 519 A.2d 202. 204 (Mel. 1987)). Subrogation is .. [tJhe substition of one person in place of another with reference lawful claim. demand or right. so that he who is suhstituted relation to the deht or claim. and its rights. remedies. succeeds or securities:' to a to the rights of the other in Riemer I'. Columhia Med Plan. Inc. 747 A.2d 677. 682 (Md. 2000). The subrogee is thcn ordinarily entitlcd to all the remedies of the creditor and associated mcans the creditor could cmploy to recover payment. Poe v. Phila. Cas. Co .. 84 A. 476 (Md. 1912). Maryland subrogation 2 recognizes hoth legal and conventional does not require a contractual relationship suhrogation. Legal. or cquitablc. between a creditor and a subrogee and Pin cites to documcnts filed on the Court°s electronic filing system (Cr\'1/ECF) refer to the page numbers generated by that system. , .l may be applied where there is "( I) the existence of a debt or obligation f()r which a party. other than the subrogee. is primarily liable, which (2) the subrogec. who is neithcr a voluntcer nor an intermeddler. pays or discharges in ordcr to protect his own rights and intcrcst. .. Sec. IllS. Co. (!/' Nell' IIm'en-The Connecticutlnt/em. Co. \'. Mangan. 242 A.2d 482. 485-86 (Md. 19(8). In contrast. conventional subrogation requircs "an agrcement. cxprcss or implied. betwecn a debtor and a third party or bctween a creditor and a third party that. upon paymcnt of thc dcbt. the third party will be entitled to all the rights and securities of that dcbtor or crcditor:' Poteet \'. SallieI'. 766 A.2d 150. 160 (Md. 200 I). Defendants claim that MUIC has no right of subrogation. legal or convcntional. and there!()re does not have standing. MGIC claims that it has a right oflegal subrogation. MGIC relics on Bachmann \'. Glazer & Glazer. Inc.. 559 A.2d 365 (Md. 1988) to asscrt that it may pursue its claim against Dcfendants under the theory of legal subrogation. ECl' No. 14 at 8. In Bachmann. a tenant in a commercial building entered into a sales agrccment with Glazer. Per the sales agreement. Glazer would become the assignee under the building's leasc in the cvent that the tenant defaulted on the sales agreement. Prior to the sales agreement with Glazer. the tenant had executed an agreement with Bachmann who guaranteed the rcntal payments owcd from the tenant. or any assignee of the tenant's interest in the lease. to the landlord of the building. i\tter the tenant dcfaulted on its sales agrcement with Glazer. Glazer became the assignee under the Icase. Glazer thcn entercd into an agrccment with thc landlord. whereby Glazer agrced to pay thc tcnant's outstanding rcnt balancc and. in rcturn. thc landlord would assign to Glazcr its claim against the tenant and Bachmann for thc past due rcnt. See Bachm<lllll. 599 A.2d at 366-67. 4 After paying the outstanding rent balance. Gluzer brought suit against Bachmann to rccover its costs. On review. the Maryland Court of Appeals held that Glazer could recover the payment against Bachmann under the doctrine of subrogation because subrogation "is intendcd to provide relief against loss and damagc to a meritorious creditor who has paid the debt of another:' Id. at 368. Because the landlord had assigned its interests in the back rcnt to Glazer. the court found that Glazer was cntitled to sue Bachmann. the tenant's guarantor. bccause "assignment of a debt ordinarily carries with it every remedy or security that is incidental to thc subject mailer of the assignment" It!. at 370. However. contrary to Plaintilr s asscrtion of legal subrogation. thc court's decision restcd on cOI1\'en/ional subrogation. !d. at 369 ("Thc case bel()re us involves conventional subrogation."). The court noted that Glazer paid the back rent as a condition of the landlord granting the assignment. not for thc purposc of extinguishing a debt "for" the tenant. !d. at 370. (emphasis in original). C{ It!. at 367-68 (citing Scl111ader. Inc. I'. Cole Build Co .. 202 A.2d 326 (Md. 1964) (finding legal subrogation of claims for paving costs where plaintiff paved roads on defendant's property in order to obtain pcrmission from the city to pave roads on plaintiffs own property)). As in Bachman. MGIC did not provide payment to Weichert. or its successors or assigns. for Dcfcndants in order to protect its own rights or intcrcsts: rather. it provided payment as a result of its insurancc agreement with Weichert. Thus. MGlC had no relationship with Defendants. and its interest in the debt is not grounded in the theory of legal subrogation but rather only arises as a result of its contractual relationship with Weichert. C.'l Mangan. 242 A.2d at 486 (noting that a legal subrogee is normally not "a complete stranger to the transaction'} Because MGlC is not entitled to legal subrogation. other insurers. "is denied 5 subrogation unless specifically permitted by a policy provision or sanctioned by statute:' Id at 487. As set fi)rth in thc Complaint. MGIC insured Wcichert. and its successors or assigns. against any financial loss sustained duc to Defendants' default on the Note. ECI' No. 2 ~ I I. This insurance agreement included a subrogation provision. providing that "only to the extent that [MGICJ is entitled under applicable law to pursue such deficiency rights. [MGIC] will be subrogated. upon payment of the Loss. in the amount thereoC and with an equal priority to all of lWeichert's] rights of recovery against a Borrower:' ECF No. 14-2 at 3 I. Therefore. because Weichert assigned its interests in the Note to MGIC. and MGIC discharged Defendants remaining debt to Weichert. MGIC has standing to recover the debt from Delendants under a theory of (,()1/1'el/liol/ol suhrogation. See /Jocl1mw1I1. 599 A.2d at 371 ("In order for Glazer to recover li'OI11 the guarantors under a theory of conventional subrogation. Glazer needed to prove: (I) that the landlord agreed to assign the debt to Glazer and 2) that Glazer paid the tenant's debt."):' B. Motion to Dismiss Pursuant to Rule 12(h)(6) Delendants also argue that even ifMGIC has standing. its claim must he dismisscd pursuant to Rule 12(h)(6) for failure to state a claim upon whieh relief can he granted. When deciding a motion to dismiss. a court "must accept as true all of the factual allegations contained in the complaint:' and "draw all reasonable inlerenees Jlrom those facts I in favor of the plaintifC" £.1. till POI/I tie Nemollrs & Co. 1'. Kolol/ll/tllls .. hlC .• 637 F.3d 435. 440 (4th Cir. 201 I) (citations and internal quotation marks omitted). Pursuant to Rule 8(a)(2) of the Federal Because the insurance agreement establishes MGIC's rights as a conventional subrogee and not a legal subrogee. the Court need not address the parties arguments as to \vhether MGIC's payment under its insumncc policy unjustly enriched Defendants. See ,\langan. 2..J2A.2d at 486 ("The conventional subrogee is 110t necessarily entitled to subrogation as a matter of legal right if there are intervening equities. and his rights may be limited or denied him by the terms of his agreement."') (internal citations omitted). 3 6 Rules of Civil Procedure. a complaint must contain a "short and plain statemcnt ofthc claim showing that the pleader is entitled to relief."' Fed. R. Civ. 1'. 8(a)(2). To survive a motion to dismiss invoking Rule 12(b)(6). "a complaint must contain sufficient factual maller. acceptcd as true .. to state a claim to relief that is plausible on its lace .... Ashcl"!!fi 1'. Iqhal. 556 U.S. 662. 678 (2009) (citing /Jell Atl. Carp. \'. TlI'omhly. 550 U.S. 544. 570 (2007». MGIC argues that under Maryland law. an obligce undcr a m0l1gagc or promissory note may pursue either a motion for deficiency judgment or breach of contract action in an attempt to recover the remaining stllns due on a loan atter a foreclosure sale. ECI' No. 14 at II (citing Wellington Co .. Inc. PI"!~(it haring Plan S 1'. Shakiha. 952 A.2d 328 (Md. Ct. Spec App. 2008)), But because "[aJ subrogee acquires no greater rights than those possessed by the subrogor:' MGIC may only bring a breach of contract action if WeicheJ1 itsel f could do so. See GOl'el"l1l11ent Employees Ins, Co. 1'. Group Hospitalization Medical Serl'ices, Inc. 589 A.2d 464. 466 (Md. 1991) (citing Poe. 84 A. 476), Because Weichert is barred by statute from bringing a breach of contract action. MGIe's claim cannot survive. Pursuant to Section 7-105.13 of the Maryland Real Property Code. alier rali fication of the auditor's report following a foreclosure sale. a party in interest may tile a motion for a deficiency judgment within three years if the proceeds of the sale are insufficient to satisfy the debt. See Md. Code Real Prop. ~ 7-105.13(e). (d). Following ratification of the deficiency. a deliciency judgment is the sole remedy available to a creditor. See ~ 7-105,13( t) ("The liling of a motion for deficiency judgment ... shall constitute the sole post-ratitication remedy available to a secured party or party in interest for breach ofa covenant contained in a deed of trust. mortgage. or promissory note that secures or is secured by owner-occupied residential property."), Notwithstanding this language. PlaintifT points to Maryland law that provides a twelve-year 7 statute of limitations for actions on a specialty_ such as a promissory under seal. creating an exception See Md. Code CIs. & .Iud. Proc. of trust, mortgage. or promissory by owner-occupied applicable. residential S 5-1 02(a)( property." S 5-1 02( c)(2). claim. However. this exception S 5-1 02(c)(2) Thus. S 7-105.13 docs not apply to a "deed S 7-105.13(1) and removes how 11.13.274 affects MGICs and S 5-102(c)(2) S 5-1 02( c )(2). if were enacted on c1aim.4 the 12 year statute of limitations present case. on a note or deed of trust for owner-occupied creates an exemption on civil actions. cause of action accrued. See 2014 Md. Laws 592 ("II.B. 274"). the Court must consider While I). However. statute of limitations note that has been signed under seal and secures or is secured act as bars to MGICs July I. 2014. after MGICs Therefore. to the general three-year note or other instrument rcsidential for actions. such as the properties. H.I3. 274 for those causes of action arising he fore July I. 2014. providing that they "must be tiled within 12 years alier the date the action accrues or before July 1. 2017. whichever occurs first." See 1-1.13. 74. Section 4. According 2 obligations under the Note on May 24. 2012. and Plaintiff-s July 26. 2017. is therefore exception provisions to MGIC. Defendants to of S 5-1 02( c )(2) S 7-105.13. sole post-ratification breach of contract claim. filed on timely. See ECF No. 14 at 15. However. fails to recognize including the impact of the provision breached their MGICs S 7-105.13. reliance on the hill's Pursuant to 11.13.274. the that a motion lor deficiency judgment is the remedy. applies 1'1'O.\peclil'ely on or after July 1. 2014: [s 7- J 05.13] shall be construed to apply prospectively to any motion f(Jr a deficiency judgment that is filed on or alier the effective date of this Act on a deed of trust. mortgage. or promissory note that secures or is secured hy residential property that was owner-occupied residential property at the time the order to docket or complaint to foreelose was filed. , Notably. Wellinl(lOn Co .. Inc. Profit Shorinl( Plan \', Shakiha. 952 A.2d 328 (Md. Ct. Spec App. 2008). cited by MGIC to argue that a breach of contract action is viable. pre-dates H.B. 274. 8 See H.B. 274 at Section 55 Based on Section 5, after July 1. 2014. Plaintiffs only viable post-ratitication remedy was a motion for deticiency judgment. Such a motion must have been filed within three years after the date of tinal ratitication or by July I, 2017, whichever occurred tirst. See H.B. 274, Section 6. The auditor's report was ratitied on November 28, 2012, and MGIC had until November of 20 15 to tile a motion for deticiency judgment. A motion for deficiency judgment would now be time-barred and a breach of contract claim is not a viable remedy. III. CONCLUSION For the foregoing reasons, Defendants' Motion to Dismiss, ECF No. 12, shall be granted. A separate Order follows. Dated: February j h~- .2018 GEORGE J. HAZEL United States District Judge 5 Though not binding on the Court, the Attorney General"s Review Note of House Bill 274 similarly construes Section 5. See Ltr. from Attorney Gen. Douglas F. Gansler to Governor Martin O'Malley (April 28. 2014) (onlile with the Ornce of the Attorney General of Maryland) at 2. 14RS/agJetters/hb0274.pdf ("Section 5 of [II. B. 274] provides that the establishment of a motion for deficiency judgment as the sole post-ratification remedy applies prospectively to any motion lor that is med [sic] on or after [J uly I. 2014 n. 9

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