Bank of America, N.A. v. Jill P. Mitchell Living Trust

• Decision Date: 03 November 2011
• Docket Number: Civil Action No. 10–CV–00857 AW.
• Citation: 822 F.Supp.2d 505
• Parties: BANK OF AMERICA, N.A. As Successor by Merger to Merrill Lynch Bank USA Plaintiff, v. JILL P. MITCHELL LIVING TRUST u/a DTD 06.07.1999 et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

822 F.Supp.2d 505

BANK OF AMERICA, N.A. As Successor by Merger to Merrill Lynch Bank USA Plaintiff,

v.JILL P. MITCHELL LIVING TRUST u/a DTD 06.07.1999 et al., Defendants.

Civil Action No. 10–CV–00857 AW.

United States District Court, D. Maryland, Southern Division.

Nov. 3, 2011.

Ira L. Oring, Fedder and Garten PA, Baltimore, MD, for Plaintiff.

Bryan J. Mitchell, Chevy Chase, MD, pro se.

Stephen B. Stern, Thompson Loss & Judge, Washington, DC, for Jill P. Mitchell and Jill P. Mitchell Living Trust.

MEMORANDUM OPINION

ALEXANDER WILLIAMS, JR., District Judge.

Plaintiff Bank of America, N.A. (“the Bank”) brings this action against the following Defendants: Jill P. Mitchell Living Trust U/A DTD 06/07/1999 (“the Trust”); Jill P. Mitchell (“Ms. Mitchell”); and Bryan J. Mitchell (“Mr. Mitchell”). The Bank asserts claims for breach of contract and breach of guarantee in connection with a loan agreement. The Trust and Ms. Mitchell (“Counter–Plaintiffs”) assert counterclaims for breach of contract, fraud, and violation of the Maryland Consumer Protection Act. The following motions are pending before the Court: (1) The Bank's Motion to Strike Defendants' Jury Trial Demand (“Motion to Strike”); (2) The Bank's Motion for Summary Judgment with Regard to Counterclaim (“Motion for Summary Judgment on Counterclaim”); and (3) Counter–Plaintiffs' Motion for Summary Judgment (“Motion for Summary Judgment”). The Court has reviewed the entire record, as well as the pleadings and exhibits, and finds that no hearing is necessary. Local Rule 105.6 (D.Md.2011). For the reasons that follow, the Court GRANTS the Bank's Motion to Strike; GRANTS–IN–PART and DENIES–IN–PART the Bank's Motion for Summary Judgment on Counterclaim; and (3) GRANTS–IN–PART and DENIES–IN–PART Counter–Plaintiffs' Motion for Summary Judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Bank of America, N.A. (“the Bank”) is a National Banking Association whose corporate headquarters and principle place are located in North Carolina. The Bank is the successor by merger to Merrill Lynch Bank, USA (“Merrill Lynch”). Defendant Jill P. Mitchell Living Trust U/A DTD 06/07/1999 (“the Trust”) is a grantor revocable inter vivos trust created on June 7, 1999 through a Trust Agreement. Defendant Jill Mitchell is currently Trustee of the Trust.

The Trust and Merrill Lynch entered into a Merrill Lynch Loan Management Account Agreement (“Agreement”) on June 13, 2006. The Agreement “establishes the terms and conditions that govern the ... Loan Management Account.” Doc. 45–4 § 1. Ms. Mitchell and her husband, Bryan Mitchell, executed the Agreement on behalf of the Trust. The Mitchells also guaranteed the loan in their individual capacities in the event of default. Id. at 9–10. The Agreement explicitly names Mr. Mitchell as a co-Trustee with Ms. Mitchell. Id. at 9.¹

Mr. Mitchell is a sophisticated businessman with over two decades' experience in finance and investing. Doc. 43–6. Mr. Mitchell's professional highlights include founding and serving as CEO for a publicly traded commercial finance company whose value at one point exceeded $1.5 billion. Id.; Doc. 43–7 at 45–46. The Mitchells sought the particular loan as a “tax advantaged” means of facilitating the purchase of a high-end home in Chevy Chase, Maryland. Doc. 48–1 at 2.

Ms. Mitchell exclusively relied on Mr. Mitchell to deal with the Bank in connection with the loan. Doc. 43–5 at 19–22, 30–32. Even though she voluntarily signed the Agreement, Ms. Mitchell concedes that she failed to read the loan and associated documentation. Id. at 30–32. Ms. Mitchell further concedes that she did not understand the nature of the transaction and failed to communicate with the Bank regarding the loan. Id. at 21–22, 42–43.

Pursuant to the Agreement, Merrill Lynch agreed to make advances to the Trust, at its discretion, up to the “Maximum Amount.” The Agreement defines Maximum Amount as “the highest amount of credit that may be available under the LMA on any given date based on the value of the collateral in the Securities Account.” Doc. 45–4 § 3. The Agreement established $3,000,000 as the “Maximum Amount.” Id. at 8.

The Agreement required the Trust to assign to Merrill Lynch a continuing, first priority lien and security interest in one or more securities accounts established at Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”) as security for the performance of the Trust's obligations under the Agreement. To this end, the Parties designated a “Securities Account” as collateral for advances made under the Agreement, and the Parties later designated two Merrill Lynch accounts for the same purpose.

The Agreement further provided that Merrill Lynch offered three types of advances: “Variable Rate Advances, Fixed Rate Advances, and Term Advances.” Doc. 45–4 § 4. Under the direction of Mr. Mitchell, the Trust opted to take a ten-year Fixed Rate Advance (i.e. loan). As stated in the Agreement, Fixed Rate Advances bear finance charges at a fixed rate of interest equal to the Fixed Rate Advance Index, plus the “Spread.”

Section 5 of the Agreement contains the term around which the Parties' dispute centers. Under this Section, the Trust agreed to pay to Merrill Lynch “all Advances ... plus all finance charges, other fees and charges and all other amounts payable under this Agreement.” Id. § 5. Section 5 continues to state:

If a Fixed Rate Advance ... is repaid prior to the conclusion of its Fixed Rate Period ..., whether voluntarily, as a prepayment, or involuntarily as the result of Bank's exercise of any remedy under this Agreement, Borrower will pay Bank a Breakage Fee as stated in the Fee Schedule to [the Agreement] ... at the time of such repayment.

Id. (emphasis added).

The Agreement purports to include a Fee Schedule. Id. (emphasis added) (“Borrower agrees to pay [the Bank] all other fees and charges stated in the attached Fee Schedule....”). The Parties dispute whether the Agreement actually included the Fee Schedule. The Bank asserts that, on June 13, 2006, it sent Mr. Mitchell an email that contained the Fee Schedule as an attachment. Doc. 48–6. To support this assertion, the Bank offers an affidavit from a paralegal swearing that said email included the Fee Schedule as an attachment. Doc. 43–9. For his part, Mr. Mitchell testifies that he had no record of receiving the Fee Schedule when he signed the Agreement. Doc. 43–7 at 53–54. Furthermore, Mr. Mitchell observes that the email's attachment line fails to list the Fee Schedule as an attachment even though the line lists documents that the email allegedly attaches. This omission, according to Mitchell, belies the notion that the Bank sent Mr. Mitchell the Fee Schedule. Along those lines, Mr. Mitchell maintains that he specifically asked a Bank representative, Mr. Greene, about the possibility of a prepayment penalty (i.e. Breakage Fee) ² in the discussions that took place before Defendants entered into the Agreement. Mr. Mitchell insists that Mr. Greene “assured him that there were no prepayment penalties.” Doc. 45–1 at 4. Mr. Greene, however, denies this allegation. The Parties agree that this fact is in dispute.

The Fee Schedule defines Breakage Fee as follows:

The Breakage Fee is the cost or expense incurred by the Bank as a result of the payment of any Fixed Rate Advance ..., in whole or in part, on a date other than the last day of the interest period for such Fixed Rate Advance ..., whether such payment is made by the Borrower voluntarily or is effected by the Bank liquidating all or a portion of the Securities Account or otherwise. An administrative fee of $100 for processing this early payment will also apply.

Doc. 45–4 at 12 (emphasis added).

On June 27, 2006, the Trust received a single Fixed Rate Advance (i.e. loan) in the amount of $1,864,335.25 for a period of ten years. On March 24, 2008, the Trust and Merrill Lynch executed an agreement increasing the Maximum Amount to $6,000,000.00. Doc. 45–6. The Amendment states that “[a]ll other terms and conditions of the ... Agreement remain unchanged.” Id. The Trust signed this Amendment approximately three to four months after Mr. Mitchell claims to have first learned about the possibility of a Breakage Fee. Compare Doc. 48–5, with Doc. 45–6.

In the 2008/2009 period, the value of the collateral in the designated Securities Accounts dropped under the principal amount due on the loan and the accruing monthly interest. It is undisputed that the Trust failed to make any interest payments after July 2009. By way of a letter dated January 11, 2010, the Bank terminated the Agreement and demanded immediate payment of $2,225,222.95. According to the Bank, the following charges comprised the $2,225,222.95 amount:

• $864,335.25—Fixed Contract Principal

• $7,074.20—Fixed Contract Accrued Interest

• $295,520.93—Breakage Fee for Prepayment

• $100.00—Administrative Fee for Prepayment

• $78,307.15—Variable Principal

• $9.59—Accrued Variable Interest Doc. 17 at 6 (emphasis added). The Bank's Answers to Interrogatories set forth the method by which the Bank calculated the Breakage Fee:

The Breakage Fee is calculated by taking the difference between the cost of funds rate at the time of the loan, 5.66%, and the “reinvest rate”, which is the cost of funds rate if a loan was made on the date of prepayment, for the period remaining under the LMA Agreement if there had been no prepayment. The “reinvest rate” on January 20, 2010, the date the loan was prepaid, was 2.9845%. The difference between the two rates is 2.6755. The total amount of prepayment is multiplied by that amount, which is divided by 360, and then multiplied by the number of days in the month, which results in the monthly Breakage Fee due. The monthly amounts are then discounted to present value. The present value of the monthly amounts due as a result of the prepayment was $295,520.93 as of January 20, 2010....

Doc. 48–11 at 5–6.

The Agreement authorized the...