Bennett Heating & Air Conditioning, Inc. v. NationsBank of Maryland

• Citation: 674 A.2d 534,342 Md. 169
• Decision Date: 01 September 1995
• Docket Number: No. 72,72
• Parties: BENNETT HEATING & AIR CONDITIONING, INC. et al. v. NATIONSBANK OF MARYLAND et al
• Court: Court of Appeals of Maryland

Page 169

342 Md. 169

674 A.2d 534

BENNETT HEATING & AIR CONDITIONING, INC. et al. v. NATIONSBANK OF MARYLAND et al.

No. 72 Sept. Term, 1995.

Court of Appeals of Maryland.

April 11, 1996.

James T. Draude (Driscoll & Draude, on brief), Washington, DC, for Petitioner.

Mark S. Carlin (Sherman, Meehan & Curtin, P.C., on brief) Washington, DC, Constantinos G. Panagopoulos (F. Joseph Nealon, Eric C. Lund, Ballard Spahr Andrews & Ingersoll, on brief), Washington, DC, for Respondent.

Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI, BELL and RAKER, JJ.

RODOWSKY, Judge.

We granted cross-petitions for certiorari in order to review the judgment of the Court of Special Appeals in two appeals (Nos. 899 and 900, September Term, 1994) from the Circuit Court for Prince George's County. Bennett Heating & Air Conditioning, Inc. v. NationsBank of Maryland, 103 Md.App. 749, 654 A.2d 949 (1995). The plaintiffs are unpaid subcontractors whose mechanics' liens, or potential claims for such liens, were extinguished by the foreclosure of a senior mortgage. In a plenary civil action (No. 899) the plaintiffs primarily sought money judgments for restitution from the foreclosure purchaser and its mortgage lender in the amount of the increased value of the property attributable to the plaintiffs' unpaid work. Plaintiffs also sought to set aside the enrolled judgment of ratification of sale in the foreclosure action (No. 900) by a third amended complaint filed in the plenary action and by attempting to consolidate the two actions. For the reasons set forth below we agree with the circuit court which held that the complaint failed to state claims for which the relief of restitution, or of avoidance of the ratification judgment, can be granted.

The circuit court's judgment in the plenary action was entered on motions filed by the defendants to dismiss the third amended complaint of the plaintiffs on the face of that pleading. See Maryland Rule 2-322(c). Consequently, in that action we consider the facts to be those that are well pleaded by the plaintiffs, including those facts that may fairly be inferred from the matters expressly alleged. In the appeal in the foreclosure action we additionally consider the facts of record that underlie the judgment in that summary action.

In overview, the dispute involves a business park in Prince George's County, the development of which began in 1987. The developer, a limited partnership which owned only the business park (the Property), had as its general partner a corporation which owned nothing other than its interest in the limited partnership. Debt financing for the undertaking was furnished by a predecessor of NationsBank of Maryland (the Bank) which was secured by a mortgage on the Property. Five buildings for office, commercial and/or warehouse use were successfully completed. The difficulties with which we are concerned arose with the construction of the sixth building, Building F.

The general contract for the construction of Building F was let in November 1989. In the course of constructing Building F, the developer did not fully pay the general contractor, and the general contractor did not fully pay the subcontractors. There were negotiations between the developer and the Bank "to fund the construction of Building F and to re-negotiate the financing on the Property." By June 1990 a tenant had been acquired for a portion of Building F, and an additional contract was made between the developer and the general contractor for work in the tenant's space. This led to additional subcontracts relating to the tenant's space. The developer did not pay the general contractor for tenant space work, and the general contractor did not pay the subcontractors for their tenant space work.

The Bank foreclosed. Two of the subcontractors had established mechanics' liens prior to the foreclosure sale, but there was no surplus over the mortgage debt. A subsidiary of the Bank bought in at the sale and assigned its rights as purchaser to a new entity which acquired the Property by utilizing, largely but not exclusively, funds borrowed from the Bank on the security of a new mortgage on the Property. The assignee-purchaser is a Maryland limited partnership, the sole general partner of which is a Maryland corporation. The only asset of this new entity is the Property, and the only asset of its corporate general partner is the general partner's interest in the new limited partnership. Plaintiffs allege that the investors in the old and the new limited partnerships and their respective corporate general partners are the same individuals. The plaintiffs refer to them as the "British Investors."

Specifically, the general contractor for Building F was Michael, Harris & Rosato Brothers, Inc. (MHR). The contract price was $1,427,529. MHR is not a plaintiff in this action. The plaintiffs are the heating, ventilating and air conditioning subcontractor, Bennett Heating & Air Conditioning, Inc. (Bennett), the electrical subcontractor, D & L Electric, Inc. (D & L), the automatic fire sprinkler system subcontractor, the floor covering subcontractor, and the plumbing subcontractor. The subcontractors have not been paid for work both on basic Building F and on the tenant space. The largest claim, that of Bennett, exceeds $325,000. ¹

Specifically, the defendants in this action are the Bank, as successor to Sovran Bank/Maryland; the original developer entity, Ammendale Business Campus Limited Partnership (Ammendale LP); Ammendale LP's general partner, ELV/Ammendale I, Inc.; a limited partner in Ammendale LP, Carfax Enterprises Limited Partnership; the new developer entity, Banbury Associates Limited Partnership (Banbury LP); and Banbury's general partner, Banbury Real Estate Investment, Inc.

Plaintiffs allege that work by Bennett was completed in July 1990 and by the other plaintiffs by June of that year. Bennett established its mechanic's lien on November 28, 1990. The Bank's foreclosure was docketed on March 6, 1991. At that time the full mortgage indebtedness of $21,500,000 was due, together with interest of $966,455.03 through March 3, 1996 and late charges of over $1,125,000. D & L established its mechanic's lien on March 15, 1991. The mortgage foreclosure sale was held on March 22, 1991.

A subsidiary of the Bank bought in at the auction for $21,050,000 and assigned its rights to Banbury LP. ² The sale was ratified on May 3, 1991. The sale price did not produce any surplus distributable to junior lienors. Banbury LP borrowed $18,675,000 from the Bank to settle on the purchase and, thus, Banbury LP obtained $2,375,000 of capital from sources other than the Bank in order to complete the purchase. Plaintiffs allege that Banbury LP also agreed to pay the Bank up to $3,479,038 in " 'additional yield' ... depending on the proceeds that Banbury LP derived from the Property in the future." In addition, the Bank loaned Banbury LP $1 million "to finance additional improvements to the Property."

The initial complaint was filed against all of the defendants in November 1991. Additional parties joined as plaintiffs in the first and second amended complaints. These complaints alleged that the defendants had been unjustly enriched by the labor and materials furnished by the plaintiffs for which the plaintiffs had not been paid, but which the defendants enjoyed in the form of enhanced value in Building F. In the course of the proceedings the Bank, in April 1992, was dismissed from the case. That judgment, however, was never certified as final, and it remained interlocutory. See Md.Rule 2-602. In November 1993 plaintiffs moved to vacate the judgment dismissing the Bank, and that motion, among others, was heard in December 1993.

At that hearing plaintiffs explained that the remaining defendants were asserting that they could not have been unjustly enriched by the plaintiffs' labor and materials because the public auction sale price conclusively determined the value of the Property. The plaintiffs wanted the Bank back in the case so that they could challenge the sale. The circuit court expressed skepticism concerning the possible success of that tactic ("When you buy at an auction on the courthouse steps how could you be unjustly enriched irrespective of what went on before? It's all wiped out."). The plaintiffs represented to the circuit court that they had information that Ammendale LP and the Bank had colluded for the purpose of wiping out the mechanics' liens and that the British Investors continued to own the Property. The circuit court postponed the impending trial of the action so that the plaintiffs could file a third amended complaint, and the court reinstated the Bank as a defendant.

In that amended complaint the plaintiffs added a new Count I alleging the following:

"28. The Foreclosure Sale was a sham conducted pursuant to collusion between the mortgagor and the mortgagee in order to cut off the mechanics' lien rights of MHR and plaintiffs. The British Investors, who owned and controlled Ammendale LP (the mortgagor), and NationsBank (the mortgagee) agreed in advance to the Foreclosure Sale, agreed on the price to be bid at the Foreclosure Sale, agreed that NationsBank would sell the Property back to the British Investors at that agreed price, and agreed that NationsBank would lend the British Investors the funds necessary to re-purchase the Property.

"29. The Foreclosure Sale was used by defendants as a mechanism to transfer the Property from one set of entities owned and controlled by the British Investors (Ammendale LP and ELV/Ammendale) to another set of entities owned and controlled by the British Investors (Banbury LP and Banbury Investment) in an attempt to avoid paying MHR and plaintiffs for the work done on Building F."

Plaintiffs also filed in the mortgage foreclosure action a motion to consolidate that action with the plenary civil suit. The purpose of the motion to consolidate...