Chaires v. Chevy Chase Bank

• Decision Date: 10 March 2000
• Docket Number: No. 739,739
• Parties: William M. CHAIRES v. CHEVY CHASE BANK, F.S.B., et al.
• Court: Court of Special Appeals of Maryland

748 A.2d 34

131 Md. App. 64

William M. CHAIRES v. CHEVY CHASE BANK, F.S.B., et al.

No. 739, Sept. Term, 1999.

Court of Special Appeals of Maryland.

March 10, 2000.

Edward J. Lilly (John B. Bratt and the Law Offices of Peter G. Angelos, on the brief), Baltimore, for appellants.

David J. Cynamon (Darryl G. McCallum and Shaw Pittman, Washington, DC, F. Robert Troll, Jr. and O'Malley, Miles, Nylen & Gilmore, P.A., on the brief), Calverton, for appellees.

Argued before DAVIS, THIEME and KENNEY, JJ.

KENNEY, Judge.

In June 1988, William and Laurie Chaires executed a promissory note and Deed of Trust securing a $350,000 loan from B.F. Saul Mortgage Company ("Saul"), a wholly owned subsidiary of Chevy Chase Bank, F.S.B. ("Chevy Chase"), appellees. This note was later assigned to Chevy Chase. In May 1995, the Chaireses brought suit against Chevy Chase and Saul, alleging illegal conduct by charging loan fees in excess of those permitted under Maryland's Secondary Mortgage Loan-Credit Provisions Law ("SMLL"), codified in Md.Code Ann. (1975, 1990 Repl.Vol.), § 12-401 et seq. of the Commercial Law Article ("C.L.").

The circuit court entered final judgment in favor of the Chaireses. Prior to consideration of the matter by this Court, the Court of Appeals issued a writ of certiorari on their own motion. The Court of Appeals held that a statutory lien on the Chaireses' waterfront property was a lien of prior encumbrance and that the Chaireses' loan was a second lien subject to SMLL. Because Mr. Chaires failed to disclose this prior lien on the property while acting as attorney for all parties to the loan, however, the Chaireses were estopped from asserting SMLL claims. See, Chevy Chase Bank, F.S.B. v. Chaires, 350 Md. 716, 715 A.2d 199 (1998) ("Chaires I").

On September 22, 1997, the Chaireses initiated this suit against Chevy Chase alleging that it continued to impose illegal loan fees after the decision in Chaires I and that such actions constituted unfair and deceptive trade practices and harassment. The Chaireses claimed that, in light of the holding of Chaires I, appellees had actual knowledge, independent of any involvement by Mr. Chaires, that the loan was subject to the SMLL and yet continued to impose illegal charges. The Chaireses amended their complaint on November 19, 1997 and August 3, 1998 to add Jerry and Patricia Nelson¹ and Hillman Foster² as additional plaintiffs in the suit, and also added Saul and the First National Bank of Chicago as defendants.

Chevy Chase and Saul filed a motion for summary judgment, arguing that federal law preempted any state law violations, that the Chaireses were estopped from arguing state law violations under Chaires I, and that the Nelsons were barred based on res judicata. The trial court, in a written opinion dated October 9, 1998, granted their motion for summary judgment. While recognizing the Court of Appeals' ruling in Chaires I, the trial court found that the federal preemption issue was not addressed. The trial court held that Chevy Chase was a federal savings and loan institution subject to the federal regulations. The trial court further found that the federal regulations, specifically the Office of Thrift Supervision ("OTS") regulations, conflicted with SMLL and Maryland's Credit Grantor Closed End Credit Provisions³ ("CECP"), and held that "OTS federal regulation preempts the charges to the extent they are not allowed by the CECP or SMLL." The trial court also found that the Foster and Nelson loans were first mortgages and therefore subject to the federal Depository Institution Deregulation and Monetary Control Act ("DIDMCA"), as codified in 12 U.S.C. § 1735f-7, which also preempted state usury laws concerning "federally related" first mortgages on residential property.

Additionally, the trial court found that the Chaireses were barred from recovery based on estoppel grounds as discussed in Chaires I, and that the Nelsons were similarly barred by res judicata based on prior foreclosure proceedings. A foreclosure action had been previously instituted against the Nelson property, whereby the Nelsons, through their attorney, Mr. Chaires, filed exceptions, alleging that Chevy Chase violated "Maryland's Commercial Law Article generally, Title 10 specifically." Chevy Chase responded to the exceptions, raising the issue of federal preemption. Without discussion, the Circuit Court for Anne Arundel County overruled the Nelsons' exceptions and ratified the sale ("Final Order Ratifying Sale"). The trial court in this action found that the Final Order Ratifying Sale was an unappealed adjudication that barred further litigation on the preemption issue.

Although the trial court's entry of summary judgment was originally entered in favor only of Chevy Chase, the trial court subsequently entered a Final Order in which it granted summary judgment in favor of Chevy Chase and B.F. Saul for all claims.⁴ The Chaires, the Nelsons, and Foster, appellants, filed a timely notice of appeal presenting the following questions, which we have re-ordered and slightly rephrased:

I. Did the trial court err in ruling the Chaireses were estopped from pursuing claims for violations of the SMLL after the Court of Appeals decision in Chaires I?

II. Did the trial court err in granting summary judgment in favor of Chevy Chase and B.F. Saul as to the Nelsons based on res judicata?

III. Did the trial court err in granting summary judgment in favor of Chevy Chase and B.F. Saul on the issue of federal preemption?

IV. Did the trial court err in granting summary judgment in favor of Chevy Chase and B.F. Saul on the issue of federal preemption because it failed to consider the circumstances surrounding the individual loans and whether they were preempted by the federal regulations?

V. Did the trial court abuse its discretion in refusing to allow appellants the opportunity to conduct discovery prior to the resolution of the summary judgment motion?

DISCUSSION

I.

Appellants argue that the trial court erred in ruling that the Chaireses were estopped from asserting that appellees violated the SMLL. They contend that, by virtue of the holding in Chaires I, appellees were aware that they were subject to SMLL and thereby had actual knowledge that their activity was illegal.⁵

In support of their claim, the Chaireses assert that the trial court's ruling "is contrary to both the law governing the doctrine of estoppel and the facts of this case." They argue that the trial court's holding "fails to recognize that the present litigation is founded upon a different factual predicate than was Chaires I." We disagree.

In Chaires I, the Court of Appeals found that the Chaireses were estopped from asserting that Chevy Chase violated the SMLL, based on Mr. Chaires's actions as borrower, settlement attorney for the lender, settlement attorney for himself and his wife as borrowers, and as the agent for the title insurer. The Court found that there was a conflict of interest and his failure to disclose the existence of the prior shore lien on the property to the lender constituted inadequate disclosure, causing Chevy Chase to obtain a second rather than a first lien on the property. In finding that such acts estopped him from arguing Chevy Chase violated the SMLL, the Court of Appeals held:

In the matter now before us the loan from B.F. Saul originated as one in the regular course of its business, but it deviated from that course. B.F. Saul furnished closing instructions to its settlement attorney, and the loan would have been one in ordinary course had those instructions been followed. The obstruction was the Shore Lien. Having in hand closing instructions that called for the documents necessary to effect a first lien, Mr. Chaires did not fulfill his obligation of disclosure by relying on the reference to the Shore Lien in the commitment for title insurance. Nor could he treat that reference as having generated the client's acquiescence in closing the transaction with the prior Shore Lien still in effect, particularly when the closing instructions directed elimination of the exception for the Shore Lien, as well as of the exception for any and all liens. As attorney for the lender in the transaction, it was Mr. Chaires's duty, at a minimum, to bring the obstacle of the Shore Lien to the direct attention of an appropriate representative of B.F. Saul so that the lender could consider its options....

We assume, most favorably to the plaintiffs, that Mr. Chaires either failed to look at the SECL or attempted to write the policy around it in the hope that that would be acceptable to B.F. Saul. Chevy Chase concedes that the assertion by the Chaireses of claims under SMLL was the result of afterthought and not part of a plot at the time the loan was made. Nevertheless, estoppel does not require that the persons estopped intend the detriment that flows from their conduct.

Here, Mr. Chaires knew that the Loudon Lane property was subject to the Shore Lien. The estoppel results from the actual, and not simply potential, conflict existing when the loan was made. That lien secured a no interest loan from DNR on which, by Mr. Chaires's estimate, $15,000 to $17,000 remained to be paid as of the time of the B.F. Saul Loan. Thus, in addition to some $6,000 in fees and closing costs that the Chaireses would have to pay in order to borrow the $350,000 to repay Queenstown Bank, the Chaireses would have to produce an additional $15,000 to $17,000 in order to satisfy the objectives of Mr. Chaires's client, should the client decide not to make the loan unless the Shore Lien was released. This conflict of interests places Mr. Chaires in a position where, whether intentionally or not, his inadequate disclosure in violation of his duty to the client operated for his benefit and that of Mrs. Chaires.

* * *

Public policy is also invoked by the Chaireses who submit that estoppel cannot be applied to bar a claim based upon a statute

...