Diamond Point v. Wells Fargo

• Decision Date: 23 August 2007
• Docket Number: No. 128, Sept. Term, 2006.,No. 126, Sept. Term, 2006.,126, Sept. Term, 2006.,128, Sept. Term, 2006.
• Citation: 929 A.2d 932,400 Md. 718
• Parties: DIAMOND POINT PLAZA LIMITED PARTNERSHIP, et al. v. WELLS FARGO BANK, N.A. Wal-Mart Stores, Inc. and Sam's PW, Inc. v. Wells Fargo Bank, N.A.
• Court: Court of Special Appeals of Maryland

929 A.2d 932

400 Md. 718

DIAMOND POINT PLAZA LIMITED PARTNERSHIP, et al. v. WELLS FARGO BANK, N.A.

Wal-Mart Stores, Inc. and Sam's PW, Inc. v. Wells Fargo Bank, N.A.

No. 126, Sept. Term, 2006.

No. 128, Sept. Term, 2006.

Court of Appeals of Maryland.

August 23, 2007.

Reconsideration Denied September 7, 2007.

Benjamin Rosenberg (Gerard P. Martin, Andrew H. Baida and Shannon M. Chilcoate of Rosenberg, Martin, Greenberg, L.L.P. of Baltimore, MD; C. William Clark and Robert L. Hanley, Jr. of Nolan, Plumhoff & Williams, Chtd. of Townson, MD), on brief, for Petititoners (case no. 126).

K. Donald Proctor (Margaret M. McKee of Proctor & McKee, P.A. of Townson, MD; Jeff Joyce of Winstead P.C., of Houston, Texas), on brief, for Respondent (case no. 126).

Donald A. Rea (Michelle N. Lipkowitz of McGuire Woods, L.L.P. of Baltimore, MD), on brief, for Petitioners/Cross-Respondents (case no. 128).

Jeff Joyce (Winstead P.C. of Houston, Texas; K. Donald Proctor, Margaret M. McKee of Proctor & McKee, P.A. of Townson, MD), on brief, for Respondent/Cross-Petitioner, (case no. 128).

Argued Before BELL, C.J., and RAKER, CATHELL^* HARRELL, BATTAGLIA, GREENE, WILNER, ALAN M. (Retired, Specially Assigned), JJ.

ORDER

ROBERT M. BELL, Chief Judge.

The Court having considered motions for reconsideration filed in the above-captioned cases, it is this 23rd day of August, 2007,

ORDERED, by the Court of Appeals of Maryland, that the motions for reconsideration be, and they are hereby, granted, and it is further

ORDERED that the Opinion in these appeals filed on July 26, 2007, be, and it is hereby, recalled and a new Opinion dated August 23, 2007, filed simultaneously with this Order, shall replace the Opinion filed July 26, 2007.

WILNER, J.

This litigation arose when, in November, 2002, Diamond Point Plaza Limited Partnership (Diamond Point), the owner of the Diamond Point Plaza shopping center in eastern Baltimore County, defaulted on a mortgage loan that was secured by the shopping center property. Wells Fargo Bank, as trustee for the assignees of the mortgage, sued two sets of defendants: Michael C. Konover and entities in which he had some interest, including Diamond Point, and Wal-Mart Stores, Inc. and entities affiliated or associated with it.¹ received rents from Diamond Point that should have been paid over to Wells Fargo.

The actions against the Konover defendants, pled in Counts 1 through 6, were to recover losses sustained on the mortgage loan and certain rents collected from shopping center tenants. The action against the Wal-Mart defendants, pled in Counts 7 through 12, was to recover damages for alleged lease violations by Sam's Club, a major tenant of the shopping center, and lease violations and tortious conduct by Wal-Mart itself. On August 15, 2005, following a non-jury trial and certain earlier rulings, including a partial summary judgment in favor of the Wal-Mart defendants, the Circuit Court for Baltimore County filed extensive written findings of fact and conclusions of law. On December 5, 2005, based on those findings, the court entered three sets of judgments in the case, as follows:

(1) With respect to the claim for losses sustained on the mortgage loan, the court entered judgment in favor of Wells Fargo and jointly and severally against Diamond Point, Oriole, DPMC, and KMC in the amount of $22,862,399, representing the total loan debt as of April 4, 2005, plus pre-judgment interest of $811,931, accounting from April 5, 2005.² The judgment against all defendants but KMC was for intentional misrepresentation and gross negligence. The judgment against KMC was based on its status as guarantor of recourse obligations. Those judgments would be credited with any proceeds that might be recovered in any foreclosure sale of the shopping center property.

(2) With respect to Wells Fargo's claim for the misapplication of rents collected from Diamond Point Plaza tenants, the court entered three judgments against Konover defendants: one in the amount of $633,000 jointly and severally against Diamond Point, Oriole, DPMC, and KMC, together with pre-judgment interest in the amount of $104,466; a second, also for $633,000, against Michael Konover personally; and a third against American Way for $243,500 plus $40,190 in pre-judgment interest.

(3) With respect to the violation of lease restrictions by Sam's Club and Wal-Mart, the court entered two judgments in favor of Wells Fargo against the Wal-Mart defendants, one for $56,260, and one for $1,250,000. The judgment for $56,260 was based on the violation of a radius restriction in the Sam's Club lease occasioned by the opening of a Sam's Club store in Port Covington. The judgment for $1,250,000 was for violation of a different restriction in the Sam's Club lease, limiting the use of the store to retail sales. In an earlier partial summary judgment in favor of Wal-Mart, the court had held that the opening of another Sam's Club store in Golden Ring Mall did not constitute a violation of the radius restriction. Those judgments have been paid and are not at issue in this appeal.

The court denied attorneys' fees sought by Wells Fargo against the various defendants.

In cross-appeals, the Court of Special Appeals affirmed the judgments against the Konover defendants but, after concluding that the radius restriction in the Sam's Club lease was ambiguous, vacated the judgment against the Wal-Mart defendants and remanded for further proceedings, both as to liability for violation of that restriction based on the opening of a Sam's Club store at Golden Ring Mall and for the assessment of attorneys' fees. Wells Fargo v. Diamond Point, 171 Md. App. 70, 908 A.2d 684 (2006). We granted cross-petitions for certiorari to consider the following four issues, which, for simplicity, we have restated to some extent:

(1) Whether the Circuit Court erred in finding personal liability on the part of the Konover defendants for losses sustained by Wells Fargo on the mortgage loan. That hinges, to a large extent, on whether the court erred in finding that those defendants had committed intentional misrepresentation or gross negligence in failing to disclose to the mortgage lender that Sam's Club intended to vacate its store in the shopping center and whether that failure to disclose was a proximate cause of the loss.

(2) Whether the Circuit Court erred in concluding, through a partial summary judgment, that the radius restriction in the Sam's Club lease was unambiguous and finding that the opening of a Sam's Club store in Golden Ring Mall on August 1, 2002, did not constitute a violation of that restriction.

(3) Whether the Circuit Court erred in finding liability for the diversion of $633,000 in rents that had allegedly been collected from tenants before Diamond Point's default in November, 2002.

(4) Whether the Circuit Court erred in declining to award attorneys' fees to Wells Fargo.

We shall affirm the judgment of the intermediate appellate court with respect to the Diamond Point and Konover defendants but vacate in part that court's judgment with respect to the Wal-Mart defendants. We disagree with the conclusion of the Court of Special Appeals that the radius restriction in the Sam's Club lease was ambiguous. We agree, however, that the case must be remanded for reconsideration of attorneys' fees.

I. BACKGROUND

The Diamond Point Plaza shopping center was developed in 1988. It was owned by Diamond Point and, until November 26, 2002, was managed by KMC. The shopping center consists of three buildings comprising just over 251,000 square feet. The largest building, containing nearly 142,000 square feet, was originally leased to Makro, Inc. and used as a Pace Membership Warehouse store. In 1994, Wal-Mart acquired the Pace Membership Warehouse chain of stores, and, pursuant to that acquisition, Makro's interest in the Diamond Point Plaza lease was assigned to Sam's PW, a Wal-Mart affiliate, for use as a Sam's Club. The 20-year lease ran through January, 2009, subject to the tenant's option to extend. For convenience, we shall refer to that lease as the Sam's Club lease. The second building, containing about 78,000 square feet, was leased to Ames Department Stores. That lease was also for 20 years and was to run through April, 2009. Sam's Club and Ames were the anchors for the shopping center. The third building, comprising about 32,000 square feet, was for smaller storefront tenants, each of whom leased less than 5,000 square feet.

Article 8(A) of the Makro/Sam's Club lease required the tenant to continuously operate the demised premises as a Makro store for a period of one year from the date of opening. It then provided that "[t]hereafter, Tenant shall not be required to operate any business within the demised premises, but if Tenant is open for business the demised premises shall only be used for lawful retail and shopping center purposes. . . ."

Article 4 of the lease dealt with the annual rent due under the lease. It provided for a fixed base rent per square foot of chargeable floor area and for an additional rent equal to 0.75% of annual gross sales in excess of $75 million from the demised premises. Two provisions in Article 4 are especially pertinent. Section (G) provided that, subject to other provisions of the lease, Sam's Club had the right "to determine how any store on the demised premises is to be operated, and to discontinue the operation of any such store, and to operate stores in other locations which are in competition with any such store." It is uncontested that, even if Sam's Club opted to discontinue the operation of its store in accordance with Articles 4 or 8, it would still be liable for the base rent through the term of the lease. Section (H) provided, in relevant part, that the tenant "shall not, during the term of this lease, own, operate, manage or have any financial interest in, any store or business located within a radius of seven (7) miles from the...