Fid. First Home Mortg. Co. v. Williams

• Decision Date: 27 November 2012
• Docket Number: No. 726,Sept. Term, 2011.,726
• Citation: 208 Md.App. 180,56 A.3d 501
• Parties: FIDELITY FIRST HOME MORTGAGE COMPANY v. Charlene WILLIAMS.
• Court: Court of Special Appeals of Maryland

208 Md.App. 180

56 A.3d 501

FIDELITY FIRST HOME MORTGAGE COMPANY

v.Charlene WILLIAMS.

No. 726, Sept. Term, 2011.

Court of Special Appeals of Maryland.

Nov. 27, 2012.

Howard J. Schulman (Marie J. Ignozzi, Schulman & Kaufman, LLC, on the brief), Baltimore, MD, for Appellant.

Joseph M. Creed (Timothy F. Maloney, Joseph, Greenwald & Laake PA, on the brief), Greenbelt, MD, for Appellee.

Panel: DEBORAH S. EYLER, MATRICCIANI and RAYMOND G. THIEME JR. (Retired, Specially Assigned), JJ.

EYLER, DEBORAH, S., J.

In the Circuit Court for Prince George's County, Charlene Williams, the appellee, sued Fidelity First Home Mortgage Company, Inc. (“Fidelity First”), the appellant, a mortgage broker; and two former Fidelity First employees, James Fox and James Dan. She alleged, inter alia, that Fox and Dan engaged in a fraudulent foreclosure rescue scheme that caused her to lose title to and be deprived of the equity in her home. She further alleged that, as Fox's employer, Fidelity First was vicariously liable for fraud, breach of fiduciary duty, and violations of the Protection of Homeowners in Foreclosure Act (“PHIFA”), Md.Code (2003 Repl.Vol., 2006 Supp.), sections 7–301–7–321 of the Real Property Article (“RP”).¹ She also alleged that Fidelity First negligently supervised and/or retained Fox.²

The case was tried to a jury for three days. On the first day of trial, Williams voluntarily dismissed her claims against Fox and Dan, proceeding solely against Fidelity First. The court denied Fidelity First's motions for judgment at the close of Williams's case and at the close of all the evidence. The jury returned a verdict in favor of Williams on all counts, awarding her $70,000 in compensatory damages and $150,000 in punitive damages. Judgment was entered for $220,000.

Fidelity First timely moved for judgment notwithstanding the verdict (“JNOV”), and Williams moved for treble damages and attorneys' fees and costs. After a hearing, the court denied the JNOV motion and the motion for treble damages, but awarded Williams $80,034.50 in fees and $3,902.90 in costs.

Fidelity First noted an appeal, presenting five questions for our review, which we have reordered and rephrased:

I. Was the evidence legally sufficient to prove by a preponderance of the evidence that Fidelity First negligently hired and/or retained Fox?

II. Was the evidence legally sufficient to prove by a preponderance of the evidence that Fox was acting within the scope of his employment when he engaged in fraud, breaches of fiduciary duty, and violations of PHIFA?

III. Did the trial court err in allowing the jury to award punitive damages against Fidelity First solely on the basis of respondeat superior?

IV. Did the trial court err in allowing the jury to hold Fidelity First vicariously liable for Fox's violations of PHIFA?

V. Did the trial court err or abuse its discretion in its award of attorneys' fees?

For the reasons to follow, we conclude that the evidence was legally sufficient to support the verdicts and that there was no error or abuse of discretion by the court. Accordingly, we shall affirm the judgments of the circuit court.

FACTS AND PROCEEDINGS

Fidelity First, a Maryland corporation, is a licensed mortgage broker with its principal place of business on Bestgate Road in Annapolis. Daniel Eubanks is its president and sole owner.

At all relevant times, Fidelity First employed between eleven to fifteen loan officers, also known as loan originators. The loan officers were in direct contact with potential borrowers. They assisted potential borrowers in completing loan applications and collecting the necessary documentation to support their applications. They also evaluated each potential borrower's eligibility for a mortgage loan. In addition, the loan officers engaged in solicitation efforts to find potential borrowers and persuade them to refinance their mortgages through Fidelity First.

Each loan application went through two levels of review before being sent to a lender. First, a loan processor with Fidelity First reviewed it. Second, Eubanks personally reviewed it.

For each loan it closed with a lender Fidelity First received an origination fee. The fee was split between Fidelity First and the loan officer under a “tiered” commission schedule that took into account the amount of the origination fee and the loan officer's production record. Ordinarily, commissions ranged between 35% and 50%.

On August 25, 2003, Fidelity First hired James Dan as a loan officer. About five months later, on January 20, 2004, James Fox also was hired as a loan officer. The two men's desks were near each other and they became friends. According to Fox, Dan was his “mentor” at Fidelity First.

By his own admission, Dan was not a good “producer,” meaning that he did not successfully close many loans. He also was an active alcoholic. In October of 2004, he missed work because of his alcohol problem. At the end of 2004, he stopped coming to work entirely and was terminated from employment. After Dan completed an alcohol rehabilitation program, Eubanks agreed to rehire him. Dan continued to be a poor producer, however. On July 15, 2005, Eubanks told Dan that he needed to produce loans that brought in $15,000 in origination fees in the next 30 days or he would be fired. Forty-six days later, on August 31, 2005, Dan was terminated for “lack of production, forging pay history, [and] ordering own title.”

Unlike Dan, Fox quickly became an excellent producer and was rewarded with higher commission rates, maxing out at 55%. Fox also was caught forging documents, however, on at least three occasions. The first instance happened in December of 2004 and resulted in a reprimand. The second forgery occurred in July of 2005. It involved a loan application on which Fox was assisting Dan. This was the forgery mentioned as one of the reasons for Dan's termination. Fox's employment file reflects that he was given a “final warning” for this incident. Eight months later, in March of 2006, an underwriter for a lender discovered that a CPA letter in support of a loan application completed by Fox had been fabricated.³ As a result, the loan did not close. Fidelity First suspended Fox for one week for this transgression, but did not terminate him.

The foreclosure rescue scheme central to this case began about a year after Dan's termination from Fidelity First and while Fox still was employed there. Between April of 2006 and July of 2007, Fox, and, in some cases, Dan, were involved in at least eight foreclosure rescue transactions. The transactions followed the same basic pattern. Fox identified distressed homeowners who were unable to qualify for traditional mortgage refinancing due to poor credit, but who owned equity in their homes. He and sometimes Dan advised these homeowners that they could assist them in refinancing their mortgages by using Fox's or Dan's own credit. The homeowners were convinced that they could avoid losing their homes to foreclosure by selling their homes to Fox, Dan, or a straw buyer, but remaining in the properties as tenants. This purportedly would allow the homeowners to rehabilitate their credit ratings and eventually buy back their houses at a more favorable mortgage loan interest rate. (As we shall explain, however, the homeowners may or may not have understood that they were selling their homes.) Fox and Dan promised to pay the mortgages on the properties for six months to a year, at which time the homeowners would be able to re-acquire title to their properties.

To facilitate the property purchases, Fox, Dan, or a straw buyer would apply for and obtain mortgage loans in their own names. In at least three of the transactions, Fidelity First was the mortgage broker. The loan applications contained materially false representations with respect to the borrower's income, assets, and intent to occupy the home. In each transaction, the borrower represented that he or she would make a cash down payment, and the mortgage loans only covered a portion of the purchase price. In fact, as we shall discuss in more detail with respect to the Williams transaction, the seller's own proceeds from the sale of the property were used to cover the cash down payment. Fox and Dan pocketed the remaining proceeds.

The first two fraudulent transactions were carried out in April and June of 2006. In each transaction, Fox applied for and received a mortgage loan in his own name to use to purchase the distressed homeowner's property. Neither of these loans originated through Fidelity First.⁴ In each transaction, Fox, without the seller's knowledge, used the seller's own proceeds from the sale to cover his down payment and retained the remainder of the proceeds for himself. Ultimately, Fox did not pay on the mortgage loans and they went into default.

Charlene Williams was the homeowner in the third transaction, which took place in August of 2006. Williams grew up in the property, a house located at 1435 Eastern Avenue in Capital Heights. Her parents had owned the house free and clear. In 2003, Williams purchased the house from her father,⁵ who was the sole owner. Williams obtained a mortgage loan in the principal amount of $103,000. Her monthly payments were approximately $725 per month.

In 2005, Williams, who worked as a cashier at a grocery store, began having financial problems and ceased making her mortgage payments. Her lender initiated a foreclosure proceeding against her. On September 29, 2005, Williams filed for Chapter 13 bankruptcy, resulting in a stay of the foreclosure proceeding.

In February of 2006, Williams received a solicitation letter from Fidelity First. The letter stated, in pertinent part:

Our files indicate that you have an outstanding mortgage balance and that you have recently been dismissed from a Chapter 7 Bankruptcy.⁶ You have been pre-approved for a lower interest rate and/or debt consolidation. This could mean a savings of up to $500 or more per month. Please...