Hector v. Bank of N.Y. Mellon

• Decision Date: 27 May 2021
• Docket Number: No. 10, Sept. Term, 2020,10, Sept. Term, 2020
• Citation: 251 A.3d 1102,473 Md. 535
• Parties: Ashley HECTOR, et al. v. BANK OF NEW YORK MELLON
• Court: Court of Special Appeals of Maryland

473 Md. 535

251 A.3d 1102

Ashley HECTOR, et al.

v.BANK OF NEW YORK MELLON

No. 10, Sept. Term, 2020

Court of Appeals of Maryland.

May 27, 2021

Reconsideration Denied July 9, 2021

Argued by Alan J. Mensh (Ashcraft & Gerel, LLP, Baltimore, MD), on brief for Petitioners.

Argued by Melissa O. Martinez and Ava E. Lias-Booker (Emily M. Patterson, McGuireWoods LLP, Baltimore, MD), on brief for Respondent.

Argued before: Barbera, C.J., McDonald, Watts, Hotten, Getty, Booth, Biran, JJ.

Biran, J.

As young children, Petitioners Ashley Hector and Alyaa Hector (collectively, the "Hectors") lived with their parents in a rowhouse in Baltimore City that contained lead-based paint. While the Hector family lived in the home, the paint chipped in several rooms, including Ashley's and Alyaa's bedroom. Blood tests taken in January 2002 – after the Hector family had lived in the home for approximately one year – revealed that both girls had elevated levels of lead in their bodies. The Hector family moved out of the home in the spring of 2002.

The Hector family's landlord, Sharlene Epps-Smith, had taken out a mortgage on her interest in the property. That mortgage subsequently was bundled with many others and became part of, and owned by, a residential mortgage backed securitization trust. The trustee of this trust was the Bank of New York, which is now known as the Bank of New York Mellon ("BNYM"), the Respondent in this case.¹ On December 27, 2001, following Ms. Epps-Smith's default on the mortgage, BNYM as Trustee caused Ms. Epps-Smith's interest in the property to be sold at foreclosure; BNYM as Trustee was the purchaser. On February 5, 2002, the Circuit Court for Baltimore City ratified the foreclosure sale to BNYM as Trustee.

In June 2016, the Hectors (through their father) filed an Amended Complaint in the Circuit Court for Baltimore City against BNYM in its individual capacity, in which they claimed that BNYM's negligence while serving as Trustee resulted in their lead poisoning. The Hectors alleged that they suffered severe and permanent brain damage as a result of their exposure to lead.

After discovery was concluded, the circuit court granted summary judgment to BNYM on the ground that the Hectors had erroneously named BNYM in its individual capacity, as opposed to its fiduciary (trustee) capacity. On appeal, the Court of Special Appeals held that BNYM could theoretically be liable in its individual capacity for a tort it committed while serving as the Trustee. Although the intermediate appellate court thus disagreed with the circuit court's reason for ruling against the Hectors, it affirmed the circuit court's judgment on another ground: that the Hectors had failed to produce facts from which the trier of fact could conclude that BNYM was personally at fault for the failure to properly maintain the property. The Hectors petitioned this Court for further review.

We agree with the Court of Special Appeals that (1) a trustee may be held individually liable for a tort committed in the course of trust administration, if (2) the trustee is personally at fault. We affirm the Court of Special Appeals on these points. However, contrary to the Court of Special Appeals, we conclude that the Hectors satisfied their burden at summary judgment as to BNYM's personal fault by producing facts from which a jury could find that BNYM breached a duty it owed to the Hectors under the Baltimore City Housing Code as the "owner" of the property. Thus, we will reverse the judgment of the Court of Special Appeals and remand this case to the circuit court for further proceedings.

IBackground

A. Facts

A review of the evidence in the summary judgment record in the light most favorable to the Hectors reveals the following facts:

1. Ms. Epps-Smith's Interest in 447 North Linwood Avenue

On September 30, 1999, Intercoastal Investment Trust ("Intercoastal") purchased a two-story rowhouse located at 447 North Linwood Avenue in Baltimore City (the "Property") for $15,000. That same day, Sharlene Epps-Smith² entered into a 99-year lease agreement with Intercoastal, whereby Ms. Epps-Smith agreed to pay Intercoastal a lump sum of $60,000 and to make an annual rent payment of $96.00.³

In addition, on the same date, Ms. Epps-Smith executed a Purchase Money Deed of Trust for $54,000 secured by her interest in the Property. The original beneficiary of this deed of trust was First Equity Mortgage, Inc., which was defined in the document as "Lender." Among other provisions, the deed of trust stated that Ms. Epps-Smith, as the "Borrower," "shall have possession of the Property until Lender has given Borrower notice of default[.]"

The rowhouse at 447 North Linwood Avenue was built in 1900 and contained lead-based paint.

2. The Securitization of Ms. Epps-Smith's Mortgage

On December 1, 1999, BNYM as Trustee, together with CWMBS, Inc. ("CWMBS") and Indymac, Inc. ("Indymac"), created a special purpose vehicle in the form of a trust, known as Residential Asset Securitization Trust 1999-A9 Mortgage Pass-Through Certificates, Series 1999-I (the "Trust"). This kind of trust (often called a residential mortgage backed securitization trust) serves as a repository for loans and to hold mortgage collateral and other contract rights for its owners, who are the certificateholders and who hold a beneficial interest in the trust. At the time the Trust was created, BNYM as Trustee executed a Pooling and Servicing Agreement ("PSA") establishing and governing the rights and responsibilities of the parties in the administration of the Trust. The other parties to the PSA were CWMBS as the "Depositor" and Indymac as the "Seller" and "Master Servicer." Among other things, the PSA set forth the scope of BNYM's duties as Trustee, as well as its liabilities to the Trust.

Along with many other mortgage instruments, Ms. Epps-Smith's mortgage on her leasehold interest in the Property became a part of, and owned by, the Trust.

3. Ms. Epps-Smith's Default on the Mortgage and the Foreclosure Proceedings

Ms. Epps-Smith quickly defaulted on her mortgage, only paying a total of $348.30. In November 2001, BNYM as Trustee caused a foreclosure action to be filed in the Circuit Court for Baltimore City. On November 21, 2001, BNYM as Trustee appointed the substitute trustees to initiate the foreclosure action and conduct the sale. The substitute trustees filed the papers docketing the foreclosure action in the Circuit Court on November 26, 2001. An auction went forward on December 27, 2001, at which time BNYM as Trustee purchased Ms. Epps-Smith's leasehold interest in the Property. A judge of the Circuit Court signed an order ratifying the sale on February 5, 2002.

BNYM as Trustee filed a motion for possession with respect to the Property on March 11, 2002. The circuit court granted the motion for possession on August 15, 2002.

A deed conveying the leasehold interest in the Property to BNYM as Trustee was recorded in Baltimore City's land records on May 23, 2003.

4. The Hector Family's Rental of the Property and the Hectors’ Exposure to Lead-Based Paint

The Hector family rented the Property as tenants of Ms. Epps-Smith beginning in late 2000 or early 2001, and ending at some point in the spring of 2002. The family included Ashley and Alyaa, twin sisters born in September 1997, and their parents, Lamont and Danielle Hector. Mr. and Mrs. Hector interacted primarily with Daniel Smith, the brother of Ms. Epps-Smith, regarding the upkeep of the Property.

Prior to the Hectors moving into the Property, Mr. Smith painted the interior of the house. Within approximately a month or two of moving in, Mr. and Mrs. Hector noticed paint chipping on the walls in the children's bedroom, kitchen, and master bedroom. After they complained about the chipping paint, Mr. Smith repainted.

Three to four months later, Mr. and Mrs. Hector noticed the paint chipping again and alerted Mr. Smith to the problem. However, Mr. Smith did not repaint again. In response, the Hectors withheld rent. Mr. Smith filed a landlord/tenant action in the summer of 2001 for unpaid rent, but failed to appear for court. However, according to Mr. Hector, a representative of the bank "that foreclosed on the Property" attended the court proceeding. That representative, who Mr. Hector thought was from "New York Bank," informed Mr. Hector of the foreclosure proceedings and said that Mr. Smith should not be attempting to rent out the Property or to collect rent. On another occasion, a different representative of "the bank" came to the Property and informed Mr. Hector that: (1) the bank "actually owned the [P]roperty"; (2) the "house was foreclosed on"; (3) no one was supposed to be in the Property; (4) the bank had tried to turn the water off but could not do so because the Property was occupied; and (5) the bank was going to file for an eviction.

Blood tests taken on Ashley and Alyaa Hector on January 7, 2002, revealed that both children had elevated lead levels. The Hectors’ test results prompted an inspection by the Baltimore City Health Department on or about March 7, 2002, which led to the issuance of a violation notice to Ms. Epps-Smith on March 13, 2002, and an emergency violation notice and order on April 2, 2002 to Mr. Smith to remove the "lead nuisance" from the property. The Hectors voluntarily vacated the Property in the spring of 2002.

B. The Hectors’ Lawsuit

1. Complaint

On April 27, 2016, the Hectors (through their father) filed a Complaint against Ms. Epps-Smith and Mr. Smith in the Circuit Court for Baltimore City, seeking damages for injuries related to lead-paint poisoning. On June 10, 2016, the Hectors filed an Amended Complaint adding BNYM as a defendant. The Amended Complaint consisted of three counts, each for negligence against one of the named defendants, alleging severe and permanent brain damage as a result of lead poisoning. With respect to BNYM in Count III, the Hectors alleged, among other things:

For that all [sic] of the time mentioned herein the

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