Mathews v. Cassidy Turley Md., Inc.
| Decision Date | 26 November 2013 |
| Docket Number | No. 51,51 |
| Parties | WILLIAM H. MATHEWS v. CASSIDY TURLEY MARYLAND, INC. ET AL. |
| Court | Court of Special Appeals of Maryland |
Maryland Securities Act - Definition of Security - Investment Contract. The definition of "security" in the Maryland Securities Act, Maryland Code, Corporations & Associations Article, §11-101(r), includes an "investment contract," which is understood to mean a contract, transaction, or scheme by which a person invests money in a common enterprise with the expectation of receiving profits derived from the entrepreneurial or managerial efforts of others. A tenant-in-common ("TIC") interest in commercial real estate that is sold to multiple investors under a contract that requires retention of an affiliate of the seller to manage the property and that otherwise restricts the investors' control over management of the investment is a "security" under the Act.
Maryland Securities Act - Cause of Action for Registration Violations - Limitations. The limitations period for bringing a private cause of action under the Maryland Securities Act for violation of registration provisions of the Act is not subject to tolling under the judicially-created discovery rule of Poffenberger v. Risser, 290 Md. 631, 431 A.2d 677 (1981), or under the fraudulent concealment provision of Maryland Code, Courts & Judicial Proceedings Article, §5-203.
Maryland Securities Act - Cause of Action for Violation of Anti-Fraud Provisions - Limitations. The limitations period for bringing a private cause of action under the Maryland Securities Act for violation of the anti-fraud provisions of the Act is not subject to tolling under the judicially-created discovery rule of Poffenberger v. Risser, 290 Md. 631, 431 A.2d 677 (1981), but may be tolled under the fraudulent concealment provision of Maryland Code, Courts & Judicial Proceedings Article, §5-203.
Limitations - Tolling of Common Law Causes of Action - Fraudulent Concealment. The period of limitations ordinarily applicable to a common law tort claim or breach of contract claim may be tolled under the fraudulent concealment provision of Maryland Code, Courts & Judicial Proceedings Article, §5-203, if affirmative fraudulent conduct of the defendant prevented the plaintiff from discovering the cause of action through the exercise of due diligence.
Summary Judgment - Appellate Review. When a circuit court grants summary judgment in favor of a defendant solely on the basis of limitations, an appellate court will not consider affirming that ruling on an alternative ground for which the circuit court had discretion to deny, or to defer a ruling on, a motion for summary judgment. In this case, the defendants' alternative ground for summary judgment - the absence of allegedly necessary expert testimony to establish the duty of care of a real estate broker - would require the Circuit Court to assess the nature of the duty alleged in the plaintiff's common law claims and the evidence proffered to establish a breach of that duty. In those circumstances, the CircuitCourt had discretion to deny, or to defer consideration of, the motion for summary judgment pending a fuller development of the facts. Accordingly, the Court of Appeals declines to consider on appeal the alternative ground for summary judgment that the Circuit Court did not adopt.
Evidence - Hearsay - Exception for Public Records and Reports - Catch-All Exception - Basis of Expert Testimony. A bankruptcy examiner's report filed in a bankruptcy proceeding concerning the seller of the investment that is the subject of a civil action in a circuit court is not admissible in the circuit court proceeding under an exception to the hearsay rule for "public records and reports" set forth in Maryland Rule 5-803(8) because a bankruptcy examiner is not a public officer or agency. However, the report - or portions of it - may be admissible under a catch-all exception to the hearsay rule, Maryland Rule 5-803(24), if the trial court finds that criteria of that rule are satisfied. In addition, the report - or portions of it - may be admissible for a limited purpose if reasonably relied upon by an expert witness to form an expert opinion admissible in the action under Maryland Rule 5-703.
Opinion by McDonald, J.
*Bell, C.J., now retired, participated in the hearing and conference of this case while an active member of this Court; after being recalled pursuant to the Constitution, Article IV, Section 3A, he also participated in the decision and adoption of this opinion.
It is sometimes the case that an individual bent on avoiding taxes exchanges the certainty of the tax liability for a risky, and perhaps fraudulent, investment that proves more costly in the long run. The instant litigation arises out of such a situation. We are asked to decide the nature of the investment - was it a "security" for purposes of application of the Maryland Securities Act? - and whether the long run was too long - are the claims barred by limitations? We also consider the potential use at trial of a bankruptcy examiner's report concerning the promoter of the investment scheme.
We hold that an investment that combined a tenant-in-common interest in commercial real estate with a mandatory management contract with the affiliate of the seller and only a limited ability for the buyers to effect a change of management of the property is an "investment contract" and therefore a security for purposes of the Maryland Securities Act. We affirm the Circuit Court's determination that the buyer's claims under the Securities Act are barred by limitations insofar as they relate to registration under the Act. We reverse the court's determination that the buyer's claims under the Act that relate to alleged fraud and misrepresentation by the defendants are barred by limitations and remand for further consideration whether the limitations period as to those claims was tolled by affirmative fraudulent conduct of the defendants. For a similar reason, we also reverse and remand for reconsideration the Circuit Court's judgment that the buyer's common law tort claims are time-barred as a matter of law. We decline to affirm the award of summary judgment on an alternative ground that the Circuit Court did not adopt. Finally, we affirm the Circuit Court's decision to reserve judgment on the admissibility and use of a bankruptcy examiner's reportuntil it had additional information concerning the proposed use of the report in the context of the trial.
Except as otherwise indicated below, the following facts are undisputed in the record of this case, although the parties have some differences as to immaterial details and as to the inferences that may be drawn from these facts.
In 2003, Petitioner William H. Mathews, a retired school teacher and librarian, had owned and managed his rental properties for more than 40 years. At that time, he owned eleven rental properties near the campus of Towson University; he rented those properties primarily to students and faculty at the university. In response to anticipated deleterious changes in local zoning laws, Mr. Mathews decided to sell the properties. Ultimately, he was referred to Stephen Weiss, a real estate professional. Mr. Weiss was then employed by W. C. Pinkard & Co., the predecessor in interest to Respondent Cassidy Turley Maryland, Inc. ("Cassidy Turley").1 Mr. Mathews retained Cassidy Turley to market the properties, and in August 2004 the properties were sold to Bob Ward Companies for approximately $4 million. Mr. Mathews paid approximately $176,000 to Cassidy Turley as a commission.
In order to receive more favorable tax treatment of the proceeds of the sale, Mr. Mathews sought to re-invest the proceeds in other real estate shortly after the sale. With Mr. Weiss' advice, Mr. Mathews ultimately used much of the proceeds to purchase five fractional interests in various commercial office buildings located throughout the United States.2 These fractional interests were called "Tenants in Common Interests" ("TICs"). Mr. Weiss provided Mr. Mathews with binders containing various documents that described the particular TICs under consideration.
Each of the TICs in question was created by a company called DBSI, Inc., located near Boise, Idaho, or an affiliated company. The structure of the TICs are set forth in various written agreements and other materials. DBSI would purchase real estate, typically an office building, and divide it into TICs that it would then sell to investors. Investors in the TICs were required, as a condition of the purchase, to agree to retain DBSI3 as property manager,4in return for which DBSI promised a specified annual rate of return on the investment. DBSI would locate sub-tenants who would occupy the property and pay the rent that produced a revenue stream. Under the property management agreement, replacement of DBSI as property manager required a majority vote of all TIC owners of a given piece of property, as well as indemnification of DBSI against any and all claims, actions, costs, damages, liabilities, deficiencies or expenses relating to the property. In the event that DBSI was terminated as property manager, a unanimous vote by the TIC owners was required to appoint a new manager. Under the terms of a TIC agreement, there was no provision for direct control of the property by the TIC owners.
Mr. Mathews received steady payments with respect to his TICs over the next few years and sold one of them.5 However, in 2008, things changed.
In 2008, Mr. Mathews learned that DBSI would be suspending payments for certain of the TICs. Mr. Mathews then contacted Mr. Weiss, who, according to Mr. Mathews,assured him that payments would resume and that he should not worry.6 In November 2008, DBSI...
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