Tower Oaks Boulevard, LLC v. Procida

• Decision Date: 02 October 2014
• Docket Number: No. 2459, Sept. Term, 2012.,2459, Sept. Term, 2012.
• Parties: TOWER OAKS BOULEVARD, LLC v. Brent W. PROCIDA, et al., Substitute Trustees.
• Court: Court of Special Appeals of Maryland

219 Md.App. 376

100 A.3d 1255

TOWER OAKS BOULEVARD, LLC

v.Brent W. PROCIDA, et al., Substitute Trustees.

No. 2459, Sept. Term, 2012.

Court of Special Appeals of Maryland.

Oct. 2, 2014.

Christopher C. Fogleman (Erin Schiesel, William J. Chen, III, Gleason, Flynn, Emig & Fogleman, Chartered, on the brief), Rockville, MD, for appellant.

Brent W. Procida (Laura S. Bouyea, Venable, LLP, on the brief), Baltimore, MD, for appellee.

Panel: DEBORAH S. EYLER, NAZARIAN and JAMES P. SALMON (Retired, Specially Assigned), JJ.

Opinion

EYLER, DEBORAH S., J.

Tower Oaks Boulevard, LLC (“Tower Oaks”), the appellant, is a Virginia limited liability company that owned commercial real estate located at 2701 Tower Oaks Boulevard, in Rockville (“the Property”). 2701 Tower Oaks Boulevard Holdings, LLC (“TOB Holdings”) held a deed of trust against the Property. Brent W. Procida and Laura S. Bouyea, the appellees, were appointed by TOB Holdings as substitute trustees under the deed of trust.

On October 22, 2012, in the Circuit Court for Montgomery County, the substitute trustees commenced an action against Tower Oaks to foreclose on the deed of trust for the Property. Tower Oaks filed a motion to stay and dismiss. The court granted a temporary stay but, after an evidentiary hearing, lifted the stay and denied the motion. Tower Oaks noted this interlocutory appeal, in which it asks whether the court's ruling was in error. We shall affirm the order.

FACTS AND PROCEEDINGS

On March 19, 2007, TOB, Inc., an entity related to Tower Oaks, borrowed $9.1 million dollars from CWCapital, LLC (“CW”), and executed a promissory note guaranteed by Tower Oaks. (Unless it is necessary to do otherwise, we include TOB, Inc., when we reference Tower Oaks.) As security for the loan, Tower Oaks granted CW a deed of trust against the Property. The promissory note and the deed of trust were assigned several times to various lenders, the last of which was TOB Holdings.

The sole Member of Tower Oaks is Oak Plaza, LLC (“Oak Plaza”), a Maryland limited liability company. Oak Plaza's Operating Agreement states that its purpose is “to acquire and hold all outstanding membership interests in Tower Oaks LLC and, through Tower Oaks LLC, to buy, sell, own, hold, develop, lease, manage, subdivide, and otherwise deal in and with the ... Property and to do any and all things necessary, convenient, or incidental to that purpose.”

Oak Plaza was formed on January 11, 2001. Its original Members were five siblings in the Buckingham family, who owned the following percentages of the company: Thomas and Daniel, 26% each; and Susan, Richard, and David, 16% each. Their father, John Buckingham, was designated the Manager of the company in the Operating Agreement, but was not a Member. An amendment to the Operating Agreement in February of 2007 made John a Member, with a 1% interest. The other Members' interests were reduced accordingly (Thomas and Daniel, 25.8% each; Susan, Richard, and David, 15.8% each).

John also was the Manager of Tower Oaks under its Operating Agreement. For many years, he managed both companies. As we shall discuss below, the Tower Oaks Operating Agreement authorizes its Manager to carry out the business of the company but requires that “Major Decisions” be made “by written instrument of Members representing a majority of Membership Interests.” Among these “Major Decisions” is any decision “to compromise, settle or submit to arbitration, and to institute, prosecute, and defend any and all actions in favor of or against [Tower Oaks] or relating to its businesses.”

The Oak Plaza Operating Agreement, by contrast, gives the Manager extremely broad authority and discretion to act on behalf of the company and make decisions affecting it. That Operating Agreement contains a succession plan for the position of Manager. The plan provides that John will act as Manager until his death or resignation, at which time Thomas, Daniel, and Elizabeth Buckingham (John's wife and the mother of the siblings) “shall jointly become the Manager (with all Manager decisions to thereafter be made by majority vote of these three (3) individuals, or in such other manner as they may among themselves determine to be appropriate.).” (The Manager of Oak Plaza need not be a Member.)

John developed dementia and became unable to function mentally. On January 13, 2011, the Circuit Court for Montgomery County issued an order appointing Elizabeth and David co-guardians of John's person and David guardian of his property, without limitation. David's guardianship authority included the power to act in John's stead as Manager of Tower Oaks and Manager of Oak Plaza.

Tower Oaks defaulted on its obligations under the promissory note, and in November of 2011, in the Circuit Court for Montgomery County, the substitute trustees, acting under the deed of trust held by TOB Holdings, commenced a foreclosure action against the Property (sometimes referred to as “the first foreclosure action”). The Property was sold at foreclosure on November 28, 2011. On December 19, 2011, David, with the agreement of Thomas, Richard, and Susan, retained the law firm of Gleason, Flynn, Emig and Fogleman (“GFEF”) to defend Tower Oaks in the foreclosure action. Through GFEF, Tower Oaks filed exceptions to the foreclosure sale. Eventually, the substitute trustees agreed to set the sale aside and dismiss the foreclosure action without prejudice. On July 30, 2012, the court entered a consent order to that effect.

In the meantime, on December 7, 2011, Elizabeth died.

On August 14, 2012, David, acting as Manager of Oak Plaza and purportedly acting pursuant to a provision of the Oak Plaza Operating Agreement by which each Member makes the Manager his or her attorney-in-fact, signed a “ Second Amendment to Operating Agreement of Oak Plaza, LLC” (“Second Amendment”) individually, and on behalf of Thomas and Daniel, as their attorney-in-fact. Richard and Susan personally signed the Second Amendment. As written, the Second Amendment changed the line of managerial succession in the Oak Plaza Operating Agreement, removing Thomas and Daniel and replacing them with Richard, Susan, and David. Thomas and Daniel were not aware of the Second Amendment.

John died on October 17, 2012. Five days later, on October 22, 2012, the substitute trustees again brought a foreclosure action against Tower Oaks regarding the Property (sometimes referred to as “the second foreclosure action”). A sale of the Property was scheduled for November 13, 2012.

On November 9, 2012, Tower Oaks, represented by GFEF, filed a motion to stay and dismiss the second foreclosure action, under Rule 14–211(a). Such a motion “shall ... state with particularity the factual and legal basis of each defense that the moving party has to the validity of the lien or the lien instrument or to the right of the plaintiff to foreclose in the pending action.” Id. If the court grants a temporary stay, it shall then conduct a merits hearing, after which, unless it finds good cause to the contrary, it shall grant the motion if it finds that the moving party has established that the lien or lien instrument is not valid or has established that the plaintiff did not have a right to foreclose. Md. Rule 14–211(e). The court shall deny the motion if it finds otherwise. Id.

In its motion, Tower Oaks “dispute[d] and challenge[d the] plaintiffs' right to foreclose against the Property.” It did so based on allegations it had made in a pending civil action it had brought, together with TOB, Inc., Oak Plaza, and John (soon before his death), against TOB Holdings and prior holders of the promissory note (“the Lenders”), and Ronald Cohen Investments, Inc., and Ronald Cohen Management Company, both tenants of the Property (“the Tenants”) (“the civil action”). In the civil action, Tower Oaks made claims for tortious interference with contractual relations, civil conspiracy, aiding and abetting, abuse of process, breach of contract, conversion, unjust enrichment, constructive fraud, and breach of an indemnification agreement. The gist of the allegations was that the Lenders, most prominently TOB Holdings, had conspired with the Tenants to have the Tenants not pay their rent for the Property, which would deprive Tower Oaks of the income necessary to make the payments on the promissory note secured by the Property, put the loan in default, and result in foreclosure.

Also on November 9, 2012, the substitute trustees filed an opposition to the motion to stay and dismiss. They stated that the total amount due on the loan, which had been accelerated upon default, was over $9.8 million. They pointed out that in the civil action Tower Oaks had acknowledged the promissory note and deed of trust, that payment on the promissory note was in default, and that the loan had been accelerated. They emphasized that, pursuant to Rule 14–211(a)(3)(B), a motion to stay and dismiss a foreclosure action must “ ‘state with particularity the factual and legal basis of each defense that the moving party has to the validity of the lien or the lien instrument or to the right of the plaintiff to foreclose in the pending action.’ ” (Emphasis in opposition filed by substitute trustees.) They argued that Tower Oaks's motion to stay and dismiss was legally deficient, as it did not present a defense to the validity of the lien or to the right of the lien holder to foreclose. The substitute trustees stated:

The Complaint [in the civil action] seeks a money judgment, an accounting and the imposition of a constructive trust. It does not contest the validity of the lien or the right of TOB Holdings to foreclose. On the contrary, the Complaint [in the civil action] confirms the validity of the Deed of Trust and the default.

Still on that same day, the court held an expedited hearing on whether to issue a temporary stay of the upcoming foreclosure sale. The court granted the temporary stay, scheduled a merits hearing on the motion to stay and dismiss for January 3, 2013 ...