Wells Fargo Bank Minnesota v. Diamond Point

• Decision Date: 29 September 2006
• Docket Number: No. 1663, September Term, 2005.,1663, September Term, 2005.
• Citation: 908 A.2d 684,171 Md. App. 70
• Parties: WELLS FARGO BANK MINNESOTA, N.A., Trustee v. DIAMOND POINT PLAZA L.P. et al.
• Court: Court of Special Appeals of Maryland

908 A.2d 684

171 Md. App. 70

WELLS FARGO BANK MINNESOTA, N.A., Trustee v. DIAMOND POINT PLAZA L.P. et al.

No. 1663, September Term, 2005.

Court of Special Appeals of Maryland.

September 29, 2006.

Motion for Reconsideration Denied December 7, 2006.

Jeff Joyce (Winstead, Sechrest & Minick, P.C., on the brief), Houston, TX, K.

Donald Proctor, Margaret M. McKee, on the brief, Towson, for appellant.

Andrew H. Baida and Donald A. Rea (Gerard P. Martin, Shannon M. Chilchoate, C. William Clark, Robert L. Hanley, Jr., on the brief), Baltimore, for appellee.

Panel: MURPHY, C.J., DAVIS and CHARLES E. MOYLAN, JR. (retired, specially assigned), JJ.

DAVIS, J.

Appellant/cross-appellee Wells Fargo Bank, N.A. (Wells Fargo), in its role as trustee for the registered holders of the commercial mortgage backed securities for a loan held by appellee/cross-appellant Diamond Point Plaza Limited Partnership, et al. (Diamond Point), brought suit in the Circuit Court for Baltimore County against Diamond Point alleging breach of contract based on loan default, fraud and misrepresentation and conversion of funds. Wells Fargo also sued appellees/cross-appellants Sam's P.W., Inc. and Wal-Mart Stores, Inc. (Sam's and Wal-Mart, respectively), for various breaches of a lease agreement between landlord (Diamond Point) and tenant (Sam's).

Upon considering cross-motions for summary judgment from the parties, the court denied Diamond Point's motion but granted partial summary judgment in favor of Sam's, concluding that it did not violate a radius restriction contained in the lease and partial summary judgment in favor of Wells Fargo, finding that Sam's violated a retail use restriction. After the remaining issues were presented at a bench trial, the court ruled in favor of Wells Fargo and entered judgment against Diamond Point and Sam's, finding several breaches. The court also concluded that Wells Fargo did not satisfy its burden of proof to recover reasonable attorney's fees. Wells Fargo presents the following three issues for our review:

1. Whether the Circuit Court erroneously concluded that the seven mile radius restriction in the Sam's lease could not be violated in the absence of simultaneous operation of both the Diamond Point store and another store within the restricted area when the lease provided that, "Tenant agrees that it [and its Affiliates] 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 Shopping Center and similar to that then being conducted upon the demised premises;"

2. Whether the Circuit Court erroneously concluded that the default provisions of the Sam's lease under Article 20 did not provide for recovery of attorneys' fees by Wells Fargo against Sam's and Wal-Mart; and

3. Whether the Circuit Court erroneously concluded that Wells Fargo was not entitled to recover attorneys' fees or expenses from any of the [appellees/cross-appellants] under the contracts at issue because it failed to apportion its fees on a line-by-line basis as to every time entry on its bills.

Sam's and Wal-Mart responded by filing a cross-appeal, seeking our review of the following six questions:

1. Did the circuit court correctly conclude that the "radius restriction" in the subject lease was not violated absent the simultaneous operation of both the Diamond Point Plaza store and another store within the designated area?

2. Did the circuit court erroneously conclude that Appellant proved that The Wire's presence in the former Sam's Club space at Diamond Point Plaza proximately caused $1,250,000 in damages to the property?

3. Did the circuit court erroneously award $56,000 damages for violation of the "radius restriction" arising from a Sam's Club store located in Port Covington, Maryland[?]

4. Did the circuit court erroneously conclude that Wal-Mart is liable for breach of the subject lease to which it is not a party?

5. Did the circuit court correctly conclude that the default provisions of the subject lease do not permit Appellant to recover attorneys' fees against Sam's PW and Wal-Mart in the instant case?

6. Was any error in granting summary judgment on Appellant's attorneys' fee claim harmless inasmuch as Appellant failed to meet its burden of attributing reasonable and necessary fees to the claims against Sam's PW and Wal-Mart?

Diamond Point also filed a cross-appeal, presenting five questions for review:

1. Does carve-out liability for the full amount of the non-recourse loan at issue in this case exist for fraud, misrepresentation, or gross negligence when (a) the borrower disclosed information that forms the basis for the Circuit Court's judgment for recourse liability; (b) there is no evidence that the loan would not have been made or that its terms would have been any different but for the alleged misrepresentations; and (c) there is no evidence that Wells Fargo was even aware of the alleged misstatements, much less that it suffered any damages as a result of them?

2. Did the borrower have the right under the loan documents to keep rents that it collected prior to its default and the lender's assignee's demand?

3. Did the borrower commit "waste" by allegedly failing to maintain roofs it was given no notice or opportunity to repair, or by failing to commence litigation to prevent a tenant from violating a lease radius restriction when the violation lasted less than three months?

4. Did the Circuit Court otherwise err in awarding damages?

5. Did the Circuit Court properly deny Wells Fargo's request for attorneys' fees and expenses?

FACTUAL AND PROCEDURAL BACKGROUND

Diamond Point and its affiliates¹ own and operate Diamond Point Plaza (the Center), a retail shopping center located in eastern Baltimore County, which consists of three buildings containing space available for leasing to commercial tenants. Two of the largest tenants at the Center were Sam's Club, which executed an Assignment and Assumption of Lease on January 5, 1994, and Ames Department Store, which began its tenancy on April 13, 1989. In 2002, both stores closed or "went dark." The Sam's Club store closed on July 31, 2002 and, pursuant to its lease, continued to pay its base monthly rent. After filing for bankruptcy in August 2001 and announcing its decision to liquidate its "operations and to close all of the remaining Ames locations" in August 2002, the Ames store at the Center closed in late October of 2002. After Ames rejected the lease in bankruptcy court, it made no further rent payments.

In July of 1999, prior to the closing of the Sam's and Ames stores, Diamond Point and its affiliates sought to refinance the commercial loan on the Center because the original loan was scheduled to mature in January of 2000. Diamond Point submitted a refinancing application to Pinnacle Capital Group (Pinnacle), which was approved in June of 2000 in the amount of $15,300,000. At the loan closing, the loan and loan documents were assigned to Paine Webber Real Estate Securities, Inc. (Paine Webber), "which provided the funding to close the [l]oan." Wells Fargo became the assignee of the loan "by merger," resulting in the assignment of the "[n]ote, [m]ortgage, and all [l]oan [d]ocuments" to Wells Fargo as of August 15, 2000.

As a result of Ames' failure to pay rent to Diamond Point for November of 2002, Diamond Point failed to make its November 2002 loan payment to Wells Fargo. Wells Fargo initially filed suit on March 7, 2003 against Diamond Point, alleging breach of contract based on the loan default, fraud and/or misrepresentation in obtaining the refinancing loan and conversion of funds due and owing to Wells Fargo. Wells Fargo then amended its complaint on September 15, 2003 to add breach of retail use restriction and radius restriction claims against Sam's and Wal-Mart. Subsequently, Wells Fargo filed a Third Amended Complaint on July 21, 2004, alleging the following in its complaint:

Diamond [Point] and its affiliates, agents or employees breached the contracts within the Loan Documents in numerous ways including the following:

a. By failing to disclose to Paine Webber and Wells Fargo what it and its affiliates knew prior to closing on the Loan with regard to Sam's intention to vacate the Property, in violation of its duties....

b. By falsely affirming that it knew of no tenant's intention to vacate the Property when in fact it had specific knowledge of Sam's intention to vacate the Property, in violation of ¶ 21 of the Certificate;

c. By failing to disclose to Paine Webber and Wells Fargo attributes of the Property that could reasonably be expected to cause an institutional investor to regard the loan as an unacceptable investment and could affect the Loan's value and marketability, ...;

d. By failing to enforce the Lease provisions against Sam's when Sam's breached the Lease by owning, operating, managing or having a financial interest in any store or business within 7 miles of Diamond Point, ...;

e. By failing to enforce the Lease against Sam's and Wal-Mart when it/ they sublet the Property to a non-retail tenant without notifying Diamond and obtaining its consent ...;

f. By committing waste upon the Property by not properly maintaining the roof and other structures, ...;

g. By failing to maintain its status as a Single Purpose Entity, ...; and

h. By wrongfully transferring, misappropriating or otherwise converting Rents after an Event of Default,....

* * *

These breaches constitute fraud, intentional misrepresentation, gross negligence, willful misconduct, waste, misapplication, conversion and a violation of the single purpose entity requirement and therefore entitle Wells Fargo to full recourse against Diamond [Point] for all sums due under the Loan Documents and for damages.²

Regarding Wells Fargo's allegations of fraudulent conveyance, it contended:

It is believed and therefore averred that the $633,000...