Windeshein v. Larocca (Md. Ct. App.)

Filed: June 23, 2015

Opinion by: J. Adkins

Holdings: 

(1) When a person signs an affidavit containing incorrect information, such person is generally on inquiry notice of any claim arising under such affidavit and the statute of limitations for such claim will not be tolled absent evidence of fraud or concealment or a fiduciary relationship between the party preparing the affidavit and the affiant; and

(2) To be liable for engaging in indirect false advertising regarding secondary mortgage loans and their availability under Md. Code Ann., Commercial Law § 12-403 (the "Secondary Mortgage Loan Law"), mere knowledge of false advertisements is not sufficient to violate the Secondary Mortgage Loan Law, a lender must do some act to bring about the false advertising. 

Facts: 

In 2006 and 2007, three married couples (the "Borrowers") contacted realtors to express interest in selling their current homes and purchasing new ones.  The realtors encouraged Borrowers to purchase a new home before selling their current home by obtaining home equity lines of credit ("HELOCs") against their current homes and then obtain a primary mortgage for the new home.  The realtors referred Borrowers to Michelle Matthews, a loan officer for Propensity Mortgage Company, who informed Borrowers the HELOC strategy was a "common lending tool at Propensity." 

Propensity Mortgage Company and Matthews, advertised in flyers on the website of some of the realtors, claiming that they could provide "Home Equity Lines and Loans (to make your client non-contingent)."  Borrowers claimed they believed at all times that Matthews and Propensity were processing the HELOCs; however, Matthews referred the HELOCs to Suzanne Windesheim, a loan officer for National City Bank (now PNC Mortgage).  The HELOCs were processed through National City Bank using false information contained in Borrowers' signed affidavits, allegedly added by Windesheim with Matthews' knowledge. 

The Borrowers filed a putative class action lawsuit in the Circuit Court for Howard County, Maryland against National City and Windesheim alleging that National City and Windesheim engaged in indirect false advertising in violation of the Secondary Mortgage Loan Law through the actions of Propensity and Matthews.

Analysis:

Inquiry Notice:  Borrowers argued that, because the information contained in the signed affidavits was false and because they were encouraged to sign without reading them, the statute of limitations had been tolled until the Borrowers had been contacted by counsel in 2010 and 2011 informing them that they may have been the victims of mortgage fraud.  The Court, however, found no evidence to refute the fact that Borrowers were on inquiry notice of their claims in 2006 and 2007 when they closed their HELOCs and primary residential mortgages because: (1) Borrowers signed the affidavits containing the false information and there was no evidence National City Bank or Windersheim attempted to conceal the false information in the affidavits; and (2) neither National City Bank nor Windersheim owed Borrowers any fiduciary duties which would justify tolling the statute of limitations.

Secondary Mortgage and False Advertising:  The Court determined that the plain meaning of "indirect" as used in the Secondary Mortgage Loan Law provided two reasonable interpretation as to how a lender could advertise "indirectly" – (1) "by making a false or misleading statement to a potential borrower that the same potential borrower then re-communicates to another potential borrower" or (2) "by having another party advertise false or misleading statements on the first party's behalf." 

The Court looked to the legislative history and policy purpose of the Secondary Mortgage Loan Law and reasoned that, because it was meant to protect consumers, it was reasonable to conclude that the Maryland General Assembly intended to proscribe both definitions of "indirect."  The current law removed the phase "to cause to be placed before the public" from a prior version of the law and therefore, the Court inferred, the General Assembly intended that to be guilty of a violation of the Secondary Mortgage Loan Law a person must "bring about the placing of a false or misleading statement before the public."  The Court applied the second definition of advertising indirectly and determined that neither National City Bank nor Windesheim violated the Secondary Mortgage Loan Law and that "mere knowledge that another is falsely advertising" would not violate the Secondary Mortgage Loan Law. 

The Court also held that Windesheim and National City Bank were not vicariously liable for indirect advertising in violation of the Secondary Mortgage Loan Law under a civil conspiracy theory because there was no evidence that Windesheim knew Matthews and Prosperity were falsely advertising that Prosperity, not National City Bank, would handle the HELOCs.

The full opinion is available in PDF.

Cloverleaf Enterprises, Inc. v. Maryland Thoroughbred Horsemen’s Assoc., Inc. (Maryland U.S.D.C.)

Filed: August 6, 2010
Opinion by Judge Richard D. Bennett.

Held: A party’s mere acquiescence in another party’s illegal scheme is sufficient to create a conspiracy in violation of Section 1 of the Sherman Act.

Facts: Cloverleaf Enterprises, Inc. (“Cloverleaf”) owns a racetrack in Maryland that accepts horse racing wagers on live simulcast signals provided by other racetracks. The signals come from both Maryland and out-of-state racetracks. As required under federal and Maryland law, Cloverleaf obtained the consent of other Maryland racetracks and certain other groups before receiving the simulcast signals. The consent was in the form of a Cross-Breed Agreement (the “Contract”), pursuant to which Cloverleaf paid weekly fees in return for the right to accept wagers on the simulcast races.

Cloverleaf breached the Contract by failing to pay the required weekly fees. As a result, the other Maryland racetracks withdrew their consent to Cloverleaf receiving the simulcast signals of their own races and out-of-state races. This withdrawal of consent came just a few days before the Kentucky Derby, historically a significant source of revenue for Cloverleaf. Cloverleaf obtained a temporary restraining order enjoining the racetracks from withdrawing consent to the simulcast of out-of-state races, including the Kentucky Derby. Despite the TRO, the other Maryland racetracks communicated with out-of-state racetracks, including Churchill Downs (home of the Kentucky Derby), urging them to terminate simulcast signals.

Cloverleaf filed a complaint against the other Maryland racetracks alleging, among other things, violation of Section 1 of the Sherman Act for conspiracy to effectuate a group boycott, both among the Maryland racetracks themselves and with out-of-state racetracks. The defendants moved to dismiss for failure to state a claim.

Analysis: The U.S. District Court for Maryland granted the motion with respect to the alleged conspiracy among the Maryland racetracks themselves. Pursuant to the Contract, if Cloverleaf failed to pay the weekly fees, the defendants could withdraw permission to send signals of their races. Therefore, the defendants’ actions were expressly permitted by the Contract.

The court denied the motion with respect to the alleged conspiracy between the Maryland racetracks and out-of-state racetracks. The defendants violated the TRO by urging out-of-state racetracks to terminate their simulcast signals, and most of the racetracks complied with the request. Even though the out-of-state racetracks may not have had anti-competitive motives, mere acquiescence in an illegal scheme is sufficient to create a conspiracy under the Sherman Act.

The full opinion is available in pdf.