Bank of Commerce v. Maryland Financial Bank
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Opinions
UNPUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 15-1328
BANK OF COMMERCE,
Plaintiff - Appellee,
v.
MARYLAND FINANCIAL BANK,
Defendant - Appellant.
Appeal from the United States District Court for the District of Maryland, at Baltimore. Ellen L. Hollander, District Judge. (1:14-cv-00610-ELH)
Argued: December 9, 2015 Decided: February 16, 2016
Before MOTZ and FLOYD, Circuit Judges, and John A. GIBNEY, Jr., United States District Judge for the Eastern District of Virginia, sitting by designation.
Affirmed by unpublished opinion. Judge Gibney wrote the opinion, in which Judge Motz and Judge Floyd joined.
ARGUED: Demetrios George Kaouris, MILES & STOCKBRIDGE, P.C., Easton, Maryland, for Appellant. Margaret Moran McKee, PROCTOR & MCKEE, P.A., Towson, Maryland, for Appellee. ON BRIEF: K. Donald Proctor, PROCTOR & MCKEE, P.A., Towson, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit. GIBNEY, District Judge:
Bank of Commerce (“Commerce”) and Maryland Financial Bank
(“MFB”) disagree about what the word “first” means in a
contract, and $227,323.82 hangs in the balance. MFB and
Commerce’s predecessor in interest, Bank of the Eastern Shore
(“BOES”), entered into a Participation Agreement in which MFB
purchased an interest in one of BOES’s loans. When Commerce
later foreclosed on the underlying property, it paid MFB its pro
rata share of the foreclosure proceeds. MFB, however, thought
the contract entitled it to “first out” payment. In a “first
out” payment scheme, MFB would recover its entire interest in
the loan before Commerce recovered anything, giving MFB a
greater share of the foreclosure proceeds. Because the
Participation Agreement, when read in full, provides for pro
rata distribution of foreclosure proceeds, we affirm the
District Court’s grant of summary judgment to Commerce.
We also reject MFB’s argument that an October 2011 letter
explains or modifies the Participation Agreement. The
Participation Agreement is unambiguous, so the Court cannot
refer to extrinsic evidence to interpret it. Further, the
letter expressly “affirms” the terms of the Participation
Agreement, and thus does not modify it.
2 I. BACKGROUND
In November 2006, BOES loaned a borrower three million
dollars to acquire and renovate a country club. In August 2008,
BOES and MFB entered into an agreement in which MFB bought a
participation interest in the loan. The Participation Agreement
said that “MFB’s interest in the loan, expressed as a
percentage, is 25.00% (the ‘Participant’s Share’).” J.A. 11
(emphasis in original).
Several sections of the Participation Agreement are
important for purposes of this appeal. First, Section 7
explains how the parties must divide payments received. It
says:
7. Payments. [BOES] shall report to MFB, MFB’s share of all accrued interest, fees, payments . . . [and] promptly remit to MFB its share based on the priorities indicated below. [Check only one box.]
a. [ ] First Out: First, to MFB, until each time as MFB has received an amount equal to its Participation Amount, then to [BOES] until such time as [BOES] has received an amount equal to its Retained Amount and then ratably between [BOES] and MFB in an amount equal to their respective allocable shares (based on MFB’s Participant Share) of interest, fees and any other payments other than principal amounts.
b. [ ] Last Out: . . .
c. [X] Pro Rata: Ratably between MFB and [BOES] (with appropriate allocation
3 of fees, interest and other payments, based on MFB’s Participant’s Share).
d. [ ] 100%: . . . .
J.A. 14–15. The parties put an “X” in the space for option (c),
requiring a pro rata sharing of payments from the borrower.
Section 8 obliges the parties to divide any losses on the
loan in the same pro rata method that they split up payments.
Specifically, this section says that the parties will “share
[losses] pro-rata in accordance with . . . [their] respective
participation interests.” J.A. 15.
Read together, Sections 7 and 8 divide payments and losses
on a pro rata basis, determined by the participation interest in
the loan. MFB’s participation interest is 25%, so it would
receive 25% of the borrower’s payments, and suffer 25% of any
losses on the loan.
Finally, Section 9 sets forth the method to allocate the
proceeds from a foreclosure. In pertinent part, Section 9 says:
(b) If foreclosure upon the Collateral is the action taken, [BOES] shall promptly remit to MFB its percentage interest first, as hereinabove specified, of all net proceeds received by [BOES] as a consequence of such foreclosure proceeding . . . .
J.A. 16. This section also provides that if BOES acquires any
property during the foreclosure process, both BOES and MFB will
own the property “equal to their respective percentage interests
in the Loan.” J.A. 16.
4 In October 2011, BOES emailed MFB a letter from BOES’s
then-president (hereinafter, “the Letter”). It reads:
This letter is to affirm the Bank of the Eastern Shore has agreed to remit all proceeds on a FIRST OUT BASIS to MFB if the above loan (collateral) is obtained as a consequence of a foreclosure proceeding by BOES. This condition is contained in the Participation Agreement, dated August 17, 2008, Section 9(b), Default by Borrower.
J.A. 128. According to MFB, the Letter responded to MFB’s
“request [for] confirmation from BOES that any foreclosure of
the property owned by [the borrower] would result in MFB getting
paid its participation interest first from the proceeds of any
foreclosure sale.” J.A. 125–26.
In April 2012, Commerce assumed BOES’s interest in the
loan. In August 2013, Commerce initiated foreclosure
proceedings against the borrower. At the time, the outstanding
loan principal balance was $2,302,765.12. The proceeds from the
foreclosure sale were $1,393,469.86. Commerce paid 25% of these
proceeds, or $348,367.46, to MFB.
In March 2014, Commerce sued MFB to clarify the parties’
rights to the proceeds from the foreclosure proceeding.
Commerce argued that, under the Participation Agreement, MFB
should receive 25% of the foreclosure proceeds, or $348,367.46—a
pro rata distribution. On the other hand, MFB argued that it
should receive its remaining 25% interest in the loan (i.e., 25%
5 of the outstanding loan balance) from the foreclosure proceeds,
or $575,691.28—a “first out” distribution.
The parties filed cross-motions for summary judgment in the
District Court. Both parties contended that the Participation
Agreement clearly and unambiguously supports their position.
Alternatively, MFB argued that the Participation Agreement
contains ambiguity, requiring the District Court to consider the
Letter as extrinsic evidence. MFB also provided an alternative
spin on the Letter—that it modified the Participation Agreement.
The District Court entered summary judgment for Commerce,
finding that the Participation Agreement unambiguously supported
Commerce’s position and, therefore, that the District Court need
not consider the Letter.
II. ANALYSIS
This Court reviews a district court’s decision granting
summary judgment de novo. French v. Assurance Co. of Am., 448
F.3d 693, 700 (4th Cir. 2006). A district court should grant
summary judgment when “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). When
parties file cross-motions for summary judgment, “the court must
review each motion separately on its own merits to determine
whether either of the parties deserves judgment as a matter of
6 law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)
(internal citation omitted).
A. THE AGREEMENT
Pursuant to Section 20 of the Participation Agreement,
Maryland law applies to this dispute. J.A. 19. Maryland courts
“apply the law of objective contract interpretation.” Dumbarton
Improvement Ass’n, Inc. v. Druid Ridge Cemetery Co., 434 Md. 37,
51, 73 A.3d 224, 232 (2013) (internal citation and alteration
omitted); see id. (“[The Court of Appeals of Maryland’s]
jurisprudence on contract interpretation is well-settled and
oft-stated.”). Thus, when interpreting a contract, courts need
not discern the actual mindset of the parties at the time of the
agreement, but instead must “determine from the language of the
agreement itself what a reasonable person in the position of the
parties would have meant at the time it was effectuated.” Id.
at 52, 73 A.3d at 232 (quoting Gen. Motors Acceptance v.
Daniels, 303 Md. 254, 261, 492 A.2d 1306, 1310 (1985)). In
other words, “a contract’s unambiguous language will not give
way to what the parties thought the contract meant or intended
it to mean at the time of execution.” Id. at 51–52, 73 A.3d at
232 (quoting Sy-lene of Wash., Inc. v. Starwood Urban Retail II,
LLC, 376 Md. 157, 167, 829 A.2d 540, 546 (2003)).
When interpreting a contract, a court must read the
contract in its entirety, “and, if reasonably possible, effect
7 must be given to each clause so that a court will not find an
interpretation which casts out or disregards a meaningful part
of the language of the writing unless no other course can be
sensibly and reasonably followed.” Id. at 52, 73 A.3d at 233
(internal citation omitted). The court should strive to read
the contract provisions “harmoniously, and not construe them
either to render one nugatory or to create unnecessary conflict
among them.” Walker v. Dep’t of Human Res., 379 Md. 407, 420,
842 A.2d 53, 61 (2004); see also Baltimore Gas & Elec. Co. v.
Commercial Union Ins. Co., 113 Md. App. 540, 554, 688 A.2d 496,
503 (1997) (“A contract must be construed as a whole, and effect
given to every clause and phrase, so as not to omit an important
part of the agreement.”).
If, however, after reviewing the contract, “the language of
the contract is susceptible of more than one meaning to a
reasonably prudent person,” an ambiguity exists. Cnty. Comm’rs
of Charles Cnty. v. St. Charles Assocs. Ltd. P’ship, 366 Md.
426, 445, 784 A.2d 545, 556 (2001); see also Slice v. Carozza
Props., Inc., 215 Md. 357, 368, 137 A.2d 687, 693 (1958) (“The
written language embodying the terms of an agreement will govern
the rights and liabilities of the parties, irrespective of the
intent of the parties at the time they entered into the
contract, unless the written language is not susceptible of a
clear and definite understanding . . . .”). If an ambiguity
8 exists, “the court must consider any extrinsic evidence which
sheds light on the intentions of the parties at the time of the
execution of the contract.” Cnty. Comm’rs of Charles Cnty., 336
Md. at 445, 784 A.2d at 556 (quoting Heat & Power Corp. v. Air
Prods. & Chems., Inc., 320 Md. 584, 596–97, 578 A.2d 1202, 1208
(1990)).
In this case, the relevant section of the Participation
Agreement, Section 9(b), reads: “If foreclosure upon the
Collateral is the action taken [in response to default], [BOES]
shall promptly remit to MFB its percentage interest first, as
hereinabove specified, of all net proceeds received by [BOES] as
a consequence of such foreclosure proceeding.” J.A. 16. While
the contract does not define the term “percentage interest,” the
Court reads the sentence as any reasonable person would on first
bite: BOES must pay MFB its percentage share (i.e., 25%) of all
net proceeds.
MFB hangs its argument on the word “first” in the operative
sentence of Section 9(b). MFB argues that “first” means “first
out,” so that MFB should get the foreclosure proceeds “until
[such] time as MFB has received an amount equal to its
Participation Amount.” J.A. 14. The parties, however, knew how
to say “first out” if they desired. In fact, in Section 7 they
defined both “First Out” and “Pro Rata.” That they defined
“First Out” as a term of art in the contract, and then chose not
9 to use the term in the foreclosure section of the agreement,
requires the Court to find that “first” means something other
than “first out.”
The use of the word “first” in the foreclosure section
could mean a number of things, such as the order in which MFB
should send out checks after a foreclosure proceeding. Whatever
“first” means in Section 9(b), it does not mean the defined term
“First Out.” Everywhere else in the contract, the parties
agreed to a pro rata distribution of profits and losses.
Accordingly, it makes sense that they agreed to the same pro
rata distribution in the foreclosure section, especially where
they chose not to use the defined term “First Out.”
Awarding MFB a pro rata share of the foreclosure proceeds
fits with the remainder of Section 9(b), which uses the term
“percentage interest” to dictate how BOES and MFB would share
any property acquired—as opposed to funds received, as addressed
in the first sentence—by BOES during a foreclosure proceeding. 1
The only sensible reading of this provision results in MFB
having a 25% interest in any property acquired, because a “first
out” distribution could not feasibly work with interests in real
property. Thus, under MFB’s reading of the Participation
1This could occur if BOES had bought the property at foreclosure, or if it accepted a deed to the land in lieu of foreclosure.
10 Agreement, it would receive two different amounts depending on
whether the foreclosure proceeding resulted in a sale or in the
lender taking over the property. Instead, the Court’s reading
prevents this unusual inconsistency.
The Court’s interpretation of Section 9(b) to require a pro
rata distribution is consistent with the other sections of the
Participation Agreement, all of which provide for pro rata
sharing. See, e.g., J.A. 14–15 (requiring BOES to remit
payments from the borrower to MFB pro rata in Section 7); J.A.
17–18 (requiring ratable application of all collections received
by BOES in Section 15(d)). Most notably, Section 8 provides
that MFB “shall share pro-rata . . . any losses sustained in
connection with the Loan.” J.A. 15. If we read the
Participation Agreement as MFB advocates, MFB would not share
the losses on the loan pro rata. Indeed, if Section 9(b) called
for “first out” distribution, MFB would not incur any loss on
the loan. This proposed reading cannot stand, as it would
“disregard[] a meaningful part of the language of the writing.”
Dumbarton Improvement Ass’n, 434 Md. at 52, 73 A.3d at 233.
Thus, applying Maryland law, we hold that the Participation
Agreement provides for a pro rata distribution of the net
proceeds from a foreclosure. Since the language of the
Participation Agreement leaves no ambiguity on this issue, the
11 Court does not look to extrinsic evidence. We therefore affirm
the District Court’s grant of summary judgment to Commerce.
B. THE ALLEGED MODIFICATION
MFB maintains that even if the Participation Agreement
requires a pro rata distribution of foreclosure proceeds, MFB
and BOES modified the Participation Agreement, as documented in
the Letter. 2 The District Court did not address this argument,
but we can address it on appeal. We may decide an issue raised
on cross-motions for summary judgment, rather than remand it,
when “the facts are uncontroverted.” Monahan v. Cnty. of
Chesterfield, Va., 95 F.3d 1263, 1265 (4th Cir. 1996) (internal
citation omitted).
Here, MFB argues that the Letter modified the Participation
Agreement. The express language of the Letter, however,
directly contradicts this argument. The Letter itself says that
it “is to affirm” the Participation Agreement’s terms. J.A.
128. Further, the Letter states that the condition discussed
2 The Participation Agreement contains a clause requiring that both parties sign any modification. J.A. 18. The Letter does not bear the signature of an MFB representative, leading Commerce to argue that the Letter cannot modify the agreement. Maryland law, however, “may operate to allow supplementation or even modification of the express terms of a valid contract.” 600 N. Frederick Rd., LLC v. Burlington Coat Factory of Md., LLC, 419 Md. 413, 438, 19 A.3d 837, 852 (2011). The Court need not reach this issue because, as explained below, it concludes that the Letter does not even purport to modify the contract.
12 “is contained in the Participation Agreement . . . Section
9(b).” J.A. 128. BOES sent the Letter in response to MFB’s
request for “confirmation” of the agreement. J.A. 125 (emphasis
added). Clearly, the parties did not view the Letter as a
modification then, nor can we now.
III. CONCLUSION
To summarize, the Participation Agreement unambiguously
requires distribution of foreclosure proceeds pro rata.
Further, the Letter, by its very language, does not qualify as a
modification. Thus, for the reasons stated above, we affirm the
decision of the District Court granting summary judgment to
Commerce.
AFFIRMED
13