Bechamps v. 1190 Augustine Herman, LC

EYLER, JAMES R., J. This is an appeal from an order by the Circuit Court for Cecil County, staying a non-residential real estate foreclosure proceeding, brought by Anne-Therese Bechamps as substitute trustee, appellant, against 1190 Augustine Herman, LC (“1190”), debtor. While a court has inherent power to stay proceedings, it abused its discretion in this case because the stay was not consistent with the Maryland Rules governing foreclosures. Consequently, we shall vacate the order. Background I. Interests in the Property For decades before this litigation arose, the property subject to the foreclosure, located at 1190 Augustine Herman Highway in Cecil County (the “Property”), was used as a golf course.

Harold West, predecessor in interest to appellee WFHI, LLC (“WFHI”), an appellee, had an interest in the Property, beginning in the late 1980s. In 2000, the Property was known as Brantwood Golf Course and was owned by Brantwood Development Associates, Inc, which entered into a series of financial transactions with Mr. West that year. As a result, Mr. West held, inter alia, a lien interest on the Property and two promissory notes, which were payable upon the sale of the Property. Several years later, interested local citizens began implementing a plan to purchase the Property, to operate as a golf course initially and eventually to develop as a residential subdivision. 1190 obtained a loan from Cecil Bank (the “Bank”), secured by an indemnity deed of trust, and ⁴⁵⁷ purchased the Property in February 2006.

The same month, 1190 entered into a subordination agreement with Mr. West and the Bank by which Mr. West’s lien interest on the Property was made junior to the lien interest the Bank acquired through its loan to 1190 and under which Mr. West’s existing notes were replaced by a new promissory note with payment delayed. At the time it purchased the Property, 1190’s members consisted of Brian Lockhart, Michael Riggs, Appellee Jeffrey M. Haggerty, and a second entity, DE Club, LC, (“DE”) which owned a 60% interest in 1190. Haggerty and Riggs were friends of West’s, and Lockhart was an acquaintance who was employed by the Bank. DE was owned thirty-six percent by Charles F. Sposato, Chairman of the Board of the Bank, thirty-six percent by Mary B. Halsey, Bank President and CEO, seventeen percent by Mr. Lockhart, and eleven percent by others.

Thus, DE controlled 1190 through its majority ownership, and DE itself was majority owned by officers of the Bank.

II

The Subordination Litigation On February 9, 2009, Mr. West conveyed his interest in the Property and all corresponding causes of action to WFHI, a Delaware entity controlled by Mr. West. On May 29, 2009, WFHI brought an action in the Circuit Court for Cecil County against Mr. Lockhart, 1190, the Bank, and Brantwood Golf Course, Inc. (“Brantwood”), alleging that West was fraudulently induced into subordinating his lien interest in the Property to the Bank’s interest. According to WFHI, Mr. West agreed to subordinate his lien interest in the property as a favor to his friends, Mr. Haggerty and Mr. Riggs, whom, along with Mr. Lockhart, he thought would each own a one third interest in the Property. He believed that those individuals would be unable to obtain a loan to buy the Property if the lender’s interest would be junior to his own, according to WFHI, and he also believed they would be unable to acquire sufficient funds to satisfy Mr. West’s promissory notes and still purchase the property.

WFHI argued that Mr. Lockhart ⁴⁵⁸ allowed Mr. West to operate under the continuing impression that the Property would be owned by Mr. Haggerty, Mr. Riggs and Mr. Lockhart even after DE acquired its controlling stake in 1190. WFHI claimed that Mr. West would not have agreed to subordinate his lien if he had known DE would own the majority share of the Property. As a remedy in that action, WFHI sought rescission of the subordination agreement, which would have reduced the Bank’s lien on the Property to junior status. It did not seek to void the other 2006 transactions that resulted in the sale of the Property to 1190.

On October 22, 2010, the circuit court held a summary judgment hearing. Counsel for WFHI explicitly stated at the summary judgment hearing that the essence of that litigation was WFHI’s challenge to the validity of the subordination agreement: And so the subordination and modification agreement says you are subordinating and you’re modifying the terms of your existing Deed of Trust. What we really are asking for is that the subordination aspect of that be rescinded or voided. If that were to happen the modification would still be in place, the 2006 note would be left in place; and all it would change is the shift in priorities ... [the Bank] would go from first position to second, (emphasis added).

Following argument, the circuit court granted summary judgment to the defendants, leaving intact the subordination agreement and the Bank’s first priority position on the Property. An appeal from that decision is pending in this Court.

III

The Foreclosure Litigation The lending agreements between 1190 and the Bank required 1190 to make monthly payments to the Bank. 1190 failed to make those payments after March 2010, and on April 2, 2010, William F. Riddle, as substitute trustee for the Bank, brought a foreclosure action against 1190 in circuit court. That action was dismissed without prejudice, and on September 23, 2010, Mr. Riddle brought the instant action. On December 20, 2010, appellant replaced Mr. Riddle as substitute trustee. ⁴⁵⁹ The foreclosure sale was scheduled for October 15, 2010. 1190 did not participate in circuit court or in this appeal. On October 7, 2010, Brantwood Golf Club, Inc., Mr. Haggerty, Jamie L. Senn, Darrell W. Evans, Steven W. Linkous and Robert J. Alt (the “Brantwood Group”), appellees, moved to intervene, alleging an interest as members of 1190, DE Club, LC, or as guarantor of the Bank’s loan.

On October 8, 2010, WFHI, asserting a superior lien, filed a motion to stay the sale of the Property and dismiss the foreclosure action. On October 13, 2010, the circuit court granted the Brantwood Group’s motion to intervene. On or about the same day, the Brantwood Group filed a motion to stay the sale of the Property or to dismiss the foreclosure action. Also on October 13, 2010, the court ordered a stay of the foreclosure sale pending review on the merits.

On December 13, 2010, the circuit court held a hearing on the merits, at which both the Brantwood Group and WFHI argued that the foreclosure sale should be stayed and/or dismissed because of other pending litigation, including the subordination litigation, that could affect interests in the Property. At the conclusion of the hearing, the court did not dismiss the foreclosure but ordered it stayed until resolution of the appeal in the subordination litigation. The same judge granted both the stay in this litigation and the summary judgment in the subordination litigation. Questions Presented Appellant presents the following two questions for our review: 1.

Did the Circuit Court possess the authority to, sua sponte, indefinitely stay (or enjoin) this non-residential foreclosure action when Maryland Rule 14-211 does not provide such authority? 2. Assuming, arguendo, that it possessed authority to do so, did the Circuit Court err by indefinitely staying (or enjoining) this non-residential foreclosure action when Appellees provided no basis for such a stay under Maryland Rule 14-211? ⁴⁶⁰ Standard of Review We review a trial