Century National Bank v. Makkar

THIEME, Judge. Appellant Century National Bank (“Century”) appeals from a judgment of the Circuit Court for Prince George’s County dismissing its claims for conversion, misdirection of proceeds, and breach of a third-party beneficiary contract against appel-lee, HPSC, Inc. (“HPSC”). Century also appeals the court’s grant of HPSC’s motion for summary judgment as to Century’s claim for the imposition of a constructive trust. Century presents the following questions for our review: 1.

Do Century’s allegations that HPSC wrongfully paid the proceeds from the sale of the collateral in which Century had a first priority perfected security interest to Century’s debtor’s agent rather than to Century state a claim for conversion? 2. Do Century’s allegations that HPSC unlawfully misdirected the proceeds from the sale of the collateral state a claim for negligent breach of HPSC’s duty of ordinary and reasonable care to Century? 3. Do Century’s allegations state a claim against HPSC for breach of a third-party beneficiary contract? ⁸⁷ 4. Did the circuit court err in granting summary judgment on Century’s claim for constructive trust without permitting Century to conduct meaningful discovery on that claim?

We answer “no” to these questions, and affirm. Facts In 1996, Century loaned approximately $300,000.00 to Dr. Ray Vidal, a dentist. To secure the loan, Century took a security interest in the assets of Vidal’s dental practice, including his inventory, accounts, and equipment (the “collateral”). Century perfected its security interest by filing a financing statement.

In 1997, Vidal contracted to sell the dental practice to Hassam Makkar, a dentist with an office in Prince George’s County, Maryland. 1 Makkar obtained financing for a portion of the purchase price from HPSC, a finance company in Boston, Massachusetts, pursuant to a written loan agreement between Makkar and HPSC. HPSC wired the money being loaned for the Vidal/Makkar closing to Vidal’s attorney, who in turn disbursed the money to Vidal without paying off the outstanding Century loan. Vidal defaulted on the Century loan. Century retained its security interest in the collateral throughout the action in the circuit court and during this appeal.

In May of 1998, Century filed a complaint in the Circuit Court for Prince George’s County alleging that HPSC improperly paid to Vidal’s agent the proceeds of the sale of collateral, in which Century had a perfected security interest. Century thus alleged that HPSC was liable for conversion, misdirection of proceeds, and imposition of a constructive trust. ⁸⁸ On July 1, 1998, HPSC filed a motion to dismiss the complaint for failure to state a claim upon which relief could be granted. HPSC also requested a hearing. On July 20, 1998, Century filed an opposition, and on September 4, 1998, Century filed its first amended complaint, adding a claim for breach of a third-party beneficiary contract.

On September 18, 1998, HPSC filed a motion to dismiss and again requested a hearing. On November 24, 1998, without a hearing, the court entered an order granting HPSC’s motion to dismiss as to counts one (conversion), two (misdirection of proceeds), and three (breach of third-party beneficiary contract). The court did not dismiss Century’s claim for imposition of a constructive trust against HPSC. On March 5, 1999, HPSC filed a motion for summary judgment as to the constructive trust claim.

In support of its motion, HPSC filed an affidavit of Daniel Croft, its sales representative and manager responsible for the loan to Mak-kar. Century filed an opposition to HPSC’s motion for summary judgment on April 9, 1999. Rather than file a counter-affidavit or other evidence in support of its opposition, Century filed an affidavit from a loan officer stating that Century was unable to present facts in opposition because it had not had an opportunity to conduct discovery. On July 23, 1999, after a hearing, the court granted HPSC’s motion for summary judgment on Century’s claim for imposition of a constructive trust.

Additional facts are set forth as necessary in the following opinion. Discussion HPSC asserted in its motion to dismiss that the allegations of conversion, misdirection of proceeds, and breach of a third-party beneficiary contract failed to state a claim for which relief could be granted. We agree. Maryland Rule 2-322(b) provides that the defense of “failure to state a claim upon which relief can be granted” may be asserted in a motion to dismiss filed before an answer.

When ⁸⁹ reviewing the grant of a motion to dismiss, “the reviewing appellate court shall assume to be true not only all of the well[-]pleaded facts in the complaint but also ‘the inferences which may be reasonably drawn from those well[-]pleaded facts.’ ” Simms v. Constantine, 113 Md.App. 291, 295 , 688 A.2d 1 (1997) (quoting Stone v. Chicago Title Ins. Co., 330 Md. 329, 333-34 , 624 A.2d 496 (1993)); see also Wimmer v. Richards, 75 Md.App. 102 , 540 A.2d 827 , cert. denied, 313 Md. 506 , 545 A.2d 1344 (1988). Moreover, this Court must “consider well-pleaded facts and allegations in the light most favorable to the appellant.” Parker v. Kowalsky, 124 Md.App. 447, 458 , 722 A.2d 441 (1999). “Dismissal is proper only if the facts and allegations, so viewed, would nevertheless fail to afford plaintiff relief if proven.” Id., 124 Md.App. 447 , 722 A.2d 441 (citing Simms, 113 Md.App. at 296 , 688 A.2d 1 ); see also Faya v. Almaraz, 329 Md. 435, 443 , 620 A.2d 327 (1993). This Court has noted, however, that consideration may only be given “to allegations of fact and inferences deducible from them and not ‘merely conclusory charges.’ ” Parker v. Columbia Bank, 91 Md.App. 346 , 351 n. 1, 604 A.2d 521 , cert. denied, 327 Md. 524 , 610 A.2d 796 (1992) (quoting Yousef v. Trustbank, 81 Md.App. 527, 536 , 568 A.2d 1134 (1990)).

Conversion In count one of its amended complaint, Century attempted to state a cause of action for conversion. Century alleged that it had a security interest in the collateral sold from Vidal to Makkar and that Century did not authorize the sale. Century further alleged that the collateral remained subject to Century’s security interest and that HPSC’s security interest in the collateral was a conversion of the collateral. As the Court of Appeals stated in Interstate Insurance Company v. Logan, 205 Md. 583, 588-89 , 109 A.2d 904 (1954), conversion is “any distinct act of ownership or dominion exerted by one person over the personal property of another in denial of his right or inconsistent with it.” Moreover, “[cjonversion requires not merely temporary interference with property rights, but the exercise of unauthorized ⁹⁰ dominion and control to the complete exclusion of the rightful possessor.” Yost v. Early, 87 Md.App. 364, 388 , 589 A.2d 1291 , cert. denied, 324 Md. 123 , 596 A.2d 628 (1991) (quoting Harper & Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195 (2d Cir.1983)).

Century did not allege in its complaint that HPSC ever had possession of or exercised dominion over the collateral. Specifically, Century did not contend that HPSC attempted to seize or otherwise take action against the collateral, that HPSC prevented Century from exercising whatever rights it may have had against the collateral, or, significantly, that HPSC ever claimed that its security interest in the collateral was superior to Century’s. Instead, the only exercise of “dominion” Century attributes to HPSC was HPSC’s recordation of a security interest in the collateral. Century provides no legal support for its argument that taking a security interest in collateral constitutes conversion of the collateral, particularly where the party taking the security interest does not assert that the interest is superior to other existing interests.

This unsupported contention is insufficient to establish a claim for which relief can be granted, as taking a security interest in property under these circumstances does not constitute conversion of the property. See 18 Am.Jur.2d Conversion § 36 (1985) (“The mere taking and recording of a security interest upon personal property, even [if] from someone who is not the true owner[,] does not constitute conversion, when the party taking the security interest never exercises ownership or control other than the filing of the security interest.”) (citing Prewitt v. Branham, 643 S.W.2d 122 (Tex.1982)); 68A Am.Jur.2d Secured Transactions § 20 (1993) (“[T]aking a security interest ... do[es] not constitute the exercise of dominion or control over the collateral.”) (citing Prewitt, 643 S.W.2d at 123 (Tex.1982)). In its brief to this Court, Century contends that, besides the collateral, HPSC converted “the proceeds from the sale of that collateral.” This argument was not raised in Century’s amended complaint and, therefore, is not properly before this Court. See Md. Rule 8 — 131(a); see also Guerassio v. Ameri ⁹¹ can Bankers Corp., 236 Md. 500 , 204 A.2d 568 (1964); Faith v. Keefer, 127 Md.App. 706, 737 , 736 A.2d 422 , cert. denied, 357 Md. 191 , 742 A.2d 521 (1999); Gittin v. Haught-Bingham, 123 Md.App. 44, 48 , 716 A.2d 1063 (1998).

Indeed, in reviewing whether the lower court properly granted a motion to dismiss, we are necessarily relegated to considering only those facts and arguments set forth in the pleadings before the circuit court. Accepting as true the facts alleged in Century’s amended complaint, we find that Century failed to allege facts upon which a court could find that HPSC had converted the collateral. The court therefore properly dismissed count one of the complaint. Misdirection of Proceeds/Negligence In its brief to this Court, Century concedes that “Maryland courts have not expressly recognized the tort of negligent misdirection of proceeds.” Upon reviewing Century’s amended complaint, it appears that, while count two was styled “Misdirection of Proceeds,” Century was essentially attempting to state a cause of action for negligence.

Count two alleged that Century had a security interest in the collateral, which was sold without Century’s authorization. In addition, Century alleged that HPSC knew or should have known of Century’s security interest in the collateral and that HPSC “owed a legal duty of ordinary and reasonable care to Century to ensure that the payment of the proceeds from the sale of the collateral would be paid to Century.” Thus, Century maintained that HPSC was negligent because Century was not paid off at the time the collateral was sold by Vidal to Makkar. Again, we disagree. The Court of Appeals has held that to state a cause of action for negligence, “a sufficient pleading must ‘allege, with certainty and definiteness, facts and circumstances sufficient to set forth (a) a duty owed by the defendant to the plaintiff, (b) a breach of that duty, and (c) injury proximately resulting from that breach.’ ” Scott v. Jenkins, 345 Md. 21, 28 , 690 A.2d 1000 (1997) (citing Read Drug and Chemical Co. v. Colwill Constr.

Co., 250 Md. 406, 412 , 243 A.2d 548 (1968)) (emphasis ⁹² in original). Count two of Century’s complaint simply did not meet this burden. Specifically, the complaint failed to allege any facts that would set forth a duty owed by HPSC to Century. In addition, Century fails to provide this Court with any legal support for its implied proposition that a subsequent lender owes a duty of care to a prior lender to direct the sale proceeds to the “rightful owner,” the prior lender.

As HPSC points out, Maryland case law suggests otherwise — that, absent an agreement between the prior and subsequent lenders, the subsequent lender owes no duty to another lender to monitor the use or disbursement of proceeds by the borrower, or to ensure that the prior lender’s loan is paid. See generally, Rockhill v. United States, 288 Md. 237 , 418 A.2d 197 (1980); Hyatt v. Md. Fed. Sav. & Loan Ass’n., 42 Md.App. 623, 629 , 402 A.2d 118 (1979). Because the complaint fails to allege facts that would set forth a duty on the part of HPSC, count two of the complaint failed to state a claim upon which relief could be granted and, therefore, was properly dismissed. Breach of Third-Party Beneficiary Contract Century next argues that the court erred in dismissing its claim for breach of a third-party beneficiary contract, count three of the complaint.

Again, we find that the court properly dismissed this count for failing to state a claim upon which relief can be granted. In count three, Century asserted that HPSC “expressly or impliedly agreed” with Makkar that it would pay off any prior liens on the collateral. Century further alleged that Makkar relied upon this agreement and that HPSC breached the agreement by failing to pay off the Century loan. Recognizing that it was not a party to the agreement, Century contended that it “was an express, intended beneficiary” of the alleged HPSC-Makkar agreement.

The record does not support Century’s assertions. 2 ⁹³ The loan agreement between HPSC and Makkar did not include any provisions indicating that HPSC would discharge or satisfy prior liens on the collateral being purchased. Nor did the agreement include a provision suggesting that HPSC would monitor the use of loan proceeds. On the contrary, the obligation to obtain and maintain clear title to the collateral was placed on Makkar, the borrower. Specifically, Article IV of the HPSC-Makkar loan agreement, which addressed covenants, provided