Diamond Point Plaza Ltd. Partnership v. Wells Fargo Bank, N.A.

ORDER ROBERT M. BELL, Chief Judge. The Court having considered motions for reconsideration filed in the above-captioned cases, it is this 23rd day of August, 2007, ORDERED, by the Court of Appeals of Maryland, that the motions for reconsideration be, and they are hereby, granted, and it is further ⁷²⁴ ORDERED that the Opinion in these appeals filed on July 26, 2007, be, and it is hereby, recalled and a new Opinion dated August 23, 2007, filed simultaneously 'with this Order, shall replace the Opinion filed July 26, 2007. WILNER, J. This litigation arose when, in November, 2002, Diamond Point Plaza Limited Partnership (Diamond Point), the owner of the Diamond Point Plaza shopping center in eastern Baltimore County, defaulted on a mortgage loan that was secured by the shopping center property. Wells Fargo Bank, as trustee for the assignees of the mortgage, sued two sets of defendants: Michael C. Konover and entities in which he had some interest, including Diamond Point, and Wal-Mart Stores, Inc. and entities affiliated or associated with it. 1 ⁷²⁵ The actions against the Konover defendants, pled in Counts 1 through 6, were to recover losses sustained on the mortgage loan and certain rents collected from shopping center tenants.

The action against the Wal-Mart defendants, pled in Counts 7 through 12, was to recover damages for alleged lease violations by Sam’s Club, a major tenant of the shopping center, and lease violations and tortious conduct by Wal-Mart itself. On August 15, 2005, following a non-jury trial and certain earlier rulings, including a partial summary judgment in favor of the Wal-Mart defendants, the Circuit Court for Baltimore County filed extensive written findings of fact and conclusions of law. On December 5, 2005, based on those findings, the court entered three sets of judgments in the case, as follows: (1) With respect to the claim for losses sustained on the mortgage loan, the court entered judgment in favor of Wells Fargo and jointly and severally against Diamond Point, Oriole, DPMC, and KMC in the amount of $22,862,399, representing the total loan debt as of April 4, 2005, plus pre-judgment interest of $811,931, accounting from April 5, 2005. 2 The judgment against all defendants but KMC was for intentional misrepresentation and gross negligence. The judgment against KMC was based on its status as guarantor of recourse ⁷²⁶ obligations.

Those judgments would be credited with any proceeds that might be recovered in any foreclosure sale of the shopping center property. (2) With respect to Wells Fargo’s claim for the misapplication of rents collected from Diamond Point Plaza tenants, the court entered three judgments against Konover defendants: one in the amount of $633,000 jointly and severally against Diamond Point, Oriole, DPMC, and KMC, together with prejudgment interest in the amount of $104,466; a second, also for $633,000, against Michael Konover personally; and a third against American Way for $243,500 plus $40,190 in pre-judgment interest. (3) With respect to the violation of lease restrictions by Sam’s Club and Wal-Mart, the court entered two judgments in favor of Wells Fargo against the Wal-Mart defendants, one for $56,260, and one for $1,250,000. The judgment for $56,260 was based on the violation of a radius restriction in the Sam’s Club lease occasioned by the opening of a Sam’s Club store in Port Covington.

The judgment for $1,250,000 was for violation of a different restriction in the Sam’s Club lease, limiting the use of the store to retail sales. In an earlier partial summary judgment in favor of Wal-Mart, the court had held that the opening of another Sam’s Club store in Golden Ring Mall did not constitute a violation of the radius restriction. Those judgments have been paid and are not at issue in this appeal. The court denied attorneys’ fees sought by Wells Fargo against the various defendants.

In cross-appeals, the Court of Special Appeals affirmed the judgments against the Konover defendants but, after concluding that the radius restriction in the Sam’s Club lease was ambiguous, vacated the judgment against the Wal-Mart defendants and remanded for further proceedings, both as to liability for violation of that restriction based on the opening of a Sam’s Club store at Golden Ring Mall and for the assessment of attorneys’ fees. Wells Fargo v. Diamond Point, 171 Md.App. 70 , 908 A.2d 684 (2006). We granted cross-petitions ⁷²⁷ for certiorari to consider the following four issues, which, for simplicity, we have restated to some extent: (1) Whether the Circuit Court erred in finding personal liability on the part of the Konover defendants for losses sustained by Wells Fargo on the mortgage loan. That hinges, to a large extent, on whether the court erred in finding that those defendants had committed intentional misrepresentation or gross negligence in failing to disclose to the mortgage lender that Sam’s Club intended to vacate its store in the shopping center and whether that failure to disclose was a proximate cause of the loss.

(2) Whether the Circuit Court erred in concluding, through a partial summary judgment, that the radius restriction in the Sam’s Club lease was unambiguous and finding that the opening of a Sam’s Club store in Golden Ring Mall on August 1, 2002, did not constitute a violation of that restriction. (3) Whether the Circuit Court erred in finding liability for the diversion of $633,000 in rents that had allegedly been collected from tenants before Diamond Point’s default in November, 2002. (4) Whether the Circuit Court erred in declining to award attorneys’ fees to Wells Fargo. We shall affirm the judgment of the intermediate appellate court with respect to the Diamond Point and Konover defendants but vacate in part that court’s judgment with respect to the Wal-Mart defendants.

We disagree with the conclusion of the Court of Special Appeals that the radius restriction in the Sam’s Club lease was ambiguous. We agree, however, that the case must be remanded for reconsideration of attorneys’ fees. I. BACKGROUND The Diamond Point Plaza shopping center was developed in 1988. It was owned by Diamond Point and, until November 26, 2002, was managed by KMC.

The shopping center consists of three buildings comprising just over 251,000 square feet. ⁷²⁸ The largest building, containing nearly 142,000 square feet, was originally leased to Makro, Inc. and used as a Pace Membership Warehouse store. In 1994, Wal-Mart acquired the Pace Membership Warehouse chain of stores, and, pursuant to that acquisition, Makro’s interest in the Diamond Point Plaza lease was assigned to Sam’s PW, a Wal-Mart affiliate, for use as a Sam’s Club. The 20-year lease ran through January, 2009, subject to the tenant’s option to extend. For convenience, we shall refer to that lease as the Sam’s Club lease.

The second building, containing about 78,000 square feet, was leased to Ames Department Stores. That lease was also for 20 years and was to run through April, 2009. Sam’s Club and Ames were the anchors for the shopping center. The third building, comprising about 32,000 square feet, was for smaller storefront tenants, each of whom leased less than 5,000 square feet.

Article 8(A) of the Makro/Sam’s Club lease required the tenant to continuously operate the demised premises as a Makro store for a period of one year from the date of opening. It then provided that “[thereafter, Tenant shall not be required to operate any business within the demised premises, but if Tenant is open for business the demised premises shall only be used for lawful retail and shopping center purposes ____” Article 4 of the lease dealt with the annual rent due under the lease. It provided for a fixed base rent per square foot of chargeable floor area and for an additional rent equal to 0.75% of annual gross sales in excess of $75 million from the demised premises. Two provisions in Article 4 are especially pertinent.

Section (G) provided that, subject to other provisions of the lease, Sam’s Club had the right “to determine how any store on the demised premises is to be operated, and to discontinue the operation of any such store, and to operate stores in other locations which are in competition with any such store.” It is uncontested that, even if Sam’s Club opted to discontinue the operation of its store in accordance with Articles 4 or 8, it would still be liable for the base rent through the term of the lease. Section (H) provided, in relevant part, that the tenant ⁷²⁹ “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.” Construction of the shopping center was financed with a construction loan that was replaced, in 1990, by a 10-year loan in the amount of $16.25 million. At maturity, on January 1, 2000, a balloon payment of $15.3 million was due. Efforts to refinance the loan began in July, 1999.

In connection with those efforts, Diamond Point learned that Sam’s Club intended to vacate the leased premises. When apprised of that fact, at least two possible lenders, including the then-current one, declined refinancing. On or about January 20, 2000, Diamond Point signed a loan commitment with Pinnacle Capital Group, L.P. There is a dispute whether, in the course of negotiations with Pinnacle, a Pinnacle employee was advised that Sam’s Club intended to vacate the shopping center. The Circuit Court, on the disputed evidence, found as a fact that Pinnacle was not so notified.

That goes to the first issue identified above. It is not disputed that the $15.3 million refinancing agreed to by Pinnacle was to be through a conduit loan—that is, although Pinnacle was to be designated as the lender on the loan documents, it would immediately assign the loan to Paine Webber Real Estate Securities, Inc. (PaineWebber), which would provide the funding to close the loan. It is not disputed that Diamond Point and the Konover defendants were aware of that arrangement. The loan closed on June 2, 2000, and was immediately assigned to PaineWebber.

In August, 2000, the loan was packaged together with other loans and assigned to Wells Fargo, as trustee for the Registered Holders of Salomon Brothers Mortgage Securities VII, Inc. The Circuit Court found that neither PaineWebber nor Wells Fargo was ever advised, at or before the time the loan was made or at or ⁷³⁰ before the time the loan was assigned to it, that Sam’s Club intended to vacate the premises. Among the loan documents executed in connection with the refinancing were a promissory note, an amended and restated mortgage, an assignment of leases and rents, a guaranty, and two borrower’s certificates. Both the note and the amended mortgage made clear that, subject to certain exceptions, the loan was to be a non-recourse loan; ie., the holder would look only to the security of the mortgaged property for collection of the debt. The payee/mortgagee agreed that it would not attempt to enforce liability under the note or mortgage by seeking a money judgment against the maker/mortgagor or any general partner of the maker/mortgagor, including a deficiency judgment in any foreclosure action.

Those provisions expressly stated, however, that they did not impair the assignment of leases and rents executed in connection with the loan or “constitute a waiver of the right of [Payee] [Mortgagee] to enforce the liability and obligation of [Maker] [Mortgagor], by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by [Payee] [Mortgagee] (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following: (A) fraud or intentional misrepresentation by [Maker] [Mortgagor] or any Guarantor in connection with the Loan; * * * * (F) the misapplication or conversion by Mortgagor of ... any Rents following an Event of Default; [or] * * * * (I) Failure to maintain its status as a single purpose entity.” This provision is referred to by the parties as a “carve out” exception to the non-recourse status of the loan. The Circuit Court found—and this does not seem to be in dispute—that, to ⁷³¹ the extent that there is any personal liability under the carve out exception on the part of Diamond Point, that liability would extend to certain of the other defendants as well— Oriole, as the general partner of Diamond Point; DPMC, the general partner of Oriole; KMC, which guaranteed the non-recourse carve outs; and all but three of the other Konover defendants. Wells Fargo asserted personal liability against Diamond Point and these defendants under all three of the cited carve out exceptions—fraud or intentional misrepresentation, misapplication of rents, and failure by Diamond Point to maintain its status as a single purpose entity. The claim of fraud or intentional misrepresentation concerned the planned departure of Sam’s Club and arose from two certificates issued by Diamond Point, Oriole, and DPMC in connection with the refinancing.

On May 31, 2000—two days before the loan closed—those entities issued a Certificate of Borrower in which, “[i]n addition to all other representations, warranties and covenants” made by them in connection with the mortgage loan by Pinnacle, they “represent[ed], warranted] and covenant[ed] to Pinnacle and ‘its successors, transferees and assigns,’ ” that, among other things: (1) “[W]ith respect to any commercial tenant of the Mortgaged Property, Borrower has no knowledge of any tenant’s intention or notice to vacate the premises and/or cease the payment of rent thereon.” (2) “Borrower knows of nothing involving the Loan [or] the Mortgaged Property ... that may reasonably be expected to (a) cause private institutional investors to regard the Loan as an unacceptable investment; (b) cause the Loan to become delinquent; or (c) adversely affect the Loan’s value or marketability.” (3) “All information set forth in the application for the Loan ... and in all financial statements, certificates and other documents submitted in connection with the Loan Application or in satisfaction of the terms of the Loan Commitment ... is accurate, complete and correct in all material respects. There ⁷³² has been no adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete, incorrect, or otherwise misleading.” (4) “Each and every representation and warranty contained herein and which is within the Borrower’s reasonable control, will remain materially true and correct at all times from the date hereof until the Loan is repaid in full in accordance with its terms.” (5) The Certificate “is delivered to Lender in order to induce Lender to make the Loan. Borrower hereby acknowledges that Lender shall rely upon this Certificate and the making of such representations, warranties and covenants.” Two days later, at closing, the three entities issued a Borrower’s Certificate and Consent, in which, among other things, they certified that the representations they had made in the May 31 Certificate remained “accurate and complete” on June 2,2000. As noted, the Sam’s Club operation at Diamond Point Plaza arose from Wal-Mart’s purchase of the Pace stores in 1994.

As early as July, 1998, Wal-Mart approved the relocation of that operation and began looking for alternative sites. In January, 2000, Wal-Mart commenced discussions with the developers of the Golden Ring Mall for a Sam’s Club. In August, 2000, Wal-Mart gave final approval to the relocation of the Sam’s Club store at Diamond Point Plaza to Golden Ring. Wal-Mart purchased the property for the store and began construction.

This was not to be an additional site for a Sam’s Club store, but a relocation of the Diamond Point Plaza store. On July 31, 2002, Sam’s Club vacated the Diamond Point Plaza store and the next day, August 1, 2002, opened the new store at Golden Ring Mall. The Golden Ring Mall store is about two-and-a-half miles from the Diamond Point Plaza shopping center and thus well within the seven mile radius specified in Article 4(H) of the Sam’s Club lease. The action by Wells Fargo against the Wal-Mart defendants is based, in part, on the complaint that the Golden Ring store constitutes a violation of the radius restriction.

The Circuit Court, in ⁷³³ entering a partial summary judgment for Wal-Mart, found that the Golden Ring Mall operation did not constitute a violation because the two stores were never in simultaneous operation. That is the second major issue in this appeal. In addition to the Golden Ring Mall store, Wal-Mart opened a Sam’s Club store in Port Covington, which lies 6.875 miles from the Diamond Point Plaza center—just barely within the seven-mile radius. That store opened in May, 2002, and was thus in simultaneous operation with the store in Diamond Point Plaza for three months.

The Circuit Court found that the Port Covington Store constituted a violation of the radius restriction and awarded $56,260 in damages for that violation. That finding is not contested in this appeal. The second anchor in the Diamond Point Plaza shopping center was an Ames Department Store. On August 20, 2001, Ames filed for Federal bankruptcy protection, in the course of which it decided to close its stores and liquidate its holdings.

In late October, 2002, Ames rejected its lease with Diamond Point and ceased paying rent. When informed of that fact, Michael Konover, on behalf of Diamond Point, made the business decision to let the mortgage loan go into default, and so the monthly mortgage installment due November 1, 2002, was not paid. On November 22, 2002, Wells Fargo formally advised Diamond Point that the loan was in default, declared the entire amount of the loan immediately due and payable, revoked Diamond Point’s license to collect rents, and instructed it to turn over all rents in its possession. On November 26, a receiver was appointed for the property.

In Article 7 of the restated mortgage and in a separate Assignment of Leases and Rents, executed in connection with the 2000 refinancing, Diamond Point unconditionally assigned to Pinnacle and any subsequent holder of the mortgage its right, title, and interest in all current and future leases and rents from the mortgaged property. Pinnacle, in turn, granted to Diamond Point a revocable license to manage the property and collect the rents, but the mortgage and Assignment declared that Diamond Point would hold the rents, or ⁷³⁴ portion thereof sufficient to discharge all current sums due on the debt, in trust for the benefit of the mortgagee. The mortgage provision continued: “Upon an Event of Default, the license granted to Mortgagor herein shall be automatically revoked and Mortgagee shall immediately be entitled to possession of all Rents, whether or not Mortgagee enters upon or takes control of the Mortgaged Property.” That statement, in nearly identical language, appeared as well in the Assignment of Leases and Rents. Under both the promissory note and Article 20(a) of the restated mortgage, an “Event of Default” was defined to occur if any payment required by the Note was not paid on or before the fifth day after the date when it was due.

The failure to make the November, 2002 payment by November 5 therefore constituted an Event of Default, and, accordingly, on November 6, 2002, Diamond Point’s license to collect and retain rents from the shopping center tenants was terminated. On November 22, 2002, Diamond Point transferred $633,000 in rents that it had previously collected to “MCK.” It was disputed whether those funds were transferred to MCK, Inc. or to Michael C. Konover personally. Wells Fargo sought to recover those funds, from Diamond Point, Oriole, DPMC, Konover, MCK, Inc., and American Way. The Circuit Court determined that (1) the transfer, made after an Event of Default, was a misapplication and a fraudulent transfer that triggered liability under the carve out provisions of the Note and Mortgage on two alternative grounds, (2) that the transfer rendered Diamond Point insolvent, and (3) that the transfer was made to, or directly benefited, Michael Konover personally.

The Circuit Court entered judgment against all of those defendants, except American Way, for the $633,000, plus prejudgment interest, and it entered judgment against American Way for $243,500—the portion of the $633,000 that the court found American Way had received, plus pre-judgment interest. ⁷³⁵ With this background, we turn to the issues raised in the certiorari petitions, adding such additional facts as are required to address those issues. 3 II. DISCUSSION A. Personal Liability for Losses on the Loan It is undisputed that the refinancing loan made by Pinnacle and assigned ultimately to Wells Fargo was a non-recourse loan under which the holder agreed to look only to the mortgaged property in the event of a default on the loan and not to pursue any personal liability against Diamond Point, any general partner of Diamond Point, or any guarantor of the loan. Wells Fargo’s claim against those entities for losses allegedly sustained upon Diamond Point’s default was based on the carve out exception to the non-recourse provision; i.e., by failing to disclose that Sam’s Club intended to vacate its ⁷³⁶ store—indeed, by certifying the contrary—Diamond Point committed fraud or made an intentional misrepresentation. The Konover defendants, against whom personal liability was asserted, defended on the ground that Wells Fargo had failed to prove that Diamond Point’s omission to disclose Sam’s Club’s intention to vacate in its borrower’s certificates was the proximate cause of any loss suffered by Wells Fargo.

That argument has three prongs: (1) that it was not Sam’s Club’s departure that caused the default on the loan but rather the departure and rejection of the lease by Ames; (2) that there was no evidence that Wells Fargo ever reviewed the borrower’s certificates and therefore relied on them; and (3) that Pinnacle knew about Sam’s Club’s intention to close its store before it made the loan. Adjunctively to this third prong, the defendants urge that, because Sam’s Club’s intention had been disclosed to Pinnacle, the borrower’s certificates were not really inaccurate. The May 31, 2000 certificate, they note, is prefaced with the phrase that the representations in the certificate are “[i]n addition to all other representations, warranties and covenants” made by Diamond Point. They thus argue that, as Pinnacle had already been told about Sam’s Club’s intention to vacate, the representation that Diamond Point had “no knowledge of any tenant’s intention or notice to vacate the premises,” being merely cumulative, was not inaccurate.

We shall consider these prongs in inverse order. Pinnacle’s Knowledge Regarding Sam’s Club’s Intention To Vacate Because it is undisputed that Diamond Point was aware, before it ever began negotiations with Pinnacle, that Sam’s Club was making plans to vacate its store at Diamond Point Plaza, we need not recount the abundant evidence in the record establishing that fact. There is also ample evidence, credited by the Circuit Court, that Sam’s Club’s planned departure was a material fact that would be of interest to any potential lender. Before soliciting Pinnacle, Diamond Point contacted a number of brokers and lenders, including Princi ⁷³⁷ pal Mutual Life Insurance Co., which held the then-current loan, Lehman Brothers Holdings, Inc., and an entity identified only as Finova, none of which were willing to extend a loan after they learned of Sam’s Club’s intention.

Heading up the effort to obtain refinancing of the Diamond Point loan were Susan Larkin and Richard Liljedahl, who worked for a Konover affiliate known as Konover Capital Advisers. Both of them were aware of Sam’s Club’s intention to vacate before negotiations commenced with Pinnacle. Indeed, they first learned that information from Lehman Brothers, who obtained it from Wal-Mart’s web site. It is undisputed that that information was never communicated to PaineWebber or Wells Fargo.

The dispute is whether it was ever communicated to Pinnacle. Susan Larkin testified at trial that, at a very early stage in her conversations with Pinnacle—even before an application for a loan was submitted—she informed one Chick (Charles) Chamberlin, a Pinnacle vice-president, that Sam’s Club was looking for another location. She could not remember exactly what she told Chamberlin but said that, in general, she advised him that Sam’s Club was looking for another location, that it had not yet identified one, and that it was continuing to operate the store and pay the rent. Supplementing that testimony was an undated draft e-mail from Chamberlin to his supervisor, Patrick Morris, found on Chamberlin’s home computer, regarding the Diamond Point Plaza matter.

In that document, Chamberlin stated that, “[a]s I mentioned to you, the Applicant has informed me that Sam’s Club, in spite of strong sales, has indicated a desire to find another location within the market, apparently because they did not originally select this site, but rather acquired it in an acquisition of former Pace stores from K-Mart.” That evidence, according to the defendants, constitutes the smoking gun that establishes that Pinnacle was told about Sam’s Club’s intentions. In deposition testimony, Chamberlin identified the draft email as one he “believes” he sent to Morris but did not know when it might have been sent. Morris, however, testified that ⁷³⁸ he did not recall receiving that e-mail and that he had no specific recollection of ever discussing Sam’s Club’s intentions with PaineWebber. In resolving this issue, the Circuit Court made express credibility decisions.

It found that Larkin and certain other Konover witnesses were “motivated to tell a story in a way that makes their version of the events unreliable” and that, “[t]o the extent that the testimony of these witnesses conflicts with the testimony of other witnesses, the conflicting testimony of these witnesses is rejected.” The court noted that, in one or more communications sent by Larkin to Pinnacle, no mention was made of Sam’s Club’s intention, notwithstanding that, when those communications were sent, she was aware of its intended move and understood the importance of that information to any prospective lender. The court expressly concluded that (1) “the information was not provided to Charles ‘Chick’ Chamberlin prior to the loan closing,” (2) “PaineWebber, the party that ultimately funded the Loan, was never made aware of Sam’s intention to vacate Diamond Point early, even though both Richard Liljedahl and Susan Larkin knew that PaineWebber would become the assignee of the Loan and Loan Documents at closing,” and (3) “[t]he evidence clearly established that none of the decisionmakers at Pinnacle and no one at PaineWebber was told the material information described above and which was contrary to the written representation of Diamond Point.” Those findings, in turn, led the court to determine that Wells Fargo had met its burden of proving, by clear and convincing evidence, that the relevant representations in the Borrower’s Certificate and Consent “were fraudulent.” The Circuit Court, which heard the testimony of Ms. Larkin and had before it Mr. Morris’s testimony that he did not recall ever receiving Chamberlin’s alleged e-mail, had every right to make that credibility decision and to make the ultimate finding that neither Pinnacle nor PaineWebber was told about Sam’s Club’s intent to vacate prior to the closing of the loan. In light of that finding, which we find not to be clearly erroneous, we need not address the question of whether disclosure of the ⁷³⁹ information during negotiations rendered the borrower’s certificate that it “has no knowledge of any tenant’s intention or notice to vacate the premises” not inaccurate. It clearly was inaccurate—knowingly and fraudulently inaccurate.

Reliance by PaineWebber and Wells Fargo The Konover defendants contend that “no one associated with Wells Fargo ever reviewed or considered the Certificate of Borrower” before purchasing the package of loans and that the borrower’s certificates “was not even part of the due diligence that PaineWebber made available for Wells Fargo’s investors to review in determining whether to participate in the deal.” On that premise, they argue that Diamond Point’s representations “could not possibly have affected the value that Wells Fargo ascribed to the Diamond Point loan or otherwise caused Wells Fargo any harm in these circumstances.” We note initially that the defendants’ statement that the borrower’s certificates were not part of the due diligence that PaineWebber made available to Wells Fargo may be a stretch of the actual evidence. The source of that statement is the deposition testimony of Douglas Goldrick, who worked for ORIX Capital Markets, the servicing agent which administered the loan on behalf of Wells Fargo. Mr. Goldrick did not say that the borrower’s certificates were not part of the due diligence done by PaineWebber. He simply stated that he did not see those certificates in a due diligence file prepared for ORIX.

That aside, the Certificate of Borrower itself stated that (1) it was being delivered to the Lender “to induce Lender to make the loan,” (2) Diamond Point acknowledged “that Lender shall rely upon this Certificate and the making of such representations, warranties and covenants,” (3) “[e]ach and every representation and warranty contained herein and which is within the Borrower’s reasonable control, will remain materially true and correct at all times from the date hereof until the Loan is repaid in full in accordance with its terms,” and (4) if any representation “becomes untrue, in whole or in part, ⁷⁴⁰ after the date hereof, Borrower will so advise Lender in writing immediately.” The representations in the Certificate were made to the Lender (Pinnacle) and “its successors, transferees, and assigns,” and therefore ran as well to PaineWebber. The Circuit Court thus properly concluded that Diamond Point “had a continuing duty ... to notify Pinnacle and/or PaineWebber if any representation or warranty became untrue.” There is no evidence that Diamond Point gave any notice to Pinnacle or PaineWebber regarding Sam’s Club after the loan closing. The Konover defendants clearly understood that PaineWebber would likely sell the mortgage, separately or as part of a larger package. From essentially undisputed evidence, the Circuit Court found that those defendants were “sophisticated in the business of commercial loans generally and conduit loans in particular, including the fact that conduit loans like the one being pursued in 2000, would be sold to institutional investors in a secondary market transaction.” More particularly, in Paragraph 58 of the restated mortgage, Diamond Point expressly acknowledged that Pinnacle “and its successors and assigns” may, among other things, “deposit, through one or a series of transactions, this Mortgage, the Note and Other Security Documents with a trust, which trust may sell certificates to investors,” and it agreed to cooperate with the mortgagee in “effecting any such Secondary Mortgage Transaction.” It is certainly implicit that Diamond Point had more than good reason to expect that any secondary buyer, including a trustee in the position of Wells Fargo, would necessarily receive and rely on the loan documents, including the representations of material fact made in its borrower’s certificates.

Although Wells Fargo’s claims for losses on the mortgage loan were breach of contract, rather than tort, actions, they were founded on an allegation of fraud or intentional misrepresentation, and, as a result, the principles set forth in §§ 531 through 533 of the Restatement (Second) of Torts are instructive. Section 531 states, as a general rule: ⁷⁴¹ “One who makes a fraudulent misrepresentation is subject to liability to the persons or class of persons whom he intends or has reason to expect to act or to refrain from action in reliance upon the misrepresentation, for pecuniary loss suffered by them through their justifiable reliance in the type of transaction in which he intends or has reason to expect their conduct to be influenced.” Section 532, dealing more particularly with misrepresentations made in commercial documents, adds: “One who embodies a fraudulent misrepresentation in an article of commerce, a muniment of title, a negotiable instrument or a similar commercial document, is subject to liability for pecuniary loss caused to another who deals with him or with a third person regarding the article or document in justifiable reliance upon the truth of the representation.” (Emphasis added). Comment b. to § 532 characterizes the section as “saying that the maker of a fraudulent misrepresentation incorporated in a document has reason to expect that it will reach and influence any person whom the document reaches.” Consistently with that view, § 533 provides: “The maker of a fraudulent misrepresentation is subject to liability for pecuniary loss to another who acts in justifiable reliance upon it if the misrepresentation, although not made directly to the other, is made to a third person and the maker intends or has reason to expect that its terms will be repeated or its substance communicated to the other, and that it will influence his conduct in the transaction or type of transaction involved.” Under these principles, Diamond Point would be liable to Wells Fargo. It made a fraudulent misrepresentation in a commercial document, for the purpose of inducing Pinnacle and PaineWebber to extend a loan, aware that PaineWebber likely would sell that loan in the secondary market.

Diamond Point would thus have reason to expect that the loan documents, including its borrower’s certificates, would be presented to, would be considered by, and would influence the deci ⁷⁴² sion of prospective buyers in the secondary market. The mere fact that those certificates could not be immediately located in one due diligence file does not mean that they were not presented to, considered by, and influenced Wells Fargo in determining whether to purchase the Diamond Point mortgage. Liability is not defeated by the fact that Diamond Point’s representations were not made directly to Wells Fargo. See Sempione v. Provident Bank of Maryland, 75 F.3d 951, 962-63 (4th Cir.1996); Superior Bank, F.S.B. v. Tandem Nat’l.

Mortg., Inc., 197 F.Supp.2d 298 (D.Md.2000); Ernst & Young v. Pacific Mutual Life Insurance Co., 51 S.W.3d 573 (Tex.2001); Reisman v. KPMG Peat Marwick, 57 Mass.App.Ct. 100, 787 N.E.2d 1060 (2003); compare Walpert v. Katz, 361 Md. 645 , 762 A.2d 582 (2000), an action founded solely in negligence. Proximate Cause The major defense mounted to Wells Fargo’s claim for losses sustained on the loan is that the representations made in the borrower’s certificates were not the proximate cause of those losses. The losses sustained by Wells Fargo, they urge, arose from Diamond Point’s default on the loan, and that was due entirely to the loss of income arising from Ames’s rejection of its lease, which occurred more than two years after the loan closed. No loss, they claim, arose from the departure of Sam’s Club, as Wal-Mart continued to pay the rent for that space.

They complain that the Court of Special Appeals “erroneously reasoned that a proximate cause analysis applies only in a tort action” and “[ejschewing the required proximate cause analysis,” found liability solely on the basis of the carve out provision. As a preface, defendants have completely misread what the Court of Special Appeals said and held. That court did not “eschew” a proximate cause analysis when considering liability under the carve out provision. The discussion they point to concerned liability for damages arising from Wal-Mart’s licensing of the space to The Wire Productions, Inc., not the carve out provision or the representations made in the borrow ⁷⁴³ er’s certificate.

See Wells Fargo v. Diamond Point, supra, 171 Md.App. at 112-13 , 908 A.2d at 709 . Affirmance of the judgment arising from Diamond Point’s fraud was based on the conclusion that “[h]ad Pinnacle and/or PaineWebber known or been apprised of Sam’s planned departure from the Center, it is unlikely that Diamond Point [sic, Pinnacle or PaineWebber] would have approved the loan.” Id, at 125, 908 A.2d at 716 . That is clearly a proximate cause analysis, and one that has merit. Based on the actual experience of the Konover defendants in their dealings with Lehman Brothers, Principal Mutual, and Finova, it is a fair inference that, had Pinnacle or PaineWebber been informed of Sam’s Club’s intended departure prior to June, 2000, and not, in fact, been misled by the false statement that Diamond Point had no knowledge of any tenant’s intention to vacate, the loan would not have been made, or at least not on the same terms. 4 As noted, the Circuit Court found as a fact that Pinnacle and PaineWebber “relied on the Certificate of Borrower and the Borrower’s Certificate and Consent in closing the Loan.” That, alone, would have avoided or ameliorated any loss by Wells Fargo.

It is an equally fair inference that, had PaineWebber been informed of Sam’s Club’s intended departure at any time between June and August, 2000, and communicated that information to Wells Fargo, as it would have been obliged to do, Wells Fargo would not have purchased that loan. The record does, indeed, indicate that the calculated business decision by Konover to allow the loan to go into default was prompted by Ames’s rejection of its lease and the loss of income from that lease, and that default triggered enforcement action. That is not the end of the story, however. For one thing, there was substantial evidence showing that the loss ⁷⁴⁴ of rental income from Ames did not render Diamond Point unable to make payments on the mortgage and thus did not necessarily engender a default.

The Ames base rent was under $40,000 per month; that was the extent of the income stream that would be interrupted until such time as the Ames space could be re-rented. Immediately prior to the Ames pullout, the shopping center was more than 95% rent-productive, and Diamond Point had $683,000 in its accounts. Mr. Konover made a business decision to have Diamond Point default on the mortgage, obviously believing it to be a non-recourse loan that would engender no liability to himself or any of his companies, but the court made no finding that the loss of rent from Ames necessitated a default on the mortgage and the evidence did not compel any such finding. To a large extent, that is all beside the point in any event.

The loss occasioned by Wells Fargo, once it made the decision to purchase the loan, was not due to the loss of rent from Ames. In February, 2000, while considering whether to extend a loan, Pinnacle had the shopping center property appraised. The appraisal showed a market value of $20 million, which Pinnacle obviously and reasonably believed would be adequate security for a $15.3 million loan. That appraisal took significant account of the Sam’s Club lease.

It estimated a potential net cash flow from that lease of approximately $1.4 million per year, through March, 2011 (compared with about $600,000 from the Ames lease). In September, 2002, immediately following the departure of Sam’s Club, ORIX requested and received another appraisal, which was in three parts. The shopping center, as a whole, was appraised first in an “as is” condition at $7,350,000, based on the assumptions that the Sam’s Club lease had been “bought out” (which had not occurred but was then planned) and that the Ames lease had been dissolved. That represented a 60% decline in the value of the center.

The center was also appraised in an “as stabilized” condition, i e., “as of a point in time when all improvements have been physically constructed and the property has been leased to its optimum level of long term occupancy,” at $14.3 million. The appraisal ⁷⁴⁵ thus showed a decline, even in a “as stabilized” condition, of $5.7 million, or 28.5%, between February, 2000 and September, 2002. The Sam’s Club space was appraised separately, on the assumption that it could be subdivided from the shopping center and sold separately, at $4.2 million. In July, 2004, the 2002 appraisal was updated.

The shopping center was appraised at that time at $10.3 million, a decline of nearly 50% since 2000 and still $4 million less than the “as stabilized” estimate from 2002. The total mortgage debt as of April, 2005, including taxes, interest, insurance, and other fees and expenses, was over $26 million, subject to credits of about $3.7 million, for a net amount due of $22.8 million. The outstanding principal at the time was just over $15 million. Apart from the fact that no percentage rent would be forthcoming from Sam’s Club, the appraiser noted that the loss of control over that space hindered a unified redevelopment and marketing plan.

The nexus between Diamond Point’s false certificate and Wells Fargo’s loss is a dual one. First, had Diamond Point disclosed what it knew, it is likely that the loan would not have been made in the first place, at least on the same terms. Second, having purchased the loan in ignorance of Sam’s Club’s intended departure, Wells Fargo was faced, upon Diamond Point’s default, with a 60% drop in the value of the center, which, in light of the