Hector v. Bank of New York Mellon

Hector, et al. v. Bank of New York Mellon, No. 3100, September Term 2018. Opinion by Beachley, J. TRUSTEE—REPRESENTATIVE CAPACITY SEPARATE FROM INDIVIDUAL CAPACITY TRUSTEE LIABILITY—PERSONAL LIABILITY—PERSONALLY AT FAULT While they were young children, appellants lived from 2001 to 2002 at a property which allegedly contained lead paint. Appellants supposedly consumed lead paint at the property and contracted lead poisoning, causing them serious permanent injuries. At the time that appellants lived at the property and were allegedly exposed to lead paint, Bank of New York Mellon (“BNYM”) served as the trustee of the Trust that owned the property (and numerous other properties and loans).

The Trust was created when BNYM and other parties executed a Pooling and Servicing Agreement (“PSA”) which defined the roles and responsibilities of each of the parties to the Trust. In April 2016, appellants filed an amended complaint against Bank of New York Mellon (“BNYM”), alleging BNYM’s negligence as the “owner” of the property pursuant to the Baltimore City Housing Code. BNYM moved for summary judgment, arguing that appellants had conflated BNYM in its individual capacity with BNYM in its trustee capacity. BNYM also argued that it was not an “owner” under the Housing Code and was therefore not personally liable to appellants for any injuries they sustained.

The circuit court granted BNYM’s motion for summary judgment on the basis that appellants had sued the wrong party, i.e., that appellants should have pursued their claim against BNYM as Trustee, not BNYM individually. The court then granted appellants’ request for leave to amend their amended complaint. Appellants amended their complaint, and BNYM moved to strike or dismiss the amended complaint. The court granted BNYM’s motion, essentially affirming the prior ruling that appellants had sued the wrong party.

Appellants timely appealed. Held: Judgment affirmed. There is a distinction between a party in its capacity as a trustee and that same party in its individual capacity. Although the Maryland Trust Act [Md. Code (1974, 2017 Repl.

Vol.), § 14.5-908 of the Estates and Trusts Article] recognizes that a trustee may be held personally liable in tort, it does not address the circumstances that may give rise to such personal liability. The Restatement (Third) of Trusts, however, provides that a trustee may be held personally liable for claims sounding in tort “only if the trustee is personally at fault.” To be “personally at fault,” the trustee must have personally committed, inspired, or participated in the alleged torts in accordance with Allen v. Dackman, 413 Md. 132, 155 (2010). Even assuming BNYM as Trustee were an “owner” of the property pursuant to the Baltimore City Housing Code, appellants failed to produce any facts tending to show that BNYM was personally at fault by personally committing or participating in negligence related to the lead paint. Contrarily, BNYM produced evidence showing that, pursuant to the PSA, its role as trustee was passive, and that it was “not empowered to manage or improve” the property.

Instead, BNYM as Trustee was simply responsible for “safekeeping of cash and collateral, distribution of cash flows from the collateral, and relaying trust asset and performance information received from the servicer to the certificateholders.” Because appellants failed to produce any facts showing that BNYM as Trustee was personally at fault, they could not maintain their action against BNYM for personal liability. Accordingly, the court correctly granted summary judgment in favor of BNYM Circuit Court for Baltimore City Case No. 24-C-16-002488 LP REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 3100 September Term, 2018 ASHLEY HECTOR, ET AL. v. BANK OF NEW YORK MELLON Berger, Beachley, Wells, JJ. Opinion by Beachley, J. Filed: January 29, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2020-01-30 10:16-05:00 Suzanne C. Johnson, Clerk On June 10, 2016, Ashley and Alyaa Hector (“appellants”), as minors, filed an amended complaint in the Circuit Court for Baltimore City alleging negligence for injuries related to lead paint exposure. The amended complaint charged three separate defendants with negligence: Sharlene Epps-Smith, Daniel Smith, and the Bank of New York Mellon (“BNYM”).

BNYM filed an answer and, at the close of discovery, moved for summary judgment as to its respective negligence count. Following a hearing, the circuit court granted BNYM’s motion, but granted appellants leave to amend their complaint. On July 24, 2018, appellants filed their second amended complaint. BNYM moved to strike or dismiss this complaint and, following a hearing on October 3, 2018, the circuit court granted BNYM’s motion, effectively affirming the initial grant of summary judgment.

Appellants timely appealed1 and present one question for our review, which we rephrase as follows: Did the trial court err in granting summary judgment by finding that BNYM was not liable in its individual capacity to appellants?2 Because we conclude that appellants produced insufficient evidence that BNYM as 1 After the circuit court granted BNYM’s motion to strike or dismiss the second amended complaint, appellants stipulated to the dismissal of Sharlene Epps-Smith and Daniel Smith as defendants. This appeal only concerns whether the circuit court erred in dismissing BNYM as a defendant. 2 Appellants presented the following question in their brief: Did the trial court err in granting summary judgment by finding as a matter of law, that the BNYM, as Trustee for a mortgage backed-security and holder of the Deed of Trust, had no individual duty to minor children residing in an old[,] dangerous rental property in Baltimore City, where BNYM defaulted the debtor, foreclosed on the property, and purchased the dwelling at auction? Trustee was personally at fault for any negligence related to the property, we affirm the circuit court’s grant of summary judgment in favor of BNYM in its individual capacity. FACTS AND PROCEEDINGS This case concerns property located at 447 North Linwood Avenue, located in Baltimore City (the “Property”).

In order to address the issue on appeal, we must explain both BNYM’s and appellants’ connections to the Property. We begin with BNYM. In September 1999, Intercoastal Investment Trust, Ltd. purchased the Property and then entered into a ninety-nine-year lease with defendant Sharlene Epps-Smith pursuant to a purchase money deed of trust secured by the Property. This security, along with hundreds of other loans, was contemporaneously pooled into a trust (the “Trust”).

The Trust was created when BNYM as Trustee and several other parties not related to this appeal executed a Pooling and Servicing Agreement (“PSA”) which established the rights and responsibilities of the various parties that were to manage and control the Trust. The PSA specifically outlined the scope of the Trustee’s duties, as well as its liabilities to the Trust. That BNYM functioned only as a trustee in regard to the Trust will be significant in our analysis. In November 2001, Sharlene Epps-Smith defaulted on the loan, and the Trust appointed substitute trustees to initiate foreclosure proceedings on the Property.

On December 27, 2001, BNYM as Trustee purchased the Property at the foreclosure sale, and on March 11, 2002, BNYM as Trustee moved for possession of the property. The circuit court granted BNYM as Trustee’s motion for possession on August 15, 2002. 2 From 2001 to 2002, appellants’ father was a tenant at the Property, and appellants lived in or visited the Property during this time. According to appellants, the walls, floors, doors, ceilings, and woodwork of the Property contained lead pigments which are dangerous to children. Appellants apparently consumed the lead paint and powder and subsequently contracted lead poisoning, causing them serious permanent injuries.

Appellants lodged their first complaint against Sharlene Epps-Smith and Daniel Smith3 on April 27, 2016. They amended their complaint on June 10, 2016, to include BNYM, in its individual capacity, as a third defendant. In the count alleging BNYM’s negligence, the amended complaint stated, For that all [sic] of the time mentioned herein the Defendant, [BNYM], owned and/or controlled, either individually or by the use of agents, apparent agents, servants and/or employees, a lot of ground and building known as [the Property] . . . which [BNYM] either individually or by agents, apparent agents, servants or employees, had a duty to manage, supervise, and maintain pursuant to the Baltimore City Code. [BNYM], as trustee under a Pooling and Servicing Agreement, pursuant to a foreclosure, did purchase [the Property] at auction on December 27, 2001. Thus, appellants’ theory of liability against BNYM individually was that BNYM, either individually or through its agents or employees, “had a duty to manage, supervise, and maintain [the Property] pursuant to the Baltimore City [Housing] Code.” Notably, appellants never amended their complaint to sue BNYM as Trustee.

In its answer, BNYM stated that the amended complaint incorrectly conflated it with BNYM as Trustee for the Trust, generally denied any liability, and noted that it “ha[d] no 3 According to BNYM’s motion for summary judgment, Sharlene Epps-Smith owned the property and Daniel worked as her property manager. 3 personal liability for [appellants’] claims.” BNYM then moved for summary judgment. The circuit court held a hearing on July 11, 2018. At the hearing, BNYM reiterated that appellants were suing the wrong party because BNYM was only involved with the Property in a trustee capacity. BNYM also argued that, because it was not an “owner” pursuant to the Baltimore City Housing Code or the Maryland Lead Paint Act, it could not be liable for injuries sustained at the Property.

The circuit court granted BNYM’s motion from the bench, concluding that “[BNYM] is not the trustee, that [BNYM] as presented by Counsel for [appellants] is not the appropriate party to be sued[.]” Appellants requested leave to amend their amended complaint, and, over objection, the circuit court granted that request. Nearly two weeks later, on July 24, 2018, appellants filed their second amended complaint. BNYM moved to strike or dismiss, and the parties appeared for a hearing on October 3, 2018. At the hearing, BNYM characterized the issue for the court’s review as follows: “whether or not the second amended complaint, which has named [BNYM] in its individually [sic] capacity can stand.” The circuit court concluded that the judge who presided over the motion for summary judgment had already “granted summary judgment on behalf of defendant [BNYM] in [its] individual capacity.” In granting BNYM’s motion, the court stated that it saw “no reason to reconsider or to interfere with [that] order[,]” and appellants timely appealed.

We shall provide additional facts as necessary. STANDARD OF REVIEW The circuit court granted BNYM’s motion for summary judgment, finding that BNYM was “not the appropriate party to be sued,” because BNYM, in its individual capacity, was not involved with the Trust. “Ordinarily, an appellate court will not affirm 4 a summary judgment by ruling on a ground not ruled upon by the trial court. If the alternative ground is one as to which the trial court had no discretion, however, summary judgment may be affirmed.” Thomas v. City of Annapolis, 113 Md. App. 440, 450 (1997) (citing Md. Cas. Co. v. Lorkovic, 100 Md. App. 333, 357 (1994)). “With respect to the trial court’s grant of a motion for summary judgment, the standard of review is de novo.” Dashiell v. Meeks, 396 Md. 149, 163 (2006) (citing Rockwood Cas.

Ins. Co. v. Uninsured Emp’rs’ Fund, 385 Md. 99, 106 (2005)). Before determining whether the circuit court’s decision was legally correct, however, appellate courts must first determine whether there is any genuine dispute of material facts. Id.

(citing Converge Servs. Grp., LLC v. Curran, 383 Md. 462, 476 (2004)). All factual disputes must be resolved in favor of the non- moving party. Id.

(citing Jurgensen v. New Phoenix Atl. Condo. Council of Unit Owners, 380 Md. 106, 114 (2004)). When the moving party has provided the court with sufficient grounds to grant summary judgment, the opposing party must demonstrate that there is a genuine dispute of material fact.

Reiter v. ACandS, Inc., 179 Md. App. 645, 659-60 (2008) (quoting Miller v. Ratner, 114 Md. App. 18, 27 (1997)). DISCUSSION The issue in this case is whether appellants may sue BNYM in its individual capacity where BNYM’s only connection to the Property stems from its role as trustee of the Trust that owned the mortgage to the Property. In their brief, appellants argue that the Maryland Uniform Trust Act, Md. Code (1974, 2017 Repl. Vol.), § 14.5-908 of the Estates and Trusts Article (“ET”) does not limit the liability of the trustee, and “implies that a trustee may be held liable in its individual capacity.” BNYM responds that “[a] trustee and an individual 5 entity are two wholly distinct and separate persons under the law[,]” and that BNYM never had any relationship with the Property beyond its capacity as trustee of the Trust.

As we shall explain, appellants have failed to provide facts demonstrating that BNYM as Trustee was “personally at fault” for their injuries in accordance with the standard for trustee liability as set forth in the Restatement (Third) of Trusts. Accordingly, summary judgment was properly granted in favor of BNYM, albeit on a different basis than that articulated by the trial court. We begin our discussion by noting the distinction between a party in its individual capacity and that same party in its representative capacity. In Hooke v. Equitable Credit Corp., 33 Md. App. 437 (1976), this Court underscored the significance of that distinction.

There, the Hookes entered into two loans with Equitable Credit Corporation (“Equitable”). Id. at 438 . Whereas the first loan (the “corporate note”) was evidenced by a confessed judgment executed by two corporations that the Hookes owned, the second loan (the “trustee note”) was evidenced by a confessed judgment executed by the Hookes as trustees pursuant to a trust instrument for the benefit of their minor children.4 Id. Upon default of both notes, Equitable sued “A. Michael Hooke, Sr. and Marguerite E. Hooke . . ., Trustees under that Certain Deed of Trust dated May 1, 1972[.]” Id. at 438- 39.

In other words, Equitable sued the Hookes only in their capacities as trustees for nonpayment of both the corporate and trustee notes. Id. Equitable then sought a “Judgment 4 The Hookes personally guaranteed payment of both the corporate note and the trustee note. Hooke, 33 Md. App. at 438 . 6 by Confession for the Plaintiff” for the outstanding sums provided for in the notes.

Id. at 439 . Ultimately, this Court reversed the judgment as it pertained to the corporate note because the Hookes did not execute the corporate note in their capacities as trustees. Id. at 440, 443-44 . We explained: Since Equitable elected to sue the Hookes only in their capacities as trustees, the actual defendants in the suit were never served . . . .

See [Bank of Am. Nat’l Tr. & Sav. Ass’n v. Carr, 138 Cal. App. 2d 727 , 292 P.2d 587 (1956)], where the California Court of Appeals made it clear that a party must be served in that legal capacity in which he is sought to be bound.

We adhere to that principle. Id. at 443 (emphasis added).5 From this case we extract the principle that a party in its individual capacity is not the same as that party in its trustee capacity. Having established the legal significance of distinguishing between a party in its trustee capacity and a party in its individual capacity, we turn to whether a trustee may be personally liable. We begin with the Maryland Trust Act, codified at ET § 14.5-101 et seq.

Section 14.5-908 discusses a trustee’s liability, and provides: (a) Except as otherwise provided in the contract, a trustee is not personally liable on a contract properly entered into by the trustee in the fiduciary capacity of the trustee in the course of administering the trust if the trustee in the contract disclosed the fiduciary capacity. (b) A claim based on a contract entered into by a trustee in the fiduciary capacity of the trustee, on an obligation arising from ownership or control of trust property, or on a tort committed in the course of administering a trust, may be asserted in a judicial proceeding against the trustee in the fiduciary 5 Because the Hookes, as trustees, had executed the trustee note and had alleged no facts supporting a defense to the trustee note, we affirmed the trial court’s decision sustaining the confessed judgment as to that note. Hooke, 33 Md. App. at 444 . 7 capacity of the trustee, regardless of whether the trustee is personally liable for the claim. (Emphasis added).

Unfortunately, although ET § 14.5-908(b) provides that a trustee may be sued “on a tort committed in the course of administering a trust,” it does not address the parameters of the trustee’s tort liability and, more importantly, the circumstances that may give rise to a trustee’s personal liability. We initially note that we are not aware of any appellate decisions interpreting ET § 14.5-908. The legislative history of the Maryland Trust Act indicates that it is “a modified version of the Uniform Trust Code drafted by the Uniform Law Commissioners.” Senate Judicial Proceedings Committee, Floor Report, House Bill 83 (2014). Our research into the history of ET § 14.5-908 reveals no intentional deviations from the Uniform Trust Code.

Additionally, our review of the Maryland Trust Act’s legislative history uncovered nothing pertinent to the issues presented in this appeal. We therefore look to the Restatement (Third) of Trusts (2012) for guidance, and note its express statement that, for a trustee to be held personally liable, it must be “personally at fault.” Section 106 of the Restatement (Third) of Trusts provides: A trustee is personally liable: (1) on a contract entered into in the course of trust administration only if: (a) in doing so, the trustee committed a breach of trust; or (b) the trustee’s representative capacity was undisclosed and unknown to the third party; or (c) the contract so provides; (2) for a tort committed in the course of trust administration, or for an obligation arising from the trustee’s ownership or control of trust property, only if the trustee is personally at fault. 8 (Emphasis added). The Comments to § 106 provide further context and guidance concerning a trustee’s personal liability for actions related to the administration of the trust. They provide that: (b)(2).

Tort. A trustee is personally liable for a tort committed in the course of trust administration only if the trustee is personally at fault. Thus, a trustee is not personally liable for a tort committed by the trustee’s agent or employee where there is no personal fault on the part of the trustee. . . . (b)(3).

Obligation arising from ownership or control of trust property. A trustee is not personally liable for an obligation arising from the trustee’s ownership or control of trust