Herlson v. RTS Residential Block 5, LLC

JAMES A. KENNEY, III, Judge (Retired, Specially Assigned). This appeal arises from a declaratory judgment action in the Circuit Court for Montgomery County filed on March 27, 2007, by appellant, Kristin Herlson. She sought a declaration of her rights under a contract for the purchase of a condominium unit then under construction in the Palladian Condominium at Rockville Town Square in Montgomery County. The action ⁷²² was resolved in favor of appellees, RTS Residential Block 5, LLC, and RTS-RD Rockville Investments II, LLC, the sole member and manager of RTS Residential Block 5, LLC (collectively referred to as “RTS”), and against appellant.

In her complaint, appellant alleged that amendments made by RTS to the Public Offering Statement (“POS”) materially affected her rights as a purchaser of the condominium and permitted rescission of the agreement by written notice to the seller within five days of receipt of the amendments. But, when she attempted to rescind her purchase contract, RTS refused to return appellant’s deposit and to acknowledge rescission of her contract. Appellant requested that the circuit court: (1) adjudicate the rights and liabilities of the parties with respect to the contract; (2) declare that the changes made to the POS were substantial and material; and (3) declare that she had the right to rescind the contract. RTS filed an answer to the complaint for declaratory judgment seeking dismissal of the complaint for failure to state a claim upon which relief could be granted. 1 RTS alternatively requested that the court declare that the changes made to the POS were neither substantial nor material and that appellant did not have the right to rescind her contract.

On November 16, 2007, appellant moved for summary judgment, which the court denied on January 23, 2008. At trial, on December 17, 2007, RTS’s oral motion for judgment was denied, but, after hearing all of the testimony, the circuit court found in favor of RTS and, on December 24, 2007, filed a notice of judgment in RTS’s favor. This timely appeal followed, presenting three issues for our review, which we have consolidated into two: 2 ⁷²³ I. Whether the trial court erred in its interpretation of § 126 of the Maryland Condominium Act [(the “MCA”), Md.Code Ann. (1974, 2003 Repl.Vol.) § 11-126 et seq. of the Real Property Article (“Real Prop.”).] II. Whether the trial court erred in finding that the changes made to the condominium documents in the instant case did not materially affect the rights of the plaintiff as purchaser.

For the reasons that follow, we shall reverse the judgment of the circuit court. FACTS AND PROCEDURAL BACKGROUND In 2005, appellant, an employee of the Mayhood Company, was assigned to perform sales and marketing tasks with respect to Rockville Town Square, a new community being developed by RTS in Montgomery County. She was given the opportunity to be one of the first purchasers of one of the condominium units that RTS had available for sale. Because of her employment, she was familiar with the POS relating to the sales contract for the condominiums.

On June 4, 2005, appellant entered into a sales contract for the purchase of a residential condominium unit in the Palladian Condominium, then under construction. The “initial sales price was $403,900, 3 and [a]ppellant made a deposit of $20,200.” Appellant’s Sales Contract at Addendum #4, Repurchase Addendum, provides, in pertinent part: ⁷²⁴ [I]n farther consideration of the mutual promise of the parties, the parties agreeing to be legally bound do hereby agree as follows: 1. Purchaser hereby represents to Seller that he/she is purchasing the Unit as his/her primary, year round residence and covenants and agrees not to lease the Unit until after the Purchaser has occupied the Unit as his/her principle year round residence for twelve (12) consecutive months. .... Seller shall have all remedies at law and in equity to enforce this covenant and agreement against Purchaser____ 2.

Purchaser hereby agrees that if Purchaser sells the Unit within the twelve (12)-month period following the date of the Purchaser’s acquisition of title to the Unit, Seller shall receive seventy-five percent (75%) of the Net Sales Proceeds, as defined below, from the sale of the Unit by the Purchaser. In order to induce Seller to sell the Unit to Purchaser, Purchaser agrees that the deed of conveyance from Seller conveying the Unit to Purchaser shall contain a covenant in favor of Seller for seventy-five percent (75%) of the Net Sales Proceeds, as defined below, of the sale of the Unit by the Purchaser if such sale occurs within the Restriction Period. For purposes of the Leasing and Resale Addendum, “Net Sales Proceeds” shall mean the total sales price of the Unit appearing on the settlement statement of the Purchaser, as seller, less the payoff of any bona fide lender holding a first deed of trust on the Unit, less down payment, less customary closing costs in Maryland payable to bona fide third parties unrelated to the Purchaser. 3. It is the intent of the Seller that these provisions are to limit the sale of units to investors and not to limit the flexibility of Purchaser who, in good faith, acquired to own the Unit as his/her primary year round residence.

As such, the provisions of this Addendum shall not apply if unforeseen circumstances arise which require Purchaser to sell or lease the Unit prior to expiration of the Restriction Period. Such unforeseen circumstances shall include: [a. Job loss resulting in 10% decrease in annual income; b. ⁷²⁵ Relocation of employment over 50 miles from the Unit; c. Any reasonable change as approved by the Seller.] (Emphasis added.) The sample deed given to appellant as part of the POS included the following provision: SPECIFICALLY RESERVING UNTO SELLER, the right to repurchase from the Purchaser the Unit, Parking Space and Storage Space in the event that Purchaser shall either sell, rent, or lease the Unit, or attempt to sell, rent or lease the Unit during the period that is twelve (12) months from the date of conveyance of the Unit to Purchaser (the “Repurchase Period”).

In the event that Purchaser shall, or attempt to, convey, rent or lease the Unit during the Repurchase Period, the Purchaser shall be obligated to notify Seller in wilting and Seller shall for a period of fifteen (15) days following its receipt of such written notice have the right (but not the obligation) to repurchase from the Purchaser the Unit, Parking Space and Storage Space at the same purchase price paid by Purchaser pursuant to the Purchase Agreement..... Appellant testified that she considered those provisions to be “significant aspects” of the POS. They were important in her decision to purchase because the restrictions would decrease the number of investment units, and thereby create a stable living environment, less prone to the turnover of leased apartments. In her view, they would ultimately help to increase the value of the condominium.

On January 31, 2007, appellant received a packet of materials from RTS that included “a few updates” to her POS. 4 ⁷²⁶ Upon reviewing the documents, she found that the amended sales contract and deed for future purchasers no longer restricted the amount of time a purchaser would be required to occupy his or her unit before renting it and that the time a purchaser would be required to own the unit before selling it had been increased “from one to two years.” 5 When asked, “[H]ow did [the amendments to the POS] affect your thinking of purchasing a condominium,” appellant stated: Well, it changed completely in my mind, because to me it affected the character of the community, it affected my investment that I put into it, and in the long run it would affect that, as well. Also, the fact that in those four buildings there are shared amenities, as well as, as the pool, and the fact that now there could be a full tenant occupancy in a building where I’m paying a condo fee to share those amenities didn’t seem fair to me. Appellant testified that this change to the condominium scheme would affect “the character of the community” and her long term investment negatively because buyers intending to occupy the units they have purchased would, presumably, take better care of their units than would more transient renters. According to appellant, had she known that such a change ⁷²⁷ might be made to the condominium documents, she would not have contracted to purchase the unit.

Consequently, on February 1, 2007, appellant sent via certified mail, and hand-delivered to RTS, a letter advising that she did not agree with the changes to the POS and requesting the cancellation of her contract and the return of her deposit. RTS refused to cancel the contract or to return appellant’s deposit. At the close of appellant’s case, RTS moved for judgment on the basis that appellant could rescind the contract only if the amendments materially affected her rights, and that the amendments did not do so. The circuit court, stating that there was no disagreement between the parties with respect to what the documents said, only with the interpretation of the documents, denied the motion.

RTS called as a witness Renee Finley, the attorney who had drafted most of the documents making up the POS at issue in the case, as well as the sales contract and addenda thereto. She testified that the amendment to Addendum 4 to the sales contract, the repurchase addendum, would affect only future sales, not the sale of units already under contract, such as appellant’s. It was Finley’s opinion that the changes to the deed for future purchasers did not in any way change the deed for which appellant had previously bargained. H. Michael Schwartzman, vice president and director of development of Ross Development and Investment, testified that Addendum 4 was amended because, after an initial burst of sales of the condominium units at Rockville Town Square, “the [housing] market slowed, ... the Mayhood Company was replaced for lack of performance,” and the new management recommended that “if [RTS] were to allow renting ..., but extended the sales lockout period, [it] would effectively be neutral but might be able to attract more purchasers.” 6 In his opinion, those decisions and the resulting changes to the ⁷²⁸ POS documents did not affect appellant’s contract.

Appellant’s contract was exactly the same as other purchasers with the same contract who had already settled on their units. In closing, appellant argued that she was entitled to the benefit of her bargain, which was changed by the developer as a result of Amendment 4 to the POS. She stated that, pursuant to Real Prop. § ll-126(e), she was allowed to rescind the contract because changes were made to the purchaser’s POS, which was part and parcel of her contract. RTS argued that appellant had failed to show a single change to her contract, that is, something she bargained for in her individual contract that she did not receive from the developer.

According to RTS, it could not have been the intent of the legislature, in enacting the applicable statute, to subject a developer making a change to its POS that did not materially affect a purchaser’s rights to the risk that every purchaser could rescind his or her contract. The circuit court ruled: [Gjoing to the statute that is involved here, I don’t find-looking at every end of the plaintiffs argument, laboring over it and giving the plaintiff the benefit of the doubt in every way that, that we can, I don’t find any of the alleged amendments to materially affect the plaintiffs rights at all. And we’ve gone over every one of them. And I’ve gone over them ad nauseam, because, quite frankly, looked [sic] for a way to grant the plaintiff the relief that she is requesting.

But in order for a court to do that, it must be legal. And to do it in this case, I don’t find that you have the leg to stand on. With respect to leasing unsold units and what the rights were with buyers that were going to come, obviously, after the plaintiff, that didn’t affect this plaintiffs contract. Her contract didn’t change at all.

It didn’t affect her rights materially. ⁷²⁹ So whether you go through with it and end up living there or not, certainly an argument could be made that a person who buys in a particular neighborhood, notwithstanding what you might think about their opinion regarding whether they’re MPDUs [moderately priced dwelling units] or whether they’re renters or what have you, you may not— one may not like a buyer’s attitude about that, but in the real world, those are things that people are concerned about. And when people buy homes they want to know what kind of neighborhood they’re buying a home in. Right or wrong, they have a right to be concerned about that. And if it, if what you think you’re buying is not what you’re getting because of changes made by the seller, that’s a real concern.

It’s a legitimate concern. And there is a place for that argument, it’s just not in this case. The plaintiffs case had to be based on what it was based upon, and that is the statute. Because real estate contracts in Maryland, and certainly in Montgomery County, are controlled by statute.

The contracts themselves are form contracts ... and the terms of these contracts are, are there pursuant to the statute. And unless there is a clear violation of a statute or a breach of one of the terms, it is very difficult for plaintiffs to prevail in situations like this. There isn’t anything illegal. There isn’t any violation of a statute that the Court can find in this case.

As I said, even though I’ve searched for it, I’ve looked for it, but it’s just not there. They haven’t violated the statute at all. They haven’t made any, any changes that materially affect the, the rights of the plaintiff. Sure, the change, some of the changes, particularly with respect to changing the policies on rental units certainly will affect the plaintiff query [sic], whether it’s material or not, query [sic] it will affect her rights.

It certainly will affect her lifestyle. It’ll affect her property values. It’ll affect many things, you know, if she goes through with the contract, which is an option you have. ⁷³⁰ But the Court doesn’t find that there’s any violation of the statute here. * ❖ * There is still, notwithstanding the Court’s ruling in this case, which — make it very clear for the, Mr. Clerk here, this is the, a declaratory judgment action, and the Court finds that the plaintiff does not have a right under the statute, as she has argued, to rescind the contract in this case. STANDARD OF REVIEW Because this case involves the interpretation of Real Prop. § ll-126(e), “we review the Circuit Court’s interpretation of the statute de novo. ” Gleneagles, Inc. v. Hanks, 385 Md. 492, 496 , 869 A.2d 852 (2005) (citing Davis v. Slater, 383 Md. 599, 604 , 861 A.2d 78 (2004) (noting that because “provisions of the Maryland Code, and the Maryland Rules are appropriately classified as questions of law, we review the issues de novo to determine if the trial court was legally correct in its rulings on these matters.”)); See Schisler v. State, 394 Md. 519, 535 , 907 A.2d 175 (2006) (“As the question before the Court involves the interpretation and application of Maryland constitutional, statutory and case law, we shall review the case sub judice under a de novo standard of review.”); Hillsmere Shores Improvement Assoc. v. Singleton, 182 Md.App. 667, 690 , 959 A.2d 130 (2008).

DISCUSSION Declaratory Judgment Declaratory judgments permit trial courts to “settle and afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations.” Md.Code (2002 Repl.Vol., 2004 Supp.), § 3-402 of the Courts and Judicial Proceedings Article (“Cts. & Jud. Proc.”). The Court of Appeals has held that “where a party requests a declaratory judgment, it is error for a trial court to dispose of the case simply with oral rulings and a grant of ... judgment in favor of the prevailing party.” Ashton v. Brown, 339 Md. 70, 87 , ⁷³¹ 660 A.2d 447 (1995). “ ‘[WJhen a declaratory judgment action is brought, and the controversy is appropriate for resolution by declaratory judgment, the trial court must render a declaratory judgment.’ ” Md. Cas. Co. v. Hanson, 169 Md.App. 484, 524 , 902 A.2d 152 (2006) (quoting Christ by Christ v. Maryland Dep’t of Natural Resources, 335 Md. 427, 435 , 644 A.2d 34 (1994) (internal quotations omitted)).

In Case v. Comptroller, 219 Md. 282, 288 , 149 A.2d 6 (1959), the Court of Appeals held that “whether a declaratory judgment action is decided for or against the plaintiff, there should be a declaration in the judgment or decree defining the rights of the parties under the issues made.” See also Md. Cas. Co., 169 Md.App. at 524 , 902 A.2d 152 (quoting Case and citing Christ by Christ, 335 Md. at 435-436 , 644 A.2d 34 (“[t]he court’s rejection of the plaintiffs position on the merits furnishes no ground for” failure to file a declaratory judgment)); Broadwater v. State, 303 Md. 461, 467 , 494 A.2d 934 (1985) (“the trial judge should have declared the rights of the parties even if such declaration might be contrary to the desires of the plaintiff’), appeal after remand, Broadwater v. State, 306 Md. 597 , 510 A.2d 583 (1986); East v. Gilchrist, 293 Md. 453 , 461 n. 3, 445 A.2d 343 (1982) (“where a plaintiff seeks a declaratory judgment ..., and the court’s conclusion ... is exactly opposite from the plaintiffs contention, nevertheless the court must, under the plaintiffs prayer for relief, issue a declaratory judgment”), appeal after remand, 296 Md. 368 , 463 A.2d 285 (1983); Shapiro v. Board of County Com’rs, 219 Md. 298, 302-303 , 149 A.2d 396 (1959) (“‘even though the plaintiff may be on the losing side of the dispute, if he states the existence of a controversy which should be settled, he states a cause of suit for a declaratory decree.’ 1 Anderson, Declaratory Judgments, Section 318.”). In Salamon v. Progressive Classic Ins. Co., 379 Md. 301, 307, n. 7 , 841 A.2d 858 (2004), the Court of Appeals quoted its decision in Jackson v. Millstone, 369 Md. 575, 593 , 801 A.2d 1034 (2002), where it instructed: “[T]he [trial] court must, in a separate document, state in writing its declaration of the rights of the parties, along ⁷³² with any other order that is intended to be part of the judgment.

Although the judgment may recite that it is based on the reasons set forth in an accompanying memorandum, the terms of the declaratory judgment itself must be set forth separately. Incorporating by reference an earlier oral ruling is not sufficient, as no one would be able to discern the actual declaration of rights from the document posing as the judgment. This is not just a matter of complying with a hyper-technical rule. The requirement that the court enter its declaration in writing is for the purpose of giving the parties and the public fair notice of what the court has determined.” (Internal quotations and citations omitted.) Here, the record is devoid of a written declaration of rights, separate from and independent of the circuit court’s judgment.

As appellant had petitioned for a declaration of rights, it was error for the court to dispose of the case simply with an oral ruling and a grant of judgment in favor of a party. Harford Mut. Ins. Co. v. Woodfin Equities Corp., 344 Md. 399, 414 , 687 A.2d 652 (1997).

This error, however, “is not jurisdictional and is not fatal to our reaching the merits of [the] appeal.” Bowen v. City of Annapolis, 402 Md. 587, 609 , 937 A.2d 242 (2007). We will exercise our discretion to review the merits of the presented controversy and order the circuit court, on remand, to enter an appropriate declaratory judgment order stating the rights of the parties that is consistent with this opinion. I. The circuit court’s ruling turned on its construction of the MCA, which provides, in pertinent part: § 11-126. Disclosure requirements.

(a) Required contents of contract of sale. — A contract for the initial sale of a unit to a member of the public is not enforceable by the vendor unless: (1) The purchaser is given on or before the time a contract is entered into between the vendor and the ⁷³³ purchaser, a current public offering statement as amended and registered with the Secretary of State containing all of the information set forth in subsection (b) of this section; and (2) The contract of sale contains, in conspicuous type, a notice of: (ii) The purchaser’s right to receive a public offering statement and his rescission rights under this section; and (ii) The warranties provided by § 11-131 of this subtitle. (b) Sufficiency of public offering statement. — The public offering statement required by subsection (a) of this section shall be sufficient for the purposes of this section if it contains at least the following: (1) A copy of the proposed contract of sale for the unit; (2) A copy of the proposed declaration, bylaws, and rules and regulations; [(3)-(18)] (d) Amendment of material required by subsection (a).— (1) Following execution of a contract of sale by a purchaser, the vendor may not amend any of the material required to be furnished by subsection (a) of this section without the approval of the purchaser if the amendment would affect materially the rights of the purchaser. (2) Approval is not required if the amendment is required by any governmental authority or public utility, or if the amendment is made as a result of actions beyond the control of the vendor or in the ordinary course of affairs of the council of unit owners. (3) A copy of any amendments shall be delivered promptly to any purchaser and to the Secretary of State.

(e) Purchaser’s right to rescind contract of sale. — Any purchaser may at any time (1) within 15 days following receipt of all of the information required under subsection (b) of ⁷³⁴ this section or the signing of the contract, whichever is later; and (2) within 5 days following receipt of the information required under subsection (d) of this section, rescind in writing the contract of sale without stating any reason and without liability on his part, and he shall be entitled to the return of any deposits made on account of the contract. (g) Waiver of purchaser’s rights. — The rights of a purchaser under this section may not be waived in the contract of sale and any attempted waiver is void. However, if any purchaser proceeds to closing, his right under this section to rescind is terminated. (Emphasis added.) In Kushell v. Dep’t of Natural Res., 385 Md. 563, 576-77 , 870 A.2d 186 (2005), the Court of Appeals reviewed the traditional rules of statutory interpretation: The cardinal rule of statutory interpretation is to ascertain and effectuate the intent of the Legislature.

Statutory construction begins with the plain language of the statute, and ordinary, popular understanding of the English language dictates interpretation of its terminology. In construing the plain language, [a] court may neither add nor delete language so as to reflect an intent not evidenced in the plain and unambiguous language of the statute; nor may it construe the statute with forced or subtle interpretations that limit or extend its application. Statutory text should be read so that no word, clause, sentence or phrase is rendered superfluous or nugatory. The plain language of a provision is not interpreted in isolation.

Rather, we analyze the statutory scheme as a whole and attempt to harmonize provisions dealing with the same subject so that each may be given effect. If statutory language is unambiguous when construed according to its ordinary and everyday meaning, then we give effect to the statute as it is written. If there is no ambiguity in that language, either inherently or by refer ⁷³⁵ ence to other relevant laws or circumstances, the inquiry as to legislative intent ends; we do not need to resort to the various, and sometimes inconsistent, external rules of construction, for the Legislature is presumed to have meant what it said and said what it meant. (Internal quotations and citations omitted.) In Int’l Ass’n of Fire Fighters, Local 1715 v. Mayor of Cumberland, 407 Md. 1, 10 , 962 A.2d 374 (2008), the Court of Appeals explained: When the statute is part of a larger statutory scheme, it is axiomatic that the language of a provision is not interpreted in isolation; rather, we analyze the statutory scheme as a whole considering the “purpose, aim, or policy of the enacting body,” Serio v. Baltimore County, 384 Md. 373, 390 , 863 A.2d at 952, 962 (2004)[,] and “attempt to harmonize provisions dealing with the same subject so that each may be given effect.” Bowen[, 402 Md. at 613-14 , 937 A.2d 242 (2007).] (Some citations omitted.) We consider “both the particular and the broad objectives” of the subject legislation.

Deville v. State, 383 Md. 217, 223 , 858 A.2d 484 (2004). We must also give statutes their “ ‘most reasonable interpretation in accord with logic and common sense.’ ” Gorge v. State, 386 Md. 600, 613 , 873 A.2d 1171 (2005) (quoting Greco v. State, 347 Md. 423, 429 , 701 A.2d 419 (1997)). Appellant’s arguments on appeal are straight-forward. In essence, she contends that § ll-126(e) says what it means and means what it says.

Because the statutory language is, in her view, “demonstrably clear and unambiguous,” there was no reason for the circuit court “to undertake an interpretation of § ll-126(e).” Having undertaken such an interpretation, the circuit court erred again in determining that the purchaser could rescind a contract for sale only if the changes to the POS materially affected the purchaser’s rights. Moreover, and even if the circuit court’s interpretation of the statutory language was correct, the court erred in concluding that the ⁷³⁶ changes to the POS did not affect materially the rights of the appellant. RTS, on the other hand, contends that § 11-126(e) of the MCA is rendered ambiguous by § 11 — 126(d)(1) and (2) and its use