ST Systems Corp. v. Maryland National Bank

²⁴ FISCHER, Judge. ST Systems Corporation (STX) appeals from an order by the Circuit Court for Montgomery County that entered judgment in favor of Maryland National Bank (MNB). Specifically, the circuit court found: (1) that MNB did not breach contractual obligations with respect to the alleged Alternative Loan Agreement (ATL) and the 12/5 proposal, which increased STX’s credit line to $12,000,000 and gave STX a $5,000,000 term loan; (2) MNB not liable for STX’s tort claims; and (3) in favor of MNB’s counter-claim based on the Interest Rate Protection Agreement (IRPA) in the amount of $278,893.13. STX raised the following questions, which we. have condensed and reworded as follows: I. Did the circuit court err by denying STX’s request for a jury trial on its claims based on: a. the ATL b. torts stemming from the breach of the loan agreements c. the 12/5 proposal?

II

Did the circuit court err by finding for MNB with respect to the 12/5 proposal? FACTS This case arises from a series of loan agreements between MNB, Equitable Bank, N.A. (Equitable), and STX. STX is a systems integration company incorporated in Maryland.

Sharad Tak is STX’s CEO and owns 71.8% of STX stock. In 1989, Mr. Tak solicited several banks in reference to negotiating a financing proposal to refinance both his and STX’s preexisting financial obligations with National Bank of Washington (NBW). STX and Mr. Tak received a two-stage financial proposal from Equitable that was similar to what STX and Mr. Tak had requested. First, Equitable promised to provide a $20,000,000 revolving line of credit, plus an additional $10,000,000 six month bridge loan to Mr. Tak so that he could repay NBW. ²⁵ Second, Equitable promised to provide a $25,000,000 term loan to STX to fund an Employee Stock Ownership Plan (ESOP) that would purchase 30% of Mr. Tak’s stock.

Despite a series of commitment letters signed by the parties, they cancelled the arrangement because STX’s plan to purchase another company was unsuccessful. STX and Equitable, however, continued to negotiate based on the financing structure of the original agreement and using reduced loan amounts to meet STX’s financial needs. On September 18, 1989, STX and Equitable executed a Loan and Security Agreement (LSA) that provided STX with a $7,000,000 revolving credit line and a commitment for a $15,000,000 ESOP loan. The ESOP loan was contingent on STX having a value of at least $40,000,000.

On the same day, Mr. Tak executed a promissory note for the $10,000,000 six month bridge loan, whose proceeds were used to pay off Mr. Tak’s $10,000,000 NBW loan. MNB assumed control of STX’s account when the merger between MNB and Equitable became final in January 1990. Craig Poms of MNB was assigned as the loan officer primarily in charge of STX’s and Mr. Tak’s loans. On January 25,1990, at a meeting with Mr. Poms, Mr. Tak informed Mr. Poms that he had hired a company to perform a valuation of STX.

Mr. Tak, however, did not inform Mr. Poms that Mr. Tak’s company, Tak Communications, Inc. (Tak Com) had missed approximately $4,000,000 in interest payments on outstanding debt obligations. In March 1990, STX was valued at between $28,000,000 and $33,000,000, thus falling below the required $40,000,000 figure necessary to secure the $15,000,000 ESOP loan. After the ESOP loan fell through, Mr. Tak and MNB began discussions on restructuring Mr. Tak’s $10,000,000 personal loan. On April 3, 1990, Mr. Tak also informed Mr. Poms of an existing Makewell Agreement that made Mr. Tak personally liable for $3,000,000 if Tak Com defaulted on its loan payments.

Mr. Tak, however, did not tell Mr. Poms that Tak Com was still in ²⁶ payment default and that the payment of his $3,000,000 personal obligation had already been accelerated to March 1990. In June 1990 the parties reached an agreement on restructuring STX’s loans. MNB advanced the 12/5 proposal, which increased STX’s credit line from $7,000,000 to $12,000,000 and gave STX a $5,000,000 term loan. STX would then lend, or by way of dividend, transfer $10,000,000 to Mr. Tak so he could pay his $10,000,000 personal liability, which was separate from his $3,000,000 liability under the Makewell Agreement.

MNB sent the 12/5 proposal to Mr. Tak, who signed the proposal letter on June 25, 1990. The 12/5 proposal was subject to the MNB loan committee’s approval and any conditions that the loan committee placed on the loan. The loan committee approved the 12/5 proposal subject to several conditions. These conditions included, inter alia, that (1) Mr. Tak provide a $10,000,000 personal guaranty; (2) there be no material adverse change in Mr. Tak’s or STX’s financial condition as of.

April 1990; and (3) STX obtain at least $10,000,000 of interest rate protection by the loan closing date. Mr. Tak signed the proposal. On August 27, 1990, after the parties drafted the closing documents, MNB sent Mr. Tak the revised guaranty agreement. On the next day, however, Mr. Tak called Mr. Poms and stated that he could not sign the revised agreement because of the Makewell Agreement.

This is the first time that Mr. Poms or any other MNB loan official was informed of Mr. Tak’s outstanding personal liability for Tak Corn’s default. On September 24, 1990, MNB withdrew the 12/5 proposal. On March 30, 1992, STX, its principal shareholders, and senior employees (collectively the plaintiffs) filed suit against MNB in the circuit court. The complaint alleged that MNB breached two separate financing agreements; the ATL and the 12/5 proposal.

The plaintiffs also filed eight tort claims based on MNB’s conduct during the loan negotiation process. MNB filed a motion to dismiss plaintiffs claims and to dismiss the claims of the individual plaintiffs. On June 22, 1993, the circuit court dismissed the claims of each individual ²⁷ plaintiff, including Mr. Tak, but allowed STX to continue with its suit. On July 14, 1993, MNB filed several pleadings with the circuit court.

MNB answered STX’s complaint and filed a counterclaim alleging that STX breached the IRPA that was part of the 12/5 proposal. MNB also asked the circuit court to deny STX’s request for a jury trial. On September 28, 1993, after a hearing on the merits, the circuit court denied STX’s request for a jury trial. Between June 8, 1994, and June 30, 1994, the circuit court conducted a bench trial on STX’s claims for: (1) breach of the ATL; (2) breach of the 12/5 proposal; (3) breach of the duty of good faith and fair dealing; (4) fraud in the inducement; (5) fraud in the performance; (6) tortious interference with prospective advantage; and (7) breach of fiduciary duty.

Following STX’s case in chief, the circuit court granted MNB’s motion for a judgment dismissing STX’s tort claims. On May 5,1995, the circuit court, in a written opinion, found that MNB did not breach any contractual obligations and ruled for MNB on its counterclaim. Following the circuit court’s decision, STX filed this timely appeal. DISCUSSION Our scope in reviewing the circuit court’s findings is limited.

Maryland Rule 8 — 131(c) reads as follows: When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses. The clearly erroneous standard does not apply to questions of law or legal conclusions drawn from factual findings, which are afforded no deference. Davis v. Davis, 280 Md. 119, 124 , 372 A.2d 231 , cert. denied, 434 U.S. 939 , 98 S.Ct. 430 , 54 L.Ed.2d ²⁸ 299 (1977); Van Wyk v. Fruitrade, 98 Md.App. 662, 669 , 635 A.2d 14 (1994).

I. STX argues that the circuit court erred when it denied STX’s request for a jury trial on its claims against MNB. MNB counters that the circuit court correctly found that the LSA’s jury waiver provision applied to the ATL, the 12/5 proposal, and the tort claims. MNB also asks this Court to find, independently of the circuit court, that the alleged ATL was not enforceable, thus rendering the jury waiver argument with respect to the ATL and the tort claims moot. Our discussion of the jury waiver issue bifurcates into statute of frauds and contractual interpretation issues.

A. Section 5-317 The threshold question that needs to be addressed before this Court can apply the jury waiver provision to the ATL is whether the ATL is an enforceable oral agreement. If the ATL is not an enforceable agreement, as MNB argues in its brief, then the issue of whether the jury waiver provision applies is moot. In 1989 the Maryland Legislature adopted a lenders liability provision which mandates that “a credit agreement is not enforceable by way of action or defense unless it: (1) Is in writing; (2) Expresses consideration; (3) Sets forth the relevant terms and conditions of the agreement; and (4) Is signed by the person against whom its enforcement is sought.” Md. Code (1974,1995 RepLVol., 1996 Supp.), § 5-317(b) of the Cts. & Jud.Proc. Art. 1 Section 5-317 defines a “credit agreement” as follows: (i) “Credit agreement” means a covenant, promise, undertaking, commitment, or agreement by a financial institution to ²⁹ 1.

Lend money; 2. Forbear from repayment of money, goods, or things in action; 3. Forbear from collecting or exercising any right to collect a debt; or 4. Otherwise extend credit.

(ii) “Credit Agreement” includes agreeing to take or to not take certain actions by a financial institution in connection with an existing or prospective credit agreement. Md.Code, CJ § 5-317(a)(2). In this case, the facts clearly support a finding that the ATL failed to qualify as an enforceable agreement under section 5-317. There is nothing in the LSA that qualifies as or even makes reference to the existence of an ATL.

Additionally, the loan documents prepared by Equitable are devoid of any reference to the existence of an ATL. This Court is unable to find anything in the record that brings into question the circuit court’s findings on the ATL. The circuit court made, inter alia, the following findings of fact: The alleged alternative term loan was not part of the July 12, 1989 proposal submitted by Equitable, nor was any reference to the alleged alternative term included in either the draft or the final August 7, 1989 commitment letter signed by Mr. Tak on behalf of STX. The Purported agreement to term out Mr. Tak’s bridge loan also was not in any of the draft loan documents or any of the final loan documents signed by the parties on September 19, 1989.

The very concept of an alternative term out would have been inconsistent with the terms expressly set forth in the loan documents. ... The Court finds that the final August 7,1989 commitment letter, signed and accepted by Mr. Tak, includes no references to an alternative term loan. ³⁰ ... Mr. Baker conceded at trial that he informed Mr. Tak that an alternative was lacking if the ESOP did not close, and that Mr. Tak was relying to his own detriment on alleged oral statements made by Stacia McGinn. STX insists that two internal memoranda written by MNB loan officer Ms. McGinn demonstrate that the parties contemplated an ATL and therefore, satisfy section 5-317.

This argument, however, is not convincing. McGinn wrote two memoranda discussing various alternatives to the ESOP loan. These two memoranda, however, were never incorporated into the terms of the approved agreements. Testimony at trial revealed that these memoranda were nothing more than background material intended to brief loan officers on all available financial options.

STX’s argument that the memoranda were binding also fails because Ms. McGinn lacked actual or apparent authority to bind MNB to the ATL. Every loan proposal had to be approved by the loan committee. In this case, the loan ' committee never approved any loan proposals that contained any reference to the ATL or any other alternative loan arrangement. Accordingly, the mere fact that reference to an ATL appeared in two internal bank memoranda does not satisfy section 5-317. 2 STX insists that the issue of whether a contract existed is a factual question that needs to be answered by a jury.

The determination of whether something is enforceable under section 5-317 and whether a contract existed are, however, two distinct issues. Compliance with section 5-317 would only become a jury question if the material facts, which if believed ³¹ would support a finding of compliance, are in dispute. See Kerner v. Eastern Dispensary and Casualty Hospital, 214 Md. 375, 382 , 135 A.2d 303 (1957) (noting that under the statute of frauds a dispute as to material