Court Opinion

ID: 813454
Source: CourtListenerOpinion
Date Created: 2012-12-13 19:58:53+00
Date Added: 2024-06-11T15:36:53.932822
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                               No. 12-1064

In Re:   WINCOPIA FARMS, LP,

                  Debtor.

-------------------------------------

WINCOPIA FARMS, LP,

                  Plaintiff - Appellant,

            v.

G&G, LLC,

                  Defendant – Appellee,

            and

TRENT GOURLEY,

                  Defendant.

                               No. 12-1080

In Re:   WINCOPIA FARMS, LP,

                  Debtor.

-------------------------------------

WINCOPIA FARMS, LP,

                  Plaintiff - Appellee,

            v.
G&G, LLC,

                  Defendant – Appellant,

            and

TRENT GOURLEY,

                  Defendant.

Appeals from the United States District Court for the District
of Maryland, at Baltimore.   William D. Quarles, Jr., District
Judge. (1:11-cv-01159-WDQ)

Argued:   October 26, 2012                 Decided:   December 12, 2012

Before TRAXLER, Chief Judge, DIAZ, Circuit Judge, and Catherine
C. EAGLES, United States District Judge for the Middle District
of North Carolina, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: James Edmond Carbine, JAMES E. CARBINE PC, Baltimore,
Maryland, for Appellant/Cross-Appellee. James Robert Schroll,
Heidi Eileen Meinzer, BEAN, KINNEY & KORMAN, PC, Arlington,
Virginia, for Appellee/Cross-Appellant.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

               Wincopia Farms, LP (“WFLP”) appeals a district court

order adopting a bankruptcy court report recommending dismissal

of WFLP’s complaint against G&G, LLC (“G&G”), in an adversary

proceeding.      Finding no error, we affirm.

                                          I.

               WFLP     is     a     single-asset          real    estate        limited

partnership, see 11 U.S.C. § 101(51B), that owned 124 acres of

land in Howard County, Maryland (“the Farm”), which WFLP valued

at   approximately       $30       million.        Wincopia   Farms,      Inc.   (“WI”)

leased the property and operated a nursery thereon.                         The Hearn

family owns and operates both WFLP and WI.

               In 2002, WI owed United Bank $2.9 million on a loan

secured by the Farm.               Unable to repay its debt, WI decided to

refinance to avoid foreclosure.                   Accordingly, WI borrowed funds

each    year    from    2002   through    2006      from    G&G   (“the    Loans”)    to

refinance the United Bank loan and obtain the funds it needed to

operate.         WFLP    guaranteed      the       Loans    and   G&G     received   an

indemnity deed of trust on the farm.

               WFLP filed for bankruptcy protection with the United

States Bankruptcy Court for the District of Maryland in June

2007.     In August 2007, G&G sued WI and members of the Hearn

family and its trust in state court after WI defaulted on its

                                              3
obligation    to    G&G.      G&G     obtained     judgments     in    its   favor    in

November and December 2007.

          In       October    2007,     G&G       moved    for   relief      from    the

automatic stay in WFLP’s bankruptcy proceeding.                        As a result,

the bankruptcy court modified the automatic stay on December 13,

2007, so that although it remained in effect, WFLP was required

to make payments to G&G.              WFLP failed to make those payments,

however, and the court lifted the stay on December 31, 2007.                          A

foreclosure    sale    of    the    Farm    was    scheduled     for   February      14,

2008.

          On February 13, 2008, WFLP moved in the Circuit Court

for Howard County to stay the foreclosure sale, alleging that

the lien was invalid because of G&G’s fraud.                     The court denied

the motion, however, and the property was sold at auction to G&G

for $12.5 million.           The circuit court later ratified the sale

over WFLP’s objections, and the ratification was affirmed on

appeal.   See Wincopia Farms, LP v. Goozman, 982 A.2d 868 (Md.

Ct. Spec. App. 2009).

          In       November     2007,       WFLP     had    filed      an    adversary

proceeding in bankruptcy court, alleging that G&G had committed

fraud against WI and WFLP.                 In April 2008, WFLP amended its

complaint to allege causes of action for breach of contract,

intentional         misrepresentation               and       fraud,         negligent

misrepresentation,           breach        of     fiduciary      duty,        tortious

                                            4
interference,          and    Maryland   Securities          Act    violations.         The

bankruptcy court later granted a motion by G&G to dismiss the

complaint       on    the    basis   that    WFLP,     as    the    guarantor,     lacked

standing       under    the    applicable     Virginia       law     to    prosecute    the

claims.        However, the bankruptcy court granted a motion by WFLP

to reconsider as to the fraud claim on the ground that Maryland

law, rather than Virginia law, governed that claim.

               WFLP     subsequently     moved        to    file    a     second   amended

complaint (“the complaint”).                That complaint alleged that WFLP

was induced to guarantee the loan and mortgage the Farm by G&G’s

fraud against, and intentional misrepresentations to, both WI

and WFLP.        As is relevant here, the complaint alleged that G&G

(1) had led WFLP to believe that G&G had approved WI for the

Loans, when in fact G&G had not taken any steps to determine

whether WI could repay them, J.A. 224; (2) led WFLP “to believe

that its desire for a longer term loan would be satisfied by a

‘good behavior’ extension right offered to” WI when “[i]n fact,

since all the loans had prepaid interest and fees with a balloon

payment of the entire amount of the loan due annually, there was

no     ‘good    behavior’       by   which       to    judge       the    merits   of   an

extension,” J.A. 225; and (3) falsely told WFLP it had no extra

funds to lend WI in response to WFLP’s plea for increased funds

WI “desperately needed” to reduce the chance of default, J.A.

225.     The complaint also alleged that G&G concealed the material

                                             5
facts that:       by the fall of 2001, G&G had a policy of attempting

to   obtain   borrowers’       collateral          for    itself         by    lending     “to

desperate borrowers on take-it-or-leave-it terms” and “grossly

over-collateraliz[ing] the loans,” J.A. 227; and “G&G had in

place a scheme and plan to purposefully structure the Loans so

that default on the loan was a virtual certainty” by refusing to

lend   WI   funds    sufficient       to    grow        the   farming          business,    by

restricting the loan terms to one year, and by misleading WFLP

into believing that the loan term would be extended from year to

year, J.A. 227.

            G&G     objected    to   WFLP’s        motion      to       file    the   amended

complaint     and    moved     to    dismiss       it.         Concluding         that     the

adversary proceeding was not a “core proceeding,” see 28 U.S.C.

§ 157(c),     the     bankruptcy           court        prepared         a      report     and

recommendation for the district court.                        In it, the bankruptcy

court granted WFLP’s motion to file the complaint.                               The report

also recommended granting G&G’s motion to dismiss on the basis

that (1) WFLP had alleged fraud against WI, not WFLP, and lacked

standing to assert WI’s claim, and (2) the court could not undo

the state court’s refusal to stay the foreclosure proceedings.

            WFLP asserted several objections to the report.                              As is

relevant here, the district court ruled that, to the extent WFLP

sought to allege that G&G’s fraud induced WFLP to guaranty the

Loans,   WFLP’s     allegations      failed        to    state      a    claim    for    which

                                            6
relief could be granted, primarily because WFLP could not have

reasonably     relied          on    the      various    misrepresentations        and

omissions alleged.             The district court then entered its order

dismissing the complaint with prejudice.

                                            II.

            WFLP     argues         that      the    district    court     erred     in

concluding    that       the   complaint       failed   to   state   a   claim    under

Maryland law for fraudulently inducing WFLP’s execution of the

guaranty.     We disagree. *

            We review de novo the grant of a motion to dismiss for

failure to state a claim.                  See McCorkle v. Bank of Am. Corp.,

688 F.3d 164, 171 (4th Cir. 2012).                  “In so doing, we must accept

as   true    all    of     the      factual       allegations   contained    in    the

complaint.”        Gerner v. County of Chesterfield, Va., 674 F.3d

264, 266 (4th Cir. 2012) (internal quotation marks omitted).                         To

survive dismissal, the complaint must contain “enough facts to

state a claim to relief that is plausible on its face.”                            Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

     *
       Although it did not affect the result, the district court
ruled that the bankruptcy court had erred in concluding that the
fraud claim was barred by the prior foreclosure proceedings.
G&G has cross-appealed that ruling.    However, in light of our
rejection of WFLP’s challenge to the ruling that its complaint
fails to state a claim, we do not address the merits of G&G’s
cross-appeal.

                                              7
               To   assert    a     claim    of   fraud   under       Maryland      law,    a

plaintiff must allege that:                  (1) the defendant made a false

representation       of   a   material       fact   to    the    plaintiff;         (2)   the

defendant knew that the representation was false or made the

representation with reckless indifference as to its truth; (3)

the    defendant     made     the    misrepresentation          for    the    purpose      of

defrauding the plaintiff; (4) the plaintiff rightfully relied on

the misrepresentation; and (5) the plaintiff was injured by its

reliance.       See Gourdine v. Crews, 955 A.2d 769, 791 (Md. 2008).

               Maryland     does     not    recognize     a   general        duty   upon    a

party to a transaction to disclose facts to the other party.

See Sass v. Andrew, 832 A.2d 247, 260, 266 (Md. Ct. Spec. App.

2003).     However, a plaintiff may establish a cause of action for

fraudulent concealment even in the absence of a duty to disclose

if the seller actively, and with the intent to deceive, conceals

a material fact; the defendant reasonably relies on the fact;

and the concealment proximately causes the defendant to suffer

damages.       See Rhee v. Highland Dev. Corp., 958 A.2d 385, 391

(Md. Ct. Spec. App. 2008).

               To successfully allege a fraud claim, a complaint must

identify “the facts constituting a fraud . . . with certainty

and particularity.”           Sims v. Ryland Grp., Inc., 378 A.2d 1, 3

(Md.     Ct.    Spec.     App.      1977).        “[M]ere       vague,       general,      or

indefinite statements are insufficient.”                      Fowler v. Benton, 185

                                             8
A.2d 344, 349 (Md. 1962).                 Indeed, vague or general statements

“should . . . put the hearer upon inquiry, and there is no right

to rely upon such statements.”                       Id.        And, a plaintiff cannot

show he reasonably relied on a false statement if he knew or

should have known of the statement’s falsity.                                   See Sass, 832

A.2d at 266; Carozza v. Peacock Land Corp., 188 A.2d 917, 921

(Md. 1963).

               Arguing       that     it        alleged              sufficiently         definite

statements upon which it reasonably relied, WFLP first points to

its    allegations        that      G&G       “issued       a    formal,        written       ‘loan

commitment’      and     extracted        a    ‘loan       commitment         fee’”     and      that

“[b]y its actions, documents and statements, G&G led [WFLP] to

believe that [WI] had been ‘approved’ for the Loans.”                                  J.A. 224.

Initially, we note that G&G’s representation that it agreed to

make     the      Loans       cannot          constitute              fraud     because          that

representation         was    true.           WFLP    suggests,          however,      that,      by

approving the Loans and charging a loan commitment fee, G&G made

an    affirmative      representation           concerning             how    able   WI    was    to

repay the Loans.             Even assuming, however, that G&G could have

been understood to have made such a representation, any such

representation         certainly      would          have       been    the     very      sort    of

“vague,    general”       statement        on    which          no    reasonable       person     in

WFLP’s position could rely.               Fowler, 185 A.2d at 349.

                                                9
              WFLP   next      points    to    its     allegation   that         “G&G    led

Wincopia to believe that its desire for a longer term loan would

be satisfied by a ‘good behavior’ extension right offered to”

WI.    J.A. 225 (emphasis added).                The complaint further alleges

that “[i]n fact, since all the loans had prepaid interest and

fees with a balloon payment of the entire amount of the loan due

annually, there was no ‘good behavior’ by which to judge the

merits of an extension.”                J.A. 225.         The complaint does not

identify exactly what action G&G took or what representation G&G

made that led WFLP to believe that “good behavior” during the

first year by WI would cause G&G to grant an extension.                            In any

event, as guarantor, WFLP was well aware of the terms of the

Loans and, thus, knew or should have known that there would be

no    opportunity    for     “good      behavior”       during    the    year      as    the

interest and fees were all prepaid with a balloon payment of the

entire amount of the loan due annually.                   As a matter of law, any

reliance      by   WFLP   on    the     notion    that    G&G    would       decline      to

exercise its right to foreclose upon WI’s default simply was not

reasonable.

              WFLP next contends that it alleged that G&G had a duty

to disclose both its hope that WI would default and its plan to

foreclose on the farm when that happened.                        However, WFLP does

not   offer    any   legal      basis    for     the    existence       of   a    duty   to

disclose on the part of G&G to discuss its thinking, nor are we

                                           10
aware of one.       WFLP argues that G&G actually took affirmative

actions to conceal its plan and thus that it could be liable for

fraudulent concealment.        However, WFLP does not specify what

those   concealing   actions   were,     nor   does    WFLP    explain    how   it

could reasonably rely on the notion that G&G was not going to

take full advantage of its legal rights, especially when WFLP

knew that G&G, in order to agree to lend WI $4.5 million, had

required WFLP to give it a deed of trust to the Farm worth $30

million.

            For all of these reasons, we hold that the district

court correctly concluded that WFLP failed to successfully state

a   claim   that   G&G   fraudulently    induced      WFLP    into   becoming    a

guarantor of the Loans.

                                   III.

            In sum, finding no error, we affirm the decision of

the district court.

                                                                         AFFIRMED

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