Court Opinion

ID: 221358
Source: CourtListenerOpinion
Date Created: 2011-07-21 00:00:57+00
Date Added: 2024-06-11T17:28:49.998467
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 10-1318

CAPITOL RADIOLOGY, LLC,

                Plaintiff - Appellant,

           v.

SANDY SPRING BANK,

                Defendant - Appellee.

Appeal from the United States District Court for the District of
Maryland, at Greenbelt.    Deborah K. Chasanow, Chief District
Judge. (8:09-cv-01262-DKC)

Argued:   May 13, 2011                    Decided:   July 20, 2011

Before GREGORY, WYNN, and DIAZ, Circuit Judges.

Affirmed by unpublished opinion. Judge Diaz wrote the opinion,
in which Judge Gregory and Judge Wynn joined.

ARGUED: Michael John O’Rourke, O’ROURKE & MOODY, Chicago,
Illinois, for Appellant.    James Taylor Heidelbach, GEBHARDT &
SMITH, LLP, Baltimore, Maryland, for Appellee. ON BRIEF: Steven
R. Freeman, FREEMAN, WOLFE & GREENBAUM, P.A., Towson, Maryland,
for Appellant.    Patrick J. Madigan, GEBHARDT & SMITH, LLP,
Baltimore, Maryland, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
DIAZ, Circuit Judge:

              Capitol Radiology, LLC (“Capitol”) appeals a decision

of   the   district      court    granting      summary   judgment     in   favor    of

Sandy Spring Bank (“Sandy Spring”).                  Capitol sued Sandy Spring

for breach of contract after Sandy Spring declared Capitol in

default and accelerated Capitol’s payments on a commercial line

of credit and equipment loan.              Even when viewing the evidence in

the light most favorable to Capitol, Sandy Spring did not breach

the loan agreement because the bank had a good faith belief that

it was insecure.         Accordingly, we affirm.

                                           I.

                                           A.

              Capitol is a radiology practice formed by Dr. Doriann

Thomas in January 2005.                Shortly after its formation, Capitol

sought financing from Sandy Spring.                 In March 2005, Sandy Spring

issued Capitol a $225,000 equipment loan and a commercial line

of   credit    of   up    to     $435,000.        The   loans   were    secured      by

Capitol’s     inventory,       chattel     paper,    accounts,   equipment,         and

general    intangibles.           As    additional      collateral,     Dr.   Thomas

provided a junior lien against her residence and guaranteed both

loans.

                                           2
            Capitol owed payment in full on the equipment loan by

September    2,    2008,     while    the        line    of    credit    was    initially

payable May 31, 2006.            Sandy Spring extended the term of the

line of credit four times.                 With each extension, the parties

executed a new Business Loan Agreement.                       The final Business Loan

Agreement    was     dated      October          22,    2007    (“Loan     Agreement”).

Pursuant    to    the   terms    of    the       final    extension,       Capitol      owed

payment in full on the line of credit by August 31, 2008.

            The    Loan      Agreement       enumerated          several       events     of

default.     As is relevant here, the Loan Agreement stated as

follows:

     Each of the following shall constitute an Event of
     Default under this Agreement:

                                           ***

     Adverse Change.   A material adverse change occurs in
     Borrower’s financial condition, or Lender believes the
     prospect of payment or performance of the Loan is
     impaired.

     Insecurity.          Lender      in   good        faith    believes    itself
     insecure.

J.A. A345.

            Capitol made timely payments on the equipment loan and

the line of credit.          The Loan Agreement, however, also required

Capitol to furnish financial statements or other information as

requested by Sandy Spring.            As early as mid-2006, Capitol either

                                             3
wholly    failed     to       provide      or   was     delayed        in    providing     such

information.

            Roger Hanson was the Sandy Spring vice president and

commercial        portfolio          manager        responsible        for     the     Capitol

relationship.            Between      April     2006    and     May    2008,     Hanson    sent

several emails and letters to Capitol and Dr. Thomas requesting

financial       information,            including         tax         returns,       financial

statements,        and    accounts         receivable         reports.          Hanson     also

corresponded       with       Larry     McKenney,        Capitol’s          chief    financial

officer, regarding the requests.                       In addition, Hanson met with

McKenney     and    Capitol’s          accountant        on    multiple        occasions    to

discuss     the     loans       and     Sandy       Spring’s        need      for    financial

information.

            In an August 2006 email, Hanson explained that Sandy

Spring was “anxious” for financial information requested weeks

earlier from Capitol.              Id. A325.         Hanson warned Dr. Thomas that

Sandy    Spring     “may      have    to   start       pursuing       other    measures”     if

Capitol did not timely comply with Sandy Spring’s requests.                                Id.

As   a    result         of    Capitol’s        delay         in    providing        financial

information, Sandy Spring added Capitol to its watch list of

risky borrowers in September 2006.                      A separate “Watch Report”--

prepared by Sandy Spring for borrowers on its watch list--also

noted    that     “[d]ebit      card       purchases      on       [Capitol’s]       corporate

account appear to not be business related.”                         Id. A455.

                                                4
              In January 2007, Hanson again requested Capitol’s 2006

financial information.             Hanson told Capitol’s accountant and Dr.

Thomas that he had “been waiting most of the latter part of 2006

for something.”          Id. A329.          In the same correspondence, Hanson

stated     that     Sandy       Spring      could     not        “renew      the      line    or

restructure anything until [he] saw how 2006 went.”                             Id.

              In May 2007, Hanson again wrote Dr. Thomas to express

his    frustration       at     Capitol’s         failure        to    provide        requested

information.        In    the      letter,    Hanson      told        Capitol    that    Sandy

Spring did not intend to renew Capitol’s line of credit:

       This letter is to inform you that the bank is not
       interested in renewing the line of credit for another
       year. Over the last year or so we have made repeated
       attempts to collect information on the line of credit
       but have never obtained enough information to renew
       the line.    This process involved quite a bit of my
       time and efforts. . . .    Please be advised that we
       will issue the last extension on the current line of
       credit for 60 days to allow you to obtain financing of
       your facility elsewhere.

Id. A342.

              The parties later met to discuss the relationship and

a    possible     extension      of   the    line    of     credit.          Following       the

meeting, Sandy Spring received sufficient financial information

to    allow   the    bank     to    offer    Capitol        an    extension.           Capitol

accepted      the   extension--the           final     one       as     it   turned      out--

extending the due date of the line of credit to August 31, 2008.

                                              5
             In    April     2008,    Sandy     Spring    learned    of    a    judgment

against Capitol and Dr. Thomas in a Maryland state court case,

Capital Med. Mgmt. Assocs., LLC v. Thomas, No. 273430-V (Md.

Cir. Ct. Apr. 18, 2008) (“CMMA judgment”).                   The CMMA judgment--

including         damages,      attorneys’        fees,      and     costs--totaled

$179,749.16.        Sandy Spring also discovered a $28,165 federal tax

lien   against       Dr.     Thomas’s     residence.        The     Loan       Agreement

required Capitol to provide Sandy Spring written notification of

any litigation that could materially affect Capitol’s financial

condition.        There is no evidence that Capitol took action to

notify Sandy Spring of either the CMMA judgment or the tax lien.

             On April 28, 2008, following discovery of the CMMA

judgment and tax lien, Sandy Spring declared Capitol in default

of   its    obligations      under    the     Loan   Agreement.          Sandy    Spring

demanded immediate payment of both loans and advised Capitol

that it would exercise its rights and remedies under the Loan

Agreement if Capitol failed to pay.

             At Capitol’s request, Hanson and his team leader Randy

McVey met with McKenney on May 9, 2008 to discuss the default.

At   the    meeting,       McKenney     asked    Sandy    Spring    to     reconsider,

contending that the CMMA judgment would be overturned on appeal

and that Capitol had sufficient funds to cover the judgment if

it   were   ultimately       enforced.          Following   the     meeting,      Hanson

                                            6
wrote McKenney and Dr. Thomas requesting additional financial

information, which he never received.

              Sandy     Spring      subsequently      discovered     that    Capitol’s

corporate account was overdrawn on several occasions in May and

June 2008.          A review of the account also revealed that Dr.

Thomas was using it to pay for personal expenses.                           During her

deposition, Dr. Thomas acknowledged that she used the Capitol

account to purchase meals, clothing, and tickets for personal

travel.

              On    July    30,     2008,   CMMA   took    steps    to   enforce    its

judgment when it secured a writ of garnishment against Capitol’s

deposit accounts.          The writ of garnishment directed Sandy Spring

to freeze Dr. Thomas’s and Capitol’s accounts pending further

direction from the court.

              On July 31, 2008, Sandy Spring informed Capitol that

the bank had elected to exercise its right of setoff--pursuant

to which Sandy Spring would apply funds in Capitol’s corporate

accounts to its loan obligations.                  Sandy Spring reiterated that

Capitol was in default due to the CMMA judgment and the tax lien

and added that “[t]he judgments represent an adverse change in

[Capitol’s]        financial      condition     and   it   is    believed    that   the

prospect   of       payment    or    performance      of   these   Notes    are   [sic]

impaired.”         Id. A403.      Following the notification, Sandy Spring,

which   had     first      priority     over    Capitol’s       corporate    accounts,

                                            7
began to apply the funds in Capitol’s accounts to its loans.                             As

a result of the setoff, Capitol’s loans were paid in full by

September 2008.

                                            B.

            Capitol sued Sandy Spring for breach of contract on

August 19, 2008 in Maryland state court.                            On May 14, 2009,

Capitol amended its complaint to add an allegation that Sandy

Spring discriminated against Capitol on the basis of race in

violation    of     the    Equal    Credit       Opportunity        Act   (“ECOA”),     15

U.S.C. §§ 1691–1691f.              In response, Sandy Spring removed the

case to federal court asserting federal question jurisdiction.

            On November 11, 2009, Sandy Spring moved for summary

judgment    on    both    the   breach      of     contract      claim    and   the    ECOA

claim.      The     district       court    granted       Sandy     Spring’s     motion.

Capitol timely appealed, challenging the district court’s order

on the breach of contract claim only.

                                           II.

            We review a district court’s decision granting summary

judgment de novo, “applying the same standard as the district

court.”     Homeland       Training        Ctr.,    LLC     v.   Summit    Point      Auto.

Research    Ctr.,    594    F.3d    285,     290     (4th    Cir.    2010).      Summary

judgment is appropriate “if the movant shows that there is no

                                            8
genuine    dispute        as   to    any    material    fact     and   the    movant    is

entitled to judgment as a matter of law.”                          Fed. R. Civ. P.

56(a).

                                             A.

             Capitol contends that Sandy Spring breached the Loan

Agreement     by    declaring         Capitol     in    default    and      accelerating

payment of the loans.               In support of its claim, Capitol focuses

on   the    adverse       change      and   insecurity      clauses      in    the     Loan

Agreement.         Capitol argues that there are material issues of

fact as to whether the CMMA judgment and federal tax lien were

material    adverse       changes      or   rendered     Sandy    Spring      reasonably

insecure.     Because the undisputed facts show that Sandy Spring

believed    in     good    faith     that    it   was   insecure,      we     affirm   the

judgment of the district court.

                                             B.

             Consistent with the terms of the Loan Agreement, we

apply Maryland law to Capitol’s claim.                    A plaintiff asserting a

claim for breach of contract must show “that the defendant owed

the plaintiff a contractual obligation and that the defendant

breached that obligation.”                  Taylor v. NationsBank, N.A., 776

A.2d 645, 651 (Md. 2001).               Maryland follows an objective theory

of contract interpretation under which courts apply the plain

                                              9
meaning of unambiguous contract terms.                         Ocean Petroleum, Co.,

Inc. v. Yanek, 5 A.3d 683, 690 (Md. 2010).                            And although the

issue   of    good     faith    is    typically         a    jury    question,             summary

judgment is appropriate where there are no material disputes as

to the facts of the case.             David A. Bramble, Inc. v. Thomas, 914

A.2d 136, 149 (Md. 2007); see also Rite Aid Corp. v. Hagley, 824

A.2d 107, 119–21 (Md. 2003) (affirming summary judgment in favor

of defendant in case involving allegations that defendant failed

to act in good faith).

              The Loan Agreement provides that the occurrence of any

event of default terminates Sandy Spring’s obligations and, at

Sandy   Spring’s        option,       renders       the      balance       of        the    loans

immediately due and payable.                As is relevant here, Capitol is in

default under the Loan Agreement if Sandy Spring “in good faith

believes      itself    insecure.”           J.A.       A345.        Because          the    Loan

Agreement     does     not     define    “insecure”          we     give   the        term    its

“customary, ordinary and accepted meaning.”                         Weichert Co. of Md.

v.   Faust,    19    A.3d     393,    400    (Md.    2011).           In   this        context,

“insecure”      means        “[h]aving      a     good-faith         belief          that     the

possibility     of     receiving      payment      or       performance     from           another

party to a contract is unlikely.”                    Black’s Law Dictionary 866

(9th ed. 2009).

              The   trial     court     concluded       as    a   matter        of    law    that

Sandy Spring had a good faith belief that it was insecure.                                     We

                                             10
agree.    Sandy Spring declared Capitol to be in default in April

2008 after learning of the CMMA judgment and federal tax lien.

Before    taking    such     action,   Sandy    Spring    regularly       requested

information from several representatives of Capitol, including

Dr. Thomas, McKenney, and Capitol’s accountant.                   Capitol either

ignored      the   requests     altogether       or     neglected    to    respond

promptly.

             By    failing    to   timely      comply    with   Sandy      Spring’s

requests, Capitol forced the bank to follow up repeatedly for

the basic financial information necessary to determine whether

to renew Capitol’s line of credit.              As early as September 2006,

Sandy Spring added Capitol to its watch list of risky borrowers

based on Capitol’s failure to provide requested information, as

well as the bank’s observation that Dr. Thomas appeared to be

using Capitol’s corporate account for personal expenses.                     It is

in this context of non-compliance that Sandy Spring learned of

the CMMA judgment and tax lien in April 2008.

             On appeal, Capitol contends that Sandy Spring did not

adequately analyze whether discovery of the CMMA judgment and

tax   lien    represented      material      adverse    changes     in    Capitol’s

financial condition.          Capitol argues that, at the very least,

whether the CMMA judgment and tax lien were material presents a

genuine issue of fact that precludes summary judgment.

                                        11
               Capitol,   however,       has   no    adequate      answer       to   Sandy

Spring’s contention that the bank had a good faith belief that

it was insecure--a wholly separate ground in the Loan Agreement

for declaring a default.             In fact, Capitol offers no persuasive

evidence to suggest that Sandy Spring acted other than in good

faith.

               Capitol contends that it assured Sandy Spring that its

financial       condition    was     secure    in    the   May     9,    2008    meeting

following the declaration of default.                  McKenney testified that

he explained to Sandy Spring that Capitol had sufficient funds

to cover the $179,749.16 CMMA judgment and that Dr. Thomas was

working with her accountant to rectify the tax lien.                            We agree

with    the    district     court,    however,      that   Sandy    Spring       was    not

obligated to accept McKenney’s verbal assurances that Capitol

was financially sound, particularly given Capitol’s failures to

respond to requests for financial information and to provide

notice of the CMMA judgment and tax lien.

               We   consider     Sandy    Spring’s     decision         to    declare    a

default, accelerate payment, and exercise its right of setoff in

the context of the events surrounding it.                   Here, the undisputed

facts    are    that   Capitol     (1)   failed     repeatedly      to       honor   Sandy

Spring’s       requests   for    financial     information;        (2)       allowed    its

principal, Dr. Thomas, to use accounts securing the loans to pay

her personal expenses; (3) did not notify Sandy Spring of the

                                          12
CMMA judgment; (4) allowed a writ of garnishment to issue on

that judgment against the accounts securing the loans; and (5)

failed to report that the guarantor of the loans, Dr. Thomas,

was subject to a federal tax lien.

           On these facts, we find as a matter of law that Sandy

Spring    had    a   good     faith    belief     that   it     was   insecure.

Accordingly, Sandy Spring did not breach the Loan Agreement when

it took steps to protect its interests by declaring Capitol in

default   and    subsequently    exercising      its   contractual       right   of

setoff.

                                       III.

           For    these     reasons,    we    affirm   the    district    court’s

order granting summary judgment in favor of Sandy Spring.

                                                                         AFFIRMED

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