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Joy Family Limited Partnership v. United Financial Banking Companies, Inc.

United States District Court, Fourth Circuit

August 28, 2013




The Joy Family Limited Partnership (the “Partnership”), plaintiff, has sued United Financial Banking Companies, Inc. (“United Financial”), “trading as The Business Bank, ” defendant, for injurious falsehood (Count I); fraud (Count II); violation of the Maryland Consumer Debt Collection Act (“MCDCA”), Md. Code (2005 Repl. Vol., 2012 Supp.), §§ 14-201 et seq. of the Commercial Law Article (“C.L.”) (Count III); violation of the Maryland Consumer Protection Act (“CPA”), C.L. §§ 13-201 et seq. (Count IV); and abuse of process (Count V). In sum, the Partnership accuses defendant of intentionally clouding the title to a condominium in Ocean City, Maryland, of which the Partnership is the equitable title holder, in order to coerce the Partnership to pay a debt owed by the holder of legal title to the property. Plaintiff seeks damages in an unspecified amount, along with attorneys’ fees and costs, and asserts subject matter jurisdiction founded on diversity of citizenship. See 28 U.S.C. § 1332(a).

Two motions are now pending. United Financial has filed a Motion to Dismiss (ECF 12), asserting that plaintiff has sued the wrong defendant, that diversity jurisdiction is lacking, and that plaintiff’s complaint fails to state claims upon which relief can be granted. The Partnership has filed a Motion for Leave to File Amended Complaint (“Motion to Amend”) (ECF 16), seeking to substitute the proper defendant. Both motions have been fully briefed and can be resolved without a hearing. See Local Rule 105.6.[1] For the reasons that follow, I will grant the Motion to Amend. With the identity of the proper parties thereby established, I conclude that diversity jurisdiction is lacking. Accordingly, I will grant the Motion to Dismiss on jurisdictional grounds, and dismiss the suit for lack of subject matter jurisdiction, without reaching the merits.

Factual Background

The property at issue is a condominium located at 1203 Edgewater Avenue, Unit B, in Ocean City, Worcester County, Maryland (“Unit B”). Richard Joyeusaz, who is not a party to this case, purchased Unit B in 2004 for $211, 800. Members of the Partnership own Unit A, which is adjacent to Unit B. Although the precise composition of the Partnership is not disclosed in the record, it is apparent that Richard Joyeusaz’s father, Edward Joyeusaz, has a position of authority in the Partnership.[2]

Richard’s friend, John Simmonds, contributed some money toward Richard’s purchase of Unit B in 2004.[3] Richard also procured financing for the purchase of Unit B through a mortgage loan in the amount of $158, 850 from The Business Bank, a Virginia financial institution.[4] He also incurred a second mortgage on Unit B, in the amount of $48, 000, with another lending institution. Id. ¶ 8.

Three years later, in late spring 2007, Richard decided to sell Unit B. Id. ¶ 9. Because the members of the Partnership who own Unit A “desired to exercise some degree of control over the use” of Unit B, the Partnership offered to purchase Unit B from Richard. On June 1, 2007, Richard and the Partnership executed a Sales Contract for Unit B. See Sales Contract, Ex. A to Complaint (ECF 1-1). Edward signed the Sales Contract on behalf of the Partnership, purporting to act as its “General Partner.” See Sales Contract at 5-6.[5] The Sales Contract provided for a deposit of $35, 000 and a total sales price of $225, 000. According to “Addendum #1” to the Sales Contract, see Sales Contract at 6, the parties agreed that, although not listed on the title, Mr. Simmonds was an “equal Owner” of Unit B with Richard; that the Partnership would “take over” the monthly payments on The Business Bank mortgage and pay off the second mortgage; and that settlement of the Sales Contract would occur within five years of the date of ratification.

Edward had a longstanding business relationship with The Business Bank. Complaint ¶ 10. In June 2007, Edward visited The Business Bank’s office in Tyson’s Corner, Virginia to discuss with The Business Bank’s management the Partnership’s intended purchase of Unit B. Id. Edward met with the branch manager, Larry Baker, and his assistant, Danny Sisowath, and explained that the Partnership “would not purchase the Condominium without the Bank’s board of director’s approval of the transaction.” Id. ¶ 11. Edward sought assurances that the purchase would not result in a default of The Business Bank’s loan to Richard. According to plaintiff, Baker and Sisowath confirmed that the sale would not trigger a default, and approved the transaction. Id.

Edward then directed The Business Bank to withdraw $100, 000 from the Partnership’s accounts at The Business Bank and to pay that amount toward The Business Bank mortgage on Unit B, reducing the outstanding $147, 000 principal obligation on the mortgage to a balance of $47, 000. Id. ¶ 12. In addition, the Partnership paid the $35, 000 deposit due under the Sales Contract to Richard and Mr. Simmonds in two equal shares of $17, 500, in the following manner: the Partnership paid Mr. Simmonds $15, 200, after deducting $2, 300 for repair costs from Simmonds’ $17, 500 share, and applied Richard’s $17, 500 share to other debts that Richard owed the Partnership. Id. ¶ 13. The Partnership fully paid off the second mortgage on Unit B on September 4, 2008, after Edward negotiated a reduced prepayment with the mortgage lender. Id. ¶ 15. And, the Partnership paid all of the successive monthly payments on the mortgage owed to The Business Bank, and paid off The Business Bank mortgage in September 2010. Id. ¶ 14. Thus, in total, the Partnership paid $221, 850 to various entities in connection with its purchase of Unit B.

In the meantime, Richard and his wife had borrowed money from The Business Bank to establish a nail salon in Virginia (the “Virginia Loan”). Id. ¶ 17. Unit B was not collateral for the Virginia Loan. The Virginia Loan went into default at the end of 2009 or the beginning of 2010, and on February 4, 2010, The Business Bank obtained a judgment against Richard and his wife in Loudoun County, Virginia, where they lived, in the outstanding amount on the Virginia Loan of $45, 567.40, plus interest (the “Virginia Judgment”). See Id . ¶ 18; Ex.A to Motion to Dismiss (ECF 10-2). The Business Bank tried and failed to collect on the Virginia Judgment, and Richard initiated a personal bankruptcy proceeding. Id. ¶ 19. Subsequently, on an occasion when Edward visited the Bank, either Mr. Baker or Mr. Sisowath, the bank officials, requested that Edward pay the Virginia Judgment. Edward refused on the ground that neither he nor the Partnership had incurred or benefited from the Virginia Loan. Id. ¶ 20.

Richard did not disclose Unit B as an asset in his bankruptcy proceeding. According to plaintiff, this was because Richard had sold Unit B to the Partnership in the transaction discussed above. Id. ¶ 21. However, plaintiff asserts, on information and belief, that The Business Bank learned during the bankruptcy proceeding that Richard also owed the Internal Revenue Service approximately $1 million, and that the IRS would likely file a notice of tax lien against Richard in Worcester County, Maryland, where Unit B is located. Id. ¶ 23. On March 24, 2010, The Business Bank recorded the Virginia Judgment against Richard in the Circuit Court for Worcester County, thereby placing a lien on Unit B. Id. ¶ 24.[6] A month later, on April 26, 2010, the IRS filed a notice of tax lien against Richard in the Circuit Court for Worcester County in an amount in excess of $1 million. Id. ¶ 25.[7]

The Partnership claims that The Business Bank’s lien should not attach to Unit B because the Partnership became the equitable owner of Unit B upon execution of the Sales Contract. Id. ¶ 26.[8] It contends that The Business Bank recorded the Virginia Judgment in Worcester County and encumbered Unit B with the intent to pressure the Partnership or Edward to pay off Richard’s obligation under the Virginia Loan and the Virginia Judgment. Plaintiff posits that this could be the only reason that The Business Bank recorded the Virginia Judgment in Worcester County. It reasons that The Business Bank knew that Richard had no property in Worcester County, other than bare legal title in Unit B, and knew that the Partnership was the equitable owner of Unit B. Id. ¶ 27. As the Partnership sees it, by recording the Virginia Judgment in Worcester County, The Business Bank hoped to “coerc[e] the Joy Family and/or [Edward] to pay the debt owed by [Richard] despite the Bank’s actual knowledge that neither was in any way responsible for [Richard’s] debt, or to attempt to sell the Condominium to collect [Richard’s] debt to the bank.” Id.

Additional facts are included in the Discussion.


A. Proper Defendant and Motion to Amend

The first ground for dismissal asserted in the Motion to Dismiss is intertwined with the Motion to Amend. In the Motion to Dismiss, United Financial claims that “The Business Bank” is a separate business entity in its own right, rather than a mere trade name for United Financial. Therefore, United Financial asserts that plaintiff has sued the wrong party, and that all of the Partnership’s claims should be dismissed on that basis. Further, although United Financial did not file a separate motion for sanctions, it asked the Court to impose monetary sanctions on plaintiff’s counsel, pursuant to Fed.R.Civ.P. 11, in the form of the reasonable attorneys’ fees and costs incurred in defending the suit, because it sent a letter to plaintiff’s counsel after suit was filed, asserting that plaintiff had sued the wrong defendant, and claimed “Plaintiff’s attorney did not respond.” Motion to Dismiss at 11; see Letter of Feb. 5, 2013, from Lash to Astrachan, Ex.B to Motion to Dismiss (ECF 10-3).

In its Opposition to the Motion to Dismiss, plaintiff states that “The Business Bank” is listed in the records of the Virginia State Corporation Commission (“SCC”) as a fictitious name and as a trade name for an entity that is a predecessor in interest of United Financial. See Opposition at 6-7. Plaintiff submitted with its Opposition electronic printouts from Virginia state business records supporting its contentions. See Ex.A & B to Opposition (ECF 13-1 & 13-2). And, plaintiff provided a printout from The Business Bank’s website stating that United Financial is the “parent company of The Business Bank.” Ex.C to Opposition (ECF 13-3). Moreover, plaintiff correctly observed that United Financial did not “submit any documentation or statement under oath supporting its assertion that ‘The Business Bank’ is not a trade name under which it operates.” Opposition at 7.

Finally, the Partnership has refuted United Financial’s assertion that plaintiff’s counsel did not respond to the letter from defendant’s counsel. It submitted a copy of a letter from plaintiff’s counsel to defense counsel dated February 6, 2013, one day after the letter sent by defendant’s counsel. See Letter of Feb. 6, 2013, from Doty to Lash, Ex.D to Opposition (ECF 13-4). In that letter, plaintiff’s counsel stated that United Financial’s counsel had “not identif[ied] the entity that [United Financial] contends should be named as a defendant in this case, ” and asked defense counsel to “provide the name and state of incorporation of the entity that [United Financial] contends should be named as a defendant . . ., together with supporting documentation . . . .” Id. According to plaintiff, defendant’s counsel never responded.

Along with its Reply, United Financial submitted a Certificate of Good Standing from the Virginia SCC, dated March 12, 2013, issued under the seal of the SCC and the signature of its clerk, stating that The Business Bank was incorporated under Virginia law in 1982 and is in good standing. See Ex.A to Reply. It explained that the printouts from electronic records submitted by plaintiff’s counsel “refer[red] to a third and completely unrelated corporation with a similar but distinguishable name.” Reply at 2.

Thereafter, plaintiff filed its Motion to Amend, observing that, in its Reply, United Financial had “for the first time provided documentation that [The Business Bank] is in fact a separate legal entity and not a trade name, contrary to the SCC records the [Partnership] found online during its pre-filing investigation.” Motion to Amend ¶ 3. Based on that documentation, plaintiff sought leave to amend its complaint, pursuant to Fed.R.Civ.P. 15(a)(2), to substitute The Business Bank as the sole defendant, in lieu of United Financial. That is the only change in plaintiff’s proposed Amended Complaint (ECF 16-1).

In its Opposition to the Motion to Amend, United Financial assented to the amendment of the complaint, but asserted that “a diligent inquiry would have discovered that [The Business Bank] and United Financial are separate and distinct legal entities.” Amend Opp. ¶ 12. Therefore, as a condition of granting leave to amend, it has asked the Court to award attorneys’ fees and expenses “incurred by United Financial as a result of Plaintiff’s failure to dismiss United Financial from this case upon being informed that [The Business Bank] is a separate legal entity.” Id.

Under Fed.R.Civ.P. 15(a)(2), a court should “freely give leave” to amend a pleading “when justice so requires.” Given that all parties are now apparently in agreement that The Business Bank, as a separate legal entity, is the proper defendant to this suit, there is no basis to withhold leave to amend. Therefore, the Motion to Amend will be granted.

However, I see no merit whatsoever in defendant’s request for sanctions.[9] Plaintiff filed suit against United Financial after its investigation reasonably indicated that “The Business Bank” was a trade name for United Financial. Indeed, the two companies are apparently related. First, The Business Bank is listed as a corporate affiliate of United Financial in United Financial’s corporate interest disclosure statement, filed pursuant to Local Rule 103.3 (ECF 11). Second, the two companies share the same address. Although United Financial informed plaintiff’s counsel that it is a separate legal entity from The Business Bank, it provided no documentation in support of that assertion, despite the request for such information from plaintiff’s counsel, until it filed its Reply in support of its Motion to Dismiss.

Ordinarily, where an amended complaint is filed that substitutes the defendant, it might be appropriate to consider as moot any substantive defenses asserted in a motion to dismiss previously filed by the improperly named defendant. Nevertheless, a defendant is not always “required to file a new motion to dismiss simply because an amended pleading was introduced while [its] motion was pending. If some of the defects raised in the original motion remain in the new pleading, the court simply may consider the motion as being addressed to the amended pleading.” 6 Wright, Miller & Kane, Federal Practice & ...

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