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Fox v. Fidelity First Home Mortgage Co.

Court of Special Appeals of Maryland

July 1, 2015


Meredith, Graeff, Leahy, JJ.



This case arose from a fraudulent foreclosure rescue scheme initiated by appellant, James William Fox, II, who was employed as a loan officer with Fidelity First Home Mortgage Company ("Fidelity First"), appellee. One of the victims, Charlene Williams, sued Fidelity First, which was found liable under a theory of respondeat superior and ordered to pay damages.

Fidelity First then filed a complaint in the Circuit Court for Prince George's County against Mr. Fox and another individual, seeking indemnification.[1] It alleged that "the fraudulent mortgage rescue scheme scam" perpetrated by Mr. Fox was within the scope of his employment with Fidelity First, and Mr. Fox and the other individual were "solely responsible to Fidelity First for any and all damages imposed by the jury on Fidelity First or, in the alternative, are joint tortfeasors." Mr. Fox argued that the claims for indemnification and contribution were discharged in bankruptcy.

The circuit court granted summary judgment in favor of Fidelity First. It found that, because the claim against Mr. Fox was based on fraud, it was nondischargeable in bankruptcy. Accordingly, it ordered judgment in favor of Fidelity First and against Mr. Fox and another employee for indemnification and contribution in the amount of $340, 583.98, plus costs.

On appeal, Mr. Fox presents the following questions for our review, which we have rephrased as follows:

1. Did the circuit court err in granting summary judgment in favor of Fidelity First where Mr. Fox previously received a discharge in a no-asset Chapter 7 bankruptcy case, and no determination was made that such claim was nondischargeable under the Bankruptcy Code?
2. Did the circuit court err in granting summary judgment on Fidelity First's indemnification claim where the jury found Fidelity First negligent, and the record reflected a dispute of material fact whether Fidelity First's conduct was passive?

For the reasons that follow, we shall affirm the judgment of the circuit court.


A. The Initial Litigation

The factual background underlying this appeal was set forth by this Court in the appeal from the initial tort action. Fidelity First Home Mort. Co. v. Williams, 208 Md.App. 180 (2012). We shall reiterate only those facts necessary to resolve this appeal.

Ms. Williams sued Fidelity First, Mr. Fox, and James Dan, alleging that Mr. Fox and Mr. Dan had engaged in a fraudulent foreclosure rescue scheme that caused her to lose title to, and be deprived of, the equity in her home. Id. at 183. She alleged that Fidelity First, Mr. Fox's employer, was vicariously liable for fraud, breach of fiduciary duty, and violations of the Protection of Homeowners in Foreclosure Act. Id. Ms. Williams subsequently dismissed her claims against Mr. Fox and Mr. Dan and proceeded solely against Fidelity First, asserting that Mr. Fox and Mr. Dan were acting within the scope of their employment, and Fidelity First was vicariously liable on the basis of respondeat superior. Id. at 184.

At trial, the evidence showed that Mr. Fox was hired as a loan officer for Fidelity First, a mortgage broker. He became an excellent producer and was rewarded with higher commission rates. Id. at 186. On at least three occasions, however, he was caught forging documents. He was reprimanded and suspended, but he was not terminated. Id.

The foreclosure rescue scheme began in 2006. Id. at 187. Mr. Fox would identify distressed homeowners who were unable to qualify for traditional mortgage refinancing due to poor credit, but who owned equity in their homes. Id. Mr. Fox advised these distressed homeowners that he could assist them in refinancing their mortgages by using his or Mr. Dan's own credit. Id. The homeowners were convinced that they could avoid losing their homes to foreclosure by selling their homes to Mr. Fox, Mr. Dan, or a straw buyer, and remaining in the properties as tenants. Id. Mr. Fox and Mr. Dan promised that they would pay the mortgages on the properties for six months to a year, at which time the homeowners would be able to re-acquire title to their properties. Id.

To facilitate the property purchases, Mr. Fox, Mr. Dan, or a straw buyer would apply for and obtain a mortgage in their own name. Id. In at least three of the approximately eight transactions, Fidelity First was the mortgage broker. Id. The loan applications contained materially false representations with respect to the borrower's income, assets, and intent to occupy the home, among other things. Id.

Ms. Williams was the homeowner in the third transaction, which took place in August 2006. Id. at 188. Ms. Williams had been having financial problems and ceased making her mortgage payments. Id. Her lender initiated foreclosure proceedings against her. Id. Ms. Williams received a solicitation letter from Fidelity First, advising her that she had been pre-approved for a lower interest rate and/or debt consolidation. Id. The letter was signed "Shawn Murphy Director of Customer Service Fidelity First." Id. at 189. Shawn Murphy was not an employee of Fidelity First, but rather, he was a fictitious person named after a friend of Daniel Eubanks, the president and sole owner of Fidelity First. Id. Mr. Eubanks assigned different names to the different types of solicitation letters that Fidelity First sent to potential borrowers, so when the potential borrower called, the person receiving the call would be able to identity the type of solicitation the potential borrower had received. Id.

Ms. Williams called Fidelity First in response to the solicitation letter. Id. Mr. Fox took the call and informed Ms. Williams that he could assist her in refinancing the mortgage on her property. Id. Mr. Fox determined, however, that Ms. Williams would not qualify for a refinance loan. On May 11, 2006, Ms. Williams executed a written contract to sell the property to Mr. Dan for $225, 000. Id. The next day, Mr. Dan applied for a mortgage loan with First National Bank of Arizona. Id. at 190. Mr. Fox was the loan officer on the application, and Fidelity First was the mortgage broker. Id. On his application, Mr. Dan made numerous misrepresentations about the amount of his annual income, his savings, and the real property he claimed to own. Id. Mr. Dan's mortgage application was approved by a loan processor for Fidelity First. Id. In the ordinary course of business, this mortgage application also would have been reviewed by Mr. Eubanks, but Mr. Eubanks denied having reviewed this particular file. Id.

On August 4, 2006, settlement occurred. Id. Ms. Williams signed a deed, which conveyed the property to Mr. Dan, as well as the HUD-1 settlement sheet and other related papers. Id. She also signed a contingent deed that would transfer ownership back to her after several years, which document was to be held by the settlement attorney for three years. Id. Ms. Williams believed that she was refinancing the mortgage on her house using Mr. Dan's credit.

At settlement, Ms. Williams received a check for $63, 893.79 in net proceeds from the sale. Id. at 191. Shortly after settlement, she endorsed that check to Mr. Dan, and he cashed it. Id. He gave Ms. Williams $3, 000 in cash and told Ms. Williams that the remaining amount would be held in escrow to pay her mortgage. Id. In actuality, Mr. Dan deposited the remaining proceeds of sale into his own personal checking account. He used $44, 420.07 to pay settlement costs. Id. at 190-91. Mr. Fox and Mr. Dan split the remaining balance.

In October 2006, Ms. Williams received another check in the amount of $11, 804.62 from the title company, which represented a refund for overpayments made to her creditors out of the settlement proceeds. Id. at 191. Mr. Fox called Ms. Williams and convinced her to endorse the check over to him. Id. She did, and he gave her $3, 000 in cash, telling her that the remaining amount would be deposited into escrow. Id. Instead, it was deposited in Mr. Fox's personal checking account. Id.

Although Ms. Williams thought the mortgage was in her name, and she was paying the loan with the money that Mr. Fox and Mr. Dan were holding in escrow for her, the mortgage actually was in Mr. Dan's name, and Ms. Williams essentially was making rental payments. Id. at 192. Ms. Williams learned that she no longer owned the property in 2007, when she was served with an eviction notice. Id. She learned that she was "a tenant in [her] own home, " and that Mr. Dan's mortgage was in foreclosure. Id. Although she tried to contact the mortgage lender, its representatives would not speak to her because her name was not on the loan. Id.

In December 2009, Mr. Fox and Mr. Dan were indicted in federal court for wire fraud and conspiracy to commit wire fraud. Id. Mr. Fox ultimately pleaded guilty pursuant to an agreed statement of facts. Id. at 193.

Ms. Williams' case against Fidelity First went to trial on February 7, 2011. Mr. Fox and Mr. Dan testified about their involvement in the foreclosure scheme and the culture at Fidelity First. Id. Mr. Fox described the considerable pressure for loan officers to produce, and he stated that the failure to produce would lead to termination. Id.

Mr. Eubanks denied knowledge that Mr. Fox and/or Mr. Dan were engaging in fraud prior to the transaction with Ms. Williams. Id. at 196. He explained that the transaction with Ms. Williams was the first of the foreclosure rescue transactions in which the loan originated through Fidelity First. Following that transaction, Mr. Fox originated two more loans through Fidelity First, but Mr. Eubanks testified that neither of those transactions were on his "radar." Id.

The jury returned a verdict in favor of Ms. Williams. Id. The jury indicated on the verdict sheet that Fidelity First, acting through one or more of its agents, committed fraud, breached its fiduciary duty, and violated the Maryland Homeowner's Protection in Foreclosure Act. It also found that Fidelity First was negligent in its retention or supervision of Mr. Fox. The jury awarded Ms. Williams $70, 000 in compensatory damages. It awarded $150, 000 in punitive damages based on its finding that the conduct engaged in by Fidelity First, through one or more of its agents, amounted to fraud and/or breach of fiduciary duty.

On appeal to this Court, Fidelity First asserted, inter alia, that the evidence was insufficient to support the jury's findings that it negligently supervised and retained employees. Id. at 184-85. We disagreed, holding that there was evidence from which a reasonable juror could infer that Mr. Eubanks "tolerated and even encouraged forgery in the pursuit of closing more loans, " id. at 199, and that Mr. Eubanks was aware of the foreclosure rescue scheme transactions. Id. at 200. With respect to respondeat superior, Fidelity First argued that the evidence of Mr. Fox's fraud, "did not support a reasonable inference that [he] was acting within the 'scope of his employment' at the time of the tortious conduct" because, although his initial contact with Ms. Williams arose out of his role as loan officer, once he began participating in the foreclosure rescue scheme, he ceased acting within the scope of his employment. Id. at 201. We disagreed, holding that a reasonable juror could find that Mr. "Fox was acting within the scope of his employment when he perpetrated the fraudulent scheme against [Ms.] Williams." Id. at 204. We explained that the jurors "were free to disbelieve" Mr. Eubanks' testimony that he did not review the loan file in Ms. Williams' case, id. at 205, and to find that Mr. Eubanks "had reason to expect that [Mr.] Fox was engaging in foreclosure rescue transactions because [Mr.] Fox had discussed his 'side business' with [Mr.] Eubanks and informed him that it was extremely profitable.'" Id. We explained that:

There was ample evidence at trial that [Mr.] Eubanks encouraged competition among the loan officers to see who could achieve the highest closing rate; that loan officers who failed to produce enough loans in a given month would be subjected to ridicule; and that failure to produce ultimately would lead to termination . . . . Given all of this evidence, a reasonable juror could infer that [Mr.] Fox's foreclosure rescue scheme, while in furtherance of his own interests, also ...

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