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Mortgage Guaranty Insurance Co. v. Whitaker

United States District Court, D. Maryland, Southern Division

February 9, 2018

JOHN WHITAKER, et al., Defendants.



         Plaintiff Mortgage Guaranty Insurance Company ("MGIC") brings suit against John and Margit Whitaker ("Defendants") to recover losses following its payment on a claim stemming from Defendants' default on their mortgage. ECF No. 12. No hearing is necessary. Loc. R. 105.6 (D. Md. 2016). For the following reasons. Defendants" Motion to Dismiss is granted.

         I. BACKGROUND[1]

         On February 15, 2008, Defendants borrowed money from Weichert Financial Services O"Weicher() for the purchase of a properly located at 18 North Luzerne Avenue in Baltimore, Maryland and executed a Note and Deed of Trust secured by the property. ECF No 2 ¶ 5: ECF No. 2-1. MG1C, a mortgage insurance company, insured Weichert, and its successors or assigns, against financial losses should Defendants default on the Note. ECF No. ¶ 11. Defendants failed to pay the installment payments due on the Note, and the Circuit Court for Baltimore City entered an order ratifying the foreclosure sale on July 17. 2012. Id. ¶¶ 6.7: see also Rosenberg, el al. v. Whitaker. el al., Case No. 24012000110 (docket attached as ECF No. 14-1). After applying all credits of the sale to Defendants' total debt, the Court Auditor for Baltimore City determined a deficiency due on the Note in the amount of $141.691.37. and the court issued an order ratifying the Court Auditor's report on November 28. 2012. See ECF No. 2 ¶¶ 9. 10; ECF No. 2-2. Following ratification of the deficiency, Dovenmuehle Mortgage. Inc.. Weicliert"s successor in interest, filed an insurance claim with MGIC. who then paid the claim in the amount of $88, 272.50 to Federal Home Loan Mortgage Corporation. ECF No. 2 ¶ 12.

         As a result of Defendants" default on the Note and MGIC"s payment of the insurance claim. MGIC alleges that it became subrogated as to Weichert's claim for the deficiency due on the Note. See ECF No. 2 ¶ 13. MGIC brought suit against Defendants for breach of contract on June 26. 2017 in the Circuit Court for Montgomery County, and Defendants removed the action to this Court on August 8. 2017 on the basis of diversity of citizenship under 28 U.S.C. § 1332. Defendants now move to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). arguing that MG1C lacks standing to enforce the Note and Deed of Trust and that even if MGIC has standing, it may not enforce the Note through a breach of contract action. See ECF No. 12.


         A. Motion to Dismiss Pursuant to Rule 12(h)(1)

         Because standing is an element of subject matter jurisdiction, a defendant's motion to dismiss for lack of standing should be analyzed under Rule 12(b)(1). See Mclnnes v. Lord Baltimore Employee Retirement Income Account Plan. 823 F.Supp.2d 360, 362 (D. Md. 2011) (citing White Tail Park. Inc. v. Stroube. 413 F.3d 451, 459 (4th Cir. 2005)). When such a motion has been filed, the plaintiff bears the burden of proving that jurisdiction exists. Williams v. United States. 50 F.3d 299. 304 (4th Cir. 1995). The court should grant the motion only "if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Richmond Fredericksburg & Potomac R. Co. v. United Stales. 945 F.2d 765. 768 (4th Cir. 1991). In making this determination, the court "is to regard the pleadings as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." Id

         MGIC"s underlying claim is one of breach of contract, alleging that it has suffered an "injury in fact" as a result of Defendants" failure to pay Weichert the installment payments due on the Note. See ECF No. 14 at 5 (citing McInnes. 823 F.Supp.2d at 362).[2] Defendants do not dispute that they owed a contractual obligation to Weichert; rather. Defendants argue that MG1C does not have standing to bring suit against it because MG1C is not in privity of contract with Defendants nor designated by Weichert as a third-party beneficiary to the Note. ECF No. 12 at 3. However, both parties agree that the doctrine of subrogation, if properly established, would allow MG1C to "step into the shoes" of Weichert to pursue Weichert's breach of contract action. See ECF No. 14 at 8 (citing Fireman's Fund Ins. Co. v. Com'n Ins. Co.. 519 A.2d 202, 204 (Md. 1987)). Subrogation is "[t]he substition of one person in place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities." Riemer v. Columbia Med. Plan. Inc. 747 A.2d 677, 682 (Md. 2000). The subrogee is then ordinarily entitled to all the remedies of the creditor and associated means the creditor could employ to recover payment. Foe v. Pbila. Cas. Co., 84 A. 476 (Md. 1912).

         Maryland recognizes both legal and conventional subrogation. Legal, or equitable, subrogation does not require a contractual relationship between a creditor and a subrogee and may be applied where there is "(1) the existence of a debt or obligation for which a party, other than the subrogee, is primarily liable, which (2) the subrogee, who is neither a volunteer nor an intermeddler. pays or discharges in order to protect his own rights and interest." Sec. Ins, Co. of New Haven-The Connecticut Indem. Co. v. Mangan, 242 A.2d 482. 485-86 (Md. 1968). In contrast, conventional subrogation requires "an agreement, express or implied, between a debtor and a third party or between a creditor and a third party that, upon payment of the debt, the third party will be entitled to all the rights and securities of that debtor or creditor." Poteel v. Sauter. 766 A.2d 150. 160 (Md. 2001). Defendants claim that MG1C has no right of subrogation, legal or conventional, and therefore does not have standing. MG1C claims that it has a right of legal subrogation.

         MG1C relies on Bachmann v. Cheer & Glazer, Inc.. 559 A.2d 365 (Md. 1988) to assert that it may pursue its claim against Defendants under the theory of legal subrogation. ECF No. 14 at 8. In Bachmann, a tenant in a commercial building entered into a sales agreement with Glazer. Per the sales agreement, Glazer would become the assignee under the building's lease in the event that the tenant defaulted on the sales agreement. Prior to the sales agreement with Glazer. the tenant had executed an agreement with Bachmann who guaranteed the rental payments owed from the tenant, or any assignee of the tenant's interest in the lease, to the landlord of the building. After the tenant defaulted on its sales agreement with Glazer, Glazer became the assignee under the lease. Glazer then entered into an agreement with the landlord, whereby Glazer agreed to pay the tenant's outstanding rent balance and. in return, the landlord would assign to Glazer its claim against the tenant and Bachmann for the past due rent. See Bachmann. 599 A.2d at 366-67.

         After paying the outstanding rent balance, Glazer brought suit against Bachmann to recover its costs. On review, the Maryland Court of Appeals held that Glazer could recover the payment against Bachmann under the doctrine of subrogation because subrogation "is intended to provide relief against loss and damage to a meritorious creditor who has paid the debt of another." Id. at 368. Because the landlord had assigned its interests in the back rent to Glazer. the court found that Glazer was entitled to sue Bachmann. the tenant's guarantor, because "assignment of a debt ordinarily carries with it every remedy or security that is incidental to the subject matter of the assignment" Id. at 370. However, contrary to Plaintiffs assertion of legal subrogation, the court's decision rested on conventional subrogation. Id. at 369 ("The case before us involves conventional subrogation."). The court noted that Glazer paid the back rent as a condition of the landlord granting the assignment, not for the purpose of extinguishing a debt "for" the tenant. Id. at 370. (emphasis in original). Cf. Id. at 367-68 (citing Schneider, Inc. v. Cole Build Co., 202 A.2d 326 (Md. 1964) (finding legal subrogation of claims for paving costs where plaintiff paved roads on defendant's property in order to obtain permission from the city to pave roads on plaintiffs own property)).

         As in Bachmun, MG1C did not provide payment to Weichert. or its successors or assigns, for Defendants in order to protect its own rights or interests; rather, it provided payment as a result of its insurance agreement with Weichert. Thus. MGIC had no relationship with Defendants, and its interest in the debt is not grounded in the theory of legal subrogation but rather only arises as a result of its contractual relationship with Weichert. Cf. Mffigan, 242 A.2d at 486 (noting that a legal subrogee is normally not "a complete stranger to the transaction"). Because MG1C is not entitled to legal subrogation. MG1C. like other insurers, "is denied subrogation unless specifically permitted by a policy provision or sanctioned by statute." Id. at 487.

         As set forth in the Complaint. MGIC insured Weichert. and its successors or assigns, against any financial loss sustained due to Defendants' default on the Note. ECF No. 2 ¶ 11. This insurance agreement included a subrogation provision, providing that "only to the extent that [MGICI is entitled under applicable law to pursue such deficiency rights. [MGIC] will be subrogated, upon payment of the Loss, in the amount thereof, and with an equal priority to all of [Weichert"s] rights of recovery against a Borrower." ECF No. 14-2 at 31. Therefore, because Weichert assigned its interests in the Note to MGIC, and MGIC discharged Defendants remaining debt to Weichert. MGIC has standing to recover the debt from Defendants under a theory of conventional subrogation. See Bachmann. 599 A.2d at 371 ("In order for Glazer to recover ...

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