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ELM Cabin John, LLC v. United Bank

United States District Court, D. Maryland

April 19, 2019

ELM CABIN JOHN, LLC, et al. Plaintiffs/Counter-Defendants
v.
UNITED BANK Defendant/Counter-Plaintiff

          MEMORANDUM OPINION

          PETER J. MESSITTE, UNITED STATES DISTRICT JUDGE

         Nancy Long (Long)[1] sues United Bank (the Bank)[2] for negligence for wrongfully taking a deed of trust and subsequently threatening foreclosure on three parcels of property she claims belonged to her, which resulted from unauthorized and/or fraudulent actions taken by Long's former Limited Liability Company (LLC) joint venturer Andrew Economakis in connection with a project to develop the properties.

         Long says in consequence that she is entitled to the proceeds of the sale of the two properties that the Bank effectively forced her to sell to satisfy a loan to Economakis and his associates. Specifically, she alleges that the Bank negligently failed to verify the authority of Economakis to act with respect to the properties when, without her participation or authorization, he offered them to the Bank as collateral for a construction loan on the properties, an action directly inconsistent with the terms of the agreement Long says she had with Economakis (and a third joint venturer Thomas Manion). The Bank, which made a $1.6 million construction loan for development of the properties and thereafter took the deed of trust to the properties as collateral for the loan, asserts that Long was fully aware of and authorized Economakis to offer the properties as collateral and, in any event, that she eventually ratified his acts after the fact. The Bank also argues (a) that the statute of limitations ran on Long's claims before she filed this suit; (b) that she was contributorily negligent; (c) and that she has not shown she sustained any injury or damages proximately caused by the Bank's actions. The Bank has countersued Long for tortiously interfering with Elm Cabin John LLC's purported agreement with the Bank not to sue it, as well as the Corporate Co-Plaintiff in the case, Elm Cabin John LLC, for breaching that same agreement.

         The matter is before the Court on the Bank's Motion for Summary Judgment and Plaintiffs' Motion for Summary Judgment on Counterclaims. The Court DENIES both Motions.

         I.

         The facts of the case at this stage are quite convoluted, but as best they can be unpacked, appear to be as follows:

         Long inherited some ten properties in the town of Glen Echo in Montgomery County, Maryland, which she eventually consolidated into three properties for the purpose of developing them. Long's ancestral home, where she resided, was on the third property. Her idea was to sell the first two properties and use the proceeds from the sales to renovate the third property. She was already in her 80's in 2011 when she pursued this project and was unsophisticated in matters pertaining to real estate development. ECF No. 58 at 29. Accordingly, early on Long engaged an architect, Thomas Manion (Manion), who introduced her to a real estate developer, Andrew Economakis (Economakis), to help develop the three properties. Long avers that from the outset the understanding of the threesome was that Long would contribute the properties, Manion the architectural services, and Economakis the funds necessary for developing the properties.

         In 2010 an Operating Agreement was drafted, presumably by Economakis (or more likely his attorney Joseph McBride), implementing the parties' oral understanding. See Operating Agreement for an “ELM, LLC, ” ECF No. 51-8 at 37 (specifically noting that the Operating Agreement was to be among and between Economakis, Long, and Manion (the first letters of their last names spelling out “Elm”)). In that document, Long and Economakis were listed as managing members. Id.

         The development plan got underway when Long, as individual owner of the three properties, conveyed them to an entity (set up by Attorney McBride) known as Nancy Long LLC, of which she was the sole member. See ECF No. 51-8 at 29 (Articles of Organization for Nancy Long, LLC, dated May 8, 2009 and signed by McBride); id. at 45 (June 9, 2010, deed by Long individually transferring the properties to Nancy Long LLC). The ostensible reason for proceeding this way was to exempt the transaction from certain transfer taxes. McBride registered Nancy Long LLC as a limited liability company with the State of Maryland. ECF 51-8 at 29.[3]

         In his search for funds to develop the properties, in early 2011 Economakis came into contact with United's predecessor in interest, Georgetown Bank. See ECF No. 56-4 (Bank's proposal letter dated February 24, 2011). From the start, Economakis and he alone, with no involvement of Long (nor apparently of Manion), conducted negotiations with the Bank relative to the funding he sought.

         In connection with his efforts to obtain the loan, Economakis took some unusual steps. According to Long, without her knowledge or authorization, on or about March 3, 2011 he filed a single-page form with the Maryland State Department of Assessments and Taxation, changing the name of Nancy Long LLC, which supposedly held record title to the three properties, to a newly formed entity, Elm Cabin John, LLC. ECF No. 58-15 at 2. Economakis signed the change of name form as “Managing Member” of Nancy Long LLC (which arguably he was not). Id. The renamed entity, Elm Cabin John LLC, purported to have as its members Economakis and certain members of his family or associates but did not include Long or Manion. To be clear: Economakis did not seek to accomplish the transfer of the properties to Elm Cabin John LLC by arranging for their purchase from Nancy Long LLC (although the Bank, in its Credit Request and Approval Summary, ECF No. 56-3 at 3, wrongly noted that Elm Cabin John LLC had purchased the properties). The purported transfer was effectuated by the single page corporate change-of-name form Economakis filed with the State Department of Assessments and Taxation. ECF No. 58-15. According to Long, all this was done without her knowledge or authorization. ECF No. 76 at 5-6. Indeed, the newly renamed LLC to which the Bank eventually made a loan may never have had a valid written Operating Agreement.[4] It was this Elm Cabin John LLC, supposedly “owned” in equal parts by Economakis, his family and friends (but not by Long), that Economakis took to the Bank as the ostensible owner of the properties he intended to post as collateral for the construction loan. ECF No. 56-3 at 3.

         On or about April 27, 2011, the Bank issued a commitment letter for a line of credit to Elm Cabin John LLC in the amount of $1.6 million dollars, ECF No. 56-2, on which Economakis immediately began to draw. Three weeks later, on May 20, 2011, as security for the loan, Economakis, on behalf of Elm Cabin John LLC, executed a promissory note and deed of trust to the properties it claimed to own in favor of the Bank. Economakis and members of his family and associates were listed as “guarantors.” Id.; ECF No. 56-5 at 1, 47. Long was in no way involved in the closing. The deed of trust from Elm Cabin John LLC to the Bank was recorded in the Montgomery County Land Records on May 25, 2011. Id.

         The Bank's underwriting was hardly ideal. Indeed, when it issued its Loan Commitment Letter on April 27, 2011, the deed of the properties from Nancy Long individually to Nancy Long, LLC had not yet been recorded. The Bank clearly had not in fact verified who was record owner, because the Land Records of Montgomery County would have shown that Nancy Long individually still owned the properties.[5] The Bank therefore had to play catch-up and get the deed to Nancy Long LLC recorded as quickly as possible, see ECF No. 51-1 at 16, which occurred on May 12, 2011. ECF No. 51-8 at 49.

         With the recording of the deed to Nancy Long LLC, the Bank was expressly on notice that Nancy Long LLC was “solely owned” by Nancy Long, because that was what the deed recited. Even so, it was the properties deeded to Nancy long LLC that Economakis and Elm Cabin John LLC were offering to the Bank as collateral. See ECF No. 51-8 at 49 (emphasis added). On what basis could the Bank have determined that Elm Cabin John LLC held valid title to the properties? It would seem that, at best, its determination of Elm Cabin John LLC's ownership would have been based on (a) the single change-of-name form that Economakis filed with the State, (b) Economakis' verbal representations that the proposed borrower Elm Cabin John LLC was a legitimate entity and that he-Economakis-was authorized to act for it and post the collateral, [6] and, remarkably, (c) the representations of McBride, Economakis' attorney, whom the Bank allowed to conduct the title search and whose title company wrote the title insurance on the properties. At all events, the Bank never sought out or consulted with Nancy Long personally to clarify the situation. Since Long was not in any way involved in the Bank's negotiations with Economakis, she was never able to tell the Bank what she believed the actual agreement of the original LLC joint venturers had been-most prominently that Economakis was supposed to arrange for financing for the development of the properties on the basis of his own or his family's wealth, but not on the security of Long's properties.

         By September 2013, the construction loan had gone into default, ECF No. 58-20, 58-21, and by November 2013 the Bank notified Long (after she had been unable to get any explanation from the Bank of what was happening) that the properties it had ...


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