MERCHANTS MORTGAGE CO. v. LUBOW [No. 193, September Term, 1974.]
275 Md. 208 (1975)
339 A.2d 664
MERCHANTS MORTGAGE COMPANY ET AL. v. LUBOW
Court of Appeals of Maryland.
Decided June 16, 1975.
Lawrence F. Rodowsky and M. Peter Moser, with whom were Eleanor M. Carey and Frank, Bernstein, Conaway & Goldman on the brief, for appellants.
David Freishtat for appellee.
The cause was argued before MURPHY, C.J., and SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.
SINGLEY, J., delivered the opinion of the Court.
On 25 November 1968, Merchants Mortgage Company (Merchants) filed in the Circuit Court of Baltimore City a
Only Lubow, of all the defendants, filed a motion for partial summary judgment, grounded on the contention that claims based on wrongs which were alleged to have occurred prior to 25 November 1965 were barred by limitations; that certain of the claims were not supported by sufficient evidence, and that others were barred by preclusion.
Merchants countered the motion for partial summary judgment with an answer, and a motion for the production of documents by Lubow, which had as its purpose the examination of his financial records.
The matter was referred to Harry M. Sachs, Jr., the General Equity Master of the Supreme Bench of Baltimore City, for hearing on the motions. He recommended that summary judgment be granted for Lubow on those claims which were barred by limitations, by preclusion, or were not supported by sufficient evidence, and that limited discovery
It should be noted that Merchants at this stage of the proceeding could appeal only by virtue of an order entered by the chancellor.
Maryland Rule 605 a provides:
In the order granting Lubow's motion for summary judgment on "some but less than all of the claims of the plaintiff [Merchants] against the defendant Lubow" the court specified, in pursuance of the Rule, that this was a final judgment and that there was no just reason for delay.
The thrust of Lubow's cross-appeal is that the lower court erred (i) in adopting the Master's recommendation that estoppel was not available as a defense to four of the claims asserted by Merchants against Lubow; (ii) in rejecting the Master's conclusion that the doctrine of preclusion was available to Lubow as a defense to those claims, and (iii) in
Merchants has moved to dismiss Lubow's cross-appeal, a motion which we shall grant. The point is that a denial of Lubow's motion for summary judgment is an interlocutory order, which is not appealable and cannot be made so, Lawrence v. Department of Health,
While the parties, in their briefs and in argument before us, devoted much time to an extensive consideration of the facts, a brief resume will suffice for an understanding of the questions of law presented by this appeal.
Merchants is a Delaware corporation, which since 1925, has been engaged in the interim financing of real estate transactions, primarily by making construction loans and more recently by making loans secured by mortgages on unimproved real estate.
In 1960, Merchants employed Lubow as a salesman, at a salary of $100.00 per week. Later, he became a loan officer, and as Lubow's responsibilities increased, so did the importance of his position and the amount of his compensation. In 1963, he was elected a vice president of Merchants. In 1965, he became a director of the company. From 1964 to his resignation, his salary, bonuses and commissions on an annualized basis were in the $63,000 range. Lubow resigned in September, 1967, to enter business on his own account.
A matter of days after Lubow's resignation, suit was instituted in Prince George's County against Merchants, its officers and directors (including Lubow) and Sol M. Bank, an associate of Merchants, by Suitland Development Corporation, R & S Development Corporation, Warbling Meadows, Inc., and Beltway-Penn Construction Company,
The trial of the Suitland Development case in the lower court was concluded in May of 1968, and during the summer of 1968, Merchants embarked on an investigation of the activities of Lubow and others in connection with the operations of Merchants. This investigation gave rise to the filing of the bill of complaint in Baltimore against Lubow and Sol M. Bank, a mortgage broker associated with, but not employed by, Merchants, later amended to include LeRoy E. Hoffberger and Morton J. Hollander (the partners of the law firm of Hoffberger and Hollander) as additional plaintiffs, and Eugene J. Silverman, an employee of Hoffberger and Hollander; Title Company of Maryland, and J. Elmer Weisheit, Jr., its president, and Pacy Oletsky, a former employee of Merchants, as additional defendants.
Merchants' second amended bill of complaint in 34 numbered paragraphs (24 through 57, both inclusive) sets forth separate instances where Merchants and the individual plaintiffs were alleged to have been defrauded by Lubow and the other defendants. Both the Master, in his Report and Recommendation, and the circuit court, in its decree, dealt with the claims by paragraph number, as shall we.
After a careful discussion of the defense of limitations; its
Both the circuit court and the Master relied heavily upon Leonhart v. Atkinson,
Merchants challenges the invocation of limitations, arguing that the defense of limitations is not available to a
Lubow, an officer and director of Merchants, as a matter of law, occupied a confidential relationship as regards his company, Coffman v. Maryland Publishing Co., 167 Md. 275, 288-89, 173 A. 248, 253-54 (1934); Acker, Merrall & Condit Co. v. McGaw, 106 Md. 536, 556, 68 A. 17, 21 (1907); Booth v. Robinson, 55 Md. 419, 436 (1881); Cumberland Coal & Iron Co. v. Parish, 42 Md. 598, 604-05 (1875). See Rolling Inn, Inc. v. Iula,
Although a party is usually required to exercise ordinary diligence to discover fraudulent conduct of the opposite party, different standards are applied where fiduciaries are involved, Desser v. Woods, supra, 266 Md. at 708-09; Herring v. Offutt,
The Supreme Court of Georgia, in Perkins, supra, set forth the rule as follows:
We therefore conclude that the chancellor erred when he granted Lubow's motion for partial summary judgment as regards the claims set forth in the 18 numbered paragraphs of the bill of complaint on the theory that they were barred by limitations.
(ii) Insufficiency of Evidence
Lubow moved for summary judgment in his favor as regards the claims asserted in paragraphs 24, 25, 26, 31, 32, 33, 36, 40, 41, 45, 56 and 57. The Master carefully considered each of the paragraphs, and concluded that Lubow's motion should be granted in each case, generally on the rationale that Lubow presented affirmative evidence that there had been no wrongdoing on his part, and that Merchants had no proof of the existence of the wrongdoing alleged.
The court determined, because it had provided for limited discovery in its decree, to deny the motion for summary judgment pending completion of discovery as to the claims asserted in the paragraphs enumerated above excepting paragraphs 31, 32, 36, 41, 45 and 56, where summary judgment had been granted on limitations. In view of the conclusion which we have reached as regards the availability of the defense of limitations, the motion will be denied as to those paragraphs also.
(iii) Diversion of Business Opportunities
Lubow's motion for summary judgment as regards the claims asserted by paragraphs 38, 49, 50, 51, 53 and 54 was considered by the Master, who recommended denial of the motion because there was a genuine dispute as to a material fact: the nature of the business conducted by Traders Mortgage Company. The circuit court accepted the Master's recommendation and denied the motion. The Master had reasoned that summary judgment should be denied as to transactions involving Traders Mortgage, a partnership in
As regards paragraphs 39 B, 42, 44, 46, 47 and 55, the Master recommended the granting of Lubow's motion, a recommendation which the court also adopted.
The six paragraphs, like many other paragraphs of the complaint, allege generally that Lubow received payments, fees, commissions, gifts, or business opportunities in connection with certain transactions, which amounted to a diversion of funds or advantages which properly belonged to Merchants.
We have carefully reviewed the pleadings, affidavits, depositions, exhibits and memoranda of counsel and conclude that there is a disputed issue of material fact, to be determined by the trier of fact on the weight of the evidence: whether the alleged diversions did occur, and if they did, whether they were permitted under the terms of Lubow's employment or, if not permitted, whether there was a knowing acquiescence by Merchants. In the posture in which the case reaches us, there are evidentiary matters and
Remembering that this is an action in equity for discovery and accounting, and that in the language of McGinnis v. Chance, supra, there are equitable assessments to be made which make the application of summary judgment procedure inappropriate here, we shall reverse the decree and order of the lower court which granted Lubow's motion as regards the six paragraphs. Parenthetically, we are also of the view that the entry of summary judgment would similarly have been inappropriate as regards the paragraphs heretofore considered in the discussion of limitations.
Among its prayers for relief in its second amended bill of complaint, Merchants sought the entry of a decree:
It will be recalled that Merchants, in answering the motion for summary judgment, filed a motion for the production of Lubow's financial records. The Master's Report and Recommendation contained the following paragraphs, which were adopted by the court:
The following order was entered by the court:
Paragraph Transaction24 Simmons 25 Simmons Associates 26 Odenton 31 Cape Canaveral 32 Mayfair 33 Mr. Real Estate Paragraph Transaction36 Warbling Meadows 40 Benfield 41 Northeasterner 45 Garden Construction Company 56 Warbling Meadows 57 Warbling Meadows
Merchants contends that this order was so inordinately narrow that it amounted to an abuse of discretion. Merchants maintains that the order denied discovery as to four classes of claims:
The view we take of the defense of limitations and of want of evidence of liability disposes of the argument as to all of the Class 1 and Class 2 claims. Liberal discovery is particularly appropriate and should be granted as to Classes 3 and 4.
We shall therefore reverse only those portions of the decree and order of the circuit court which granted the motion for summary judgment as regards the claims asserted in paragraphs 27, 29, 30, 31, 32, 34, 35, 36, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 55 and 56 of the bill of complaint and which limited discovery to the claims asserted in 12 numbered paragraphs of the bill. The case will be remanded for the entry of an order permitting liberal discovery as contemplated by Rule 419, including the production of Lubow's financial records. We do not propose to adopt the last two paragraphs of the court's order, heretofore quoted, which, in the circumstances of this case, we regard as excessively restrictive. Instead, if Lubow conceives the scope of the discovery to be overly broad he may seek a protective order, as provided by Rule 406.
Lubow argues that the discovery point is not before us
Merchants says that this litigation, because of its complexity and the number of issues involved, should be treated as a protracted case, which might appropriately be assigned to a single judge, as contemplated by Supreme Bench Rule 536. We are satisfied that this suggestion will be given consideration on remand.
Decree and order of Circuit Court of Baltimore City reversed in part and affirmed in part; case remanded for further proceedings conformable to the views herein expressed; costs to abide the result.
Cross-appeal dismissed; costs in that appeal (exclusive of the cost of printing the record extract) to be paid by cross-appellant.
Paragraphs 23 through 57 of Second Amended Bill of Complaint, filed in the Circuit Court of Baltimore City by Merchants Mortgage Company, LeRoy E. Hoffberger and Morton J. Hollander.
"23. The full scope and extent of the fraud perpetrated by the Defendants is at present unknown to Plaintiff and H & H.[
"25. A. Defendant Lubow processed a Loan Application, dated April 11, 1966, made by Simmons Associates, Inc. to Plaintiff for a loan in the amount of $850,000.00. On May 9, 1966, as a 50% participant with another lender in a total loan of $850,000.00, the Plaintiff made a loan in the principal amount of $425,000.00 for 18 months to Simmons Associates, Inc. The loan was secured by a mortgage on 49.1866 acres of land on the southwest side of Fordson Road at U.S. Route 1, south of Alexandria, Virginia. Said property is known as the proposed Mount Vernon Shopping Center site. The loan was initially submitted to Defendant Lubow, as Vice President of the Plaintiff, directly by the principals of Simmons Associates, Inc. without the intervention or services of any broker. As a condition of recommending approval of, and having Plaintiff make said loan with its lending participant, the Defendants Lubow and Silverman,[
"B. A portion of said payment to Lubow was fraudulently concealed on the second settlement sheet as a $25,000.00 real estate broker's commission disbursed by Title Co. for the borrower to Bank. The principals of the borrower were referred by Lubow to Bank, as a purported broker, for the purpose of arranging the secret payment. Bank neither procured the purchase by the borrower of the property securing the loan made by Plaintiff, nor produced the borrower to the Plaintiff. A portion of said `brokerage fee', which Plaintiff believes to be $15,000.00, was secretly paid by Bank to Lubow.
"C. A portion of said secret payment to Lubow and the secret payment to Silverman were fraudulently concealed on the second settlement sheet as a $15,000.00 legal fee paid to Weisheit out of the loan proceeds. Weisheit paid $5,000.00 out of said fee to Lubow and paid $2,500.00 out of said fee to Silverman, in furtherance of the conspiracy to apply substantial portions of the cash proceeds of Plaintiff's loans among the Defendants.
"D. A portion of said secret payment in the amount of $9,000.00 was paid in cash for the benefit of Lubow out of funds recorded by Weisheit and Title Co. as net loan proceeds disbursed to the borrowers.
"26. Lubow processed a Loan Application, dated August 8, 1966, made by Odenton Enterprises, Inc. and ABB Co., Inc., for a loan in the amount of $800,000.00. On August 25, 1966, Plaintiff made said loan to Odenton Enterprises, Inc. and ABB Co., Inc., for a term of 18 months, secured by a mortgage on various parcels of land in the area of Fort Meade in Anne Arundel County, Maryland. Previously, on August 13, 1965, Plaintiff had loaned the sum of $445,000 to
"27. Lubow processed a Loan Application, dated January 16, 1965, made by Route One Properties, Inc., to Plaintiff for a loan of $595,000.00. On February 2, 1965, Plaintiff made said loan secured by a mortgage on land lying between the
"28. A. Defendant Lubow processed a Loan Application, dated February 21, 1966, made by M & K Inc., to Plaintiff for a loan of $85,000.00. On March 16, 1966, the Plaintiff made said loan for a term of 18 months secured by a mortgage on Lots 2, 3, 4 and 5 of Block One, North Laurel, Prince George's County, Maryland. In consideration of Lubow's recommending that the Plaintiff make said loan, Lubow, on March 22, 1966, received and accepted a secret and corrupt commission of $2,000.00 from the principal of the corporate borrower. Said loan is now in default and the Plaintiff has suffered a loss of interest and will suffer a loss of a substantial portion of the principal amount thereof, for which Lubow is liable to the Plaintiff.
"29. Lubow processed a Loan Application, dated June 22, 1964, made by Parkway Industrial Park, Inc., to Plaintiff for a loan of $310,000.00. On August 28, 1964, the Plaintiff loaned to Parkway Industrial Park, Inc. the sum of $225,000.00 for 18 months secured by a mortgage on 13.42 acres of land lying on Maryland Route 17, near the Baltimore & Washington Parkway. In consideration of Lubow's recommending that the Plaintiff make said loan, Lubow, on September 1, 1964, received and accepted a secret and corrupt commission of $10,000.00 from the principal of the corporate borrower. Said loan is now in default and the Plaintiff has suffered and will suffer a loss of interest and a loss of a substantial portion of the principal amount thereof, for which Lubow is liable to the Plaintiff.
"B. In addition, Lubow secretly agreed with a principal of Canaveral Hotel Corporation that Lubow would procure, or assist in procuring, a construction mortgage for the erection of a proposed hotel on the property securing the mortgage from the Plaintiff to Canaveral Hotel Corporation, and that Lubow would assist said principal in inflating the projected construction costs of said hotel, for which Lubow would secretly and personally share with the principal of Canaveral Corporation in the excess construction mortgage funds over and above the amounts required to construct the hotel and to pay off the mortgage to the Plaintiff. Lubow further secretly agreed with the principal of Canaveral Hotel Corporation that Lubow would assist in obtaining a permanent mortgage on the subject property, improved by a hotel, in an amount greatly in excess of the amount required to take out the construction mortgage, for which Lubow would secretly and personally share with the principal of Canaveral Hotel Corporation, and others, in the excess permanent mortgage funds. Said loan is now in default. The Plaintiff has suffered and will suffer a substantial loss on the aforesaid transaction for which Lubow is liable to the Plaintiff.
"32. The Plaintiff arranged for a loan which was made on December 12, 1962, in the amount of $420,000.00 by National
"33. [A.] Lubow processed a Loan Application, dated July 20, 1966, made by Mr. Real Estate, Inc., a Virginia corporation, to Plaintiff for a loan of $147,000.00. On August 19, 1966, the Plaintiff loaned the sum of $145,000.00 to Mr. Real Estate, Inc., as a result of the fraud hereinafter described. Said loan was secured by a first deed of trust on 14 acres of land on Griffin Drive in Fairfax County, Virginia and by a second deed of trust on 6 contiguous acres. Said loan application was brought to the Plaintiff by the Defendant, Bank. Bank conspired with Lubow, in connection with said loan, to defraud the Plaintiff and to effect the payment of secret commissions to Lubow in order to obtain said loan from the Plaintiff. In pursuance of said conspiracy and in order to support his recommendation that Plaintiff make the proposed loan to Mr. Real Estate, Inc., the Defendant Lubow prepared, or caused to be prepared and submitted to Plaintiff, a contract of sale bearing date of July 15, 1966 from A. Claiborne Leigh Development Company, a
"B. Bank received payments from the borrower and from Plaintiff which totaled $16,050.00 in connection with the closing of the loan from the Plaintiff to Mr. Real Estate, Inc. A substantial portion of said $16,050.00, was corruptly received by Lubow, pursuant to said conspiracy, as a secret commission in consideration of the making of said loan by his principal, the Plaintiff.
"C. The loan from the Plaintiff to Mr. Real Estate is in default, and the mortgage securing the same has been foreclosed at a deficiency in excess of $60,000.00. The Plaintiff was materially induced to make the aforesaid loan by the false and fraudulent contract of sale presented to it by Lubow. Further, had Plaintiff known of the secret commission to be paid to its trusted employee, Lubow, Plaintiff would not have made said loan.
"34. A. Lubow processed a Loan Application, dated
"B. Further Lubow obtained from the borrower, out of the net proceeds of the loan, the sum of $22,500.00 as a secret commission for his recommending that the Plaintiff make said loan.
"C. On said transaction Weisheit and Title Co. paid to Lubow and Silverman out of charges to the borrower for title insurance and examination, in excess of customary title insurance commissions, a secret commission of $485 each, and an additional secret commission to Lubow of $300.
"35. In August of 1965, the Plaintiff was the owner of 2. 7582 acres of land, more or less, located at the intersection of the Baltimore-Washington Parkway and the Bowie-Laurel Road in Prince George's County, Maryland. Title to said property, hereinafter called `Oak Hill Farm' was acquired by the Plaintiff by foreclosure of a mortgage from Oak Hill Farms, Inc. On August 12, 1965, the Plaintiff entered into a contract for the sale of Oak Hill Farm to R & S Development Corporation, a Maryland corporation for
"36. A. Lubow processed a Loan Application dated October 8, 1965 made by Warbling Meadows, Inc. to Plaintiff for a loan of $300,000.00 later reduced to $250,000.00. On November 8, 1965, the Plaintiff made said loan to Warbling Meadows, Inc. secured by a mortgage on approximately 86 acres lying on Warfield Road in the Laytonsville District of Montgomery County, Maryland. The application to Plaintiff for said loan was signed in the name of Warbling Meadows, Inc. by one Reuben Schwartz, as President of said corporate borrower. A brokerage fee, of $12,500.00 was paid by the Plaintiff to the Defendant Bank for producing said borrower. Said brokerage fee was paid as a result of fraud on the part of Bank and Lubow, who conspired to conceal and concealed from the president of the Plaintiff and from its directors the fact that Bank was a 50% owner of the borrower, Warbling Meadows, Inc. Had said facts been disclosed by Lubow to the Plaintiff's President and directors, the aforesaid fee of $12,500.00 to Bank would not have been paid. Bank and Lubow, are liable to the Plaintiff in the amount of said fee.
"B. Lubow obtained from Schwartz the sum of $35,000.00 as a secret commission for his recommending that the Plaintiff make said loan to Warbling Meadows. Further in pursuance of the conspiracy between Lubow and Bank, under which Lubow agreed to recommend that Plaintiff make the loan to Warbling Meadows, Inc. in consideration
"C. Said loan is now in default and the Plaintiff has suffered and will suffer the loss of a substantial portion of the amount thereof, and interest thereon, for which Lubow and Bank are liable to the Plaintiff.
"37. A. Lubow processed a Loan Application, dated January 20, 1966, made by Beltway-Penn Construction Company, Inc. to Plaintiff for a loan of $1,400,000.00. On February 9, 1966, the Plaintiff made a loan in the principal sum of $700,000.00 to Beltway-Penn Construction Company, Inc. secured by a mortgage on approximately 44 acres of unimproved land at the intersection of the Washington Beltway and Westphalia Road in Prince George's County, Maryland. At the same time Plaintiff's 50% participant, Mercantile-Safe Deposit and Trust Company, loaned Beltway-Penn Construction Company, Inc. $700,000.00 secured by the same property. A brokerage fee of $42,000.00 was paid by the Plaintiff to Bank for producing said borrower. Said brokerage fee was paid as a result of fraud on the part of Bank, Lubow, Title Co., Weisheit and Silverman, who conspired and concealed from the President of Plaintiff and from its directors the fact that Bank was an owner of portions of the tract making up the security and was a principal stockholder of the borrower, Beltway-Penn Construction Company, Inc. Had said facts been disclosed to the Plaintiff's President and directors, the aforesaid fee of $42,000.00 to Bank would not have been paid. The aforesaid Defendants are jointly liable to the Plaintiff in the amount of said fee.
"B. Further pursuant to the conspiracy between Lubow, Weisheit, Title Co., Bank and Silverman to defraud Plaintiff, Lubow caused Plaintiff to engage Weisheit as its agent for the purpose of obtaining a 50% participant in the making of the loan to Beltway-Penn, for a fee of 10% of the loan participation amount, or $70,000. Weisheit, materially assisted by Lubow, obtained Mercantile-Safe Deposit and Trust Company as said participant. At the closing of said
"C. In addition to acting as settlement officer, Weisheit was an agent of the Plaintiff in the transaction and owed the Plaintiff the duty to disclose the foregoing arrangements and not to pay secret commissions to other agents of the Plaintiff. Weisheit is liable to the Plaintiff not only jointly with Lubow and Silverman for the secret commissions paid to them, but also for the $27,750 ultimate net amount retained by Weisheit out of the fee paid by Plaintiff to Weisheit as Plaintiff's agent.
"D. The said loan has defaulted and the mortgage has been foreclosed at a deficiency as to the Plaintiff's one-half interest of $204,400.92 for which Lubow, Weisheit, Title Co., Bank and Silverman are liable to the Plaintiff.
"38. A. On June 17, 1964, the Plaintiff made a partial purchase money mortgage in the amount of $35,000 to Aras Investment Corporation for a term of one year, on the security of certain residential, unimproved lots in a subdivision known as `South River Manor' in the Second Election District of Anne Arundel County, Maryland. Said loan was extended for an additional year to June 16, 1966. Said mortgage to the Plaintiff was paid in full on or about June 21, 1966 as a result of a refinancing recommended by Lubow under which the Plaintiff assigned its mortgage to
"39. On December 16, 1964, the Plaintiff had made a loan in the amount of $630,000 to Washington-Rockville Industrial Park, Inc. in conjunction with a co-lender, Atlas Credit Corporation, which loaned an equal amount to the same borrower. The total loan of $1,260,000 was secured by a mortgage on property of Washington-Rockville Industrial Park located in Montgomery County, Maryland. Out of the loan proceeds Lubow was paid a secret and corrupt commission in the amount of $30,000. Weisheit and Title Co., for the purpose of concealing said secret commission from the Plaintiff, prepared a false closing statement for the transaction. Said statement falsely represented that as of December 18, 1964 the sum of only $15,000 had been disbursed to one Milton Kaplan for broker's commission, that the legal fees of Weisheit were $900 and that after total disbursements the `balance due borrower' was $96,485.44. Said settlement sheet did not reflect the actual disbursements made on December 18, 1964 by Weisheit and Title Co. of an additional $40,000 in purported broker's commissions to Milton Kaplan, for a total of $55,000 recorded by Title Co. as so disbursed; that an additional
"B. Under the terms of the aforesaid loan, the Borrower was entitled to obtain partial releases from the mortgage as lots were sold in the industrial park, upon payment by the borrower of a stipulated release fee. On the 15th day of February, 1967, Washington-Rockville Industrial Park, Inc. sold 2.03 acres of land in Block `G' of the industrial park to Gerald J. Schipper and Marvin M. Gibson, as tenants in common, for $168,999 of which $50,000 was paid in cash at settlement and the balance of $118,000 was deferred, evidenced by a promissory note from the purchasers to the seller and secured by a purchase money Deed of Trust. Upon payment to the Plaintiff of $138,500 of principal and interest on the loan, the Plaintiff and Atlas Credit Corporation, by partial release recorded March 31, 1967, released the parcel sold to Schipper and Gibson from the operation of the mortgage of December 16, 1964. At the times above alleged, there remained a balance unpaid on the mortgage of December 16, 1964 and other lands of Washington-Rockville Industrial Park, which were unsold by it, remained subject to the operation of the mortgage. At said times and thereafter it was and remained the duty of Lubow to deal with Washington-Rockville Industrial Park on behalf of the Plaintiff in connection with collection of the mortgage and releases of additional lands sold by the borrower. Unknown to the Plaintiff, and without disclosure of his interest therein, Lubow and Jack Gordon took an assignment of the note in the amount of $118,000, at a substantial discount from the principal face amount thereof, although said note bears interest at the rate of 6% per annum and the makers thereof are financially responsible. Said property was sold in January, 1968 at a price of $250,000, resulting in a substantial profit to Lubow on the note secured by a lien on said property.
"41. On November 8, 1963, the Plaintiff made a loan in the amount of $80,000 to Northeasterner, Inc., a corporation of which the principal was Dr. John H. Solomon. Said loan was secured by approximately 7.5 acres of land located on Cole Street and on Aiken Avenue in Perryville, Cecil County, Maryland. In consideration of Lubow's recommending said loan to the Plaintiff, Lubow was paid a secret commission of $8,000 by the borrower.
"42. On July 20, 1965, Lubow, at the request of the
"43. On May 12, 1964, the Plaintiff made a mortgage loan to Northeasterner, Inc., a corporation of which Dr. John H. Solomon was the principal, in the amount of $200,000, secured by approximately 20 acres of land lying at the intersection of Maryland Route 222 and John F. Kennedy Memorial Highway in Cecil County, Maryland. Weisheit and Title Co. prepared a settlement sheet purportedly evidencing the disbursements of the loan proceeds made at the settlement, which settlement sheet contained an entry that the sum of $3,875 had been disbursed for `legal services'. Said sum did not represent legal services exclusively, in that there was paid by Weisheit to Lubow out of said sum a secret commission of $300 for the referral of said transaction of the Plaintiff to Weisheit. Further concealed by said settlement sheet was the payment out of said sum of $3,875, of the sum of $2,500 disbursed by Title Co. to Silverman for `legal services.' Said sum represents a secret commission to Silverman in consideration of his participation in the concealment of secret commissions paid on the subject and other loans made by the Plaintiff to Dr. John H. Solomon's corporations or partnerships. In the alternative, if said
"44. On November 4, 1964, the Plaintiff made a mortgage loan in the amount of $420,000 to Bureau Properties, Inc., a corporation of which the principal was Dr. John H. Solomon. In connection with said loan Lubow received a secret commission of $4,500. Said commission was paid to Lubow by Weisheit out of a purported legal fee of $9,000 paid by Dr. Solomon to Weisheit. Weisheit and Title Co. concealed said disbursement to Lubow and did not reflect the same or the $9,000 `legal fee' from which it was paid on the settlement sheet furnished the Plaintiff purporting to represent the disbursement by Title Co. of the loan proceeds and other funds involved in the settlement.
"45. On December 17, 1963, the Plaintiff made a mortgage loan in the amount of $135,000 to Garden Construction Co. (of Miami), Inc., a corporation of which the principal was Dr. John H. Solomon. Said loan was secured by approximately 23 acres of land located near Gaithersburg, Montgomery County, Maryland. In consideration of Lubow recommending said loan, Lubow received a secret commission in the amount of $15,000, paid by the borrower.
"46. On February 10, 1966 Potomac Development Corporation, a corporation of which Dr. John H. Solomon was the principal, sold four elevator type high rise apartment buildings known as Parcel A, Lakeview, in Montgomery County, Maryland to Banzig Corporation, a District of Columbia corporation at and for a purchase price of $1,948,455.47. Lubow participated in effecting the
"47. [A.] The aforesaid Dr. John H. Solomon was one of the most active accounts of the Plaintiff during Lubow's employment. The Plaintiff made the following loans to corporations or partnerships of which Dr. Solomon was a principal:
Lubow worked most closely with Dr. Solomon and arranged, negotiated and recommended the aforesaid loans.
"B. On November 4, 1964, Dr. Solomon, acting through his corporation, Bureau Properties, Inc., acquired in excess of 170 acres of unimproved land lying on the southwest and the northeast sides of U.S. Route 70 S near its intersection with Muddy Branch Road in Montgomery County. Maryland. Said property was acquired at a price of $7,200 per acre. On January 4, 1965, Bureau Properties, Inc. conveyed the aforesaid 170 acres, inter alia, to a Maryland limited partnership, Venture 70 S. Dr. Solomon was the general partner of Venture 70 S and had a 60% interest therein. Without disclosing the same by any public record, Lubow acquired a 20% interest in the said limited
"C. The aforesaid cash disbursements at closing on the sale of the Venture 70 S property were received by, or applied to the account of, Lubow in violation of his duty of loyalty to the Plaintiff, and the aforesaid note was received by Lubow in violation of his duty to the Plaintiff and is held by him as a constructive trustee for the Plaintiff, in that the 20% interest in Venture 70 S assigned by Dr. Solomon to Lubow was in consideration of Lubow's having obtained the aforesaid loans for Dr. Solomon over a period of time from the Plaintiff.
"D. Lubow sought a consent by the Plaintiff to a personal investment by him in Venture 70 S. Any such purported consent is void because of fraud. Sometime following the acquisition by Bureau Properties, Inc. of the land referred to in this paragraph 47, Lubow advised the president of the Plaintiff, that he, Lubow, had the opportunity to invest $50,000 in the property as a participant with Dr. Solomon. The Plaintiff consented to such a cash investment by Lubow. However, Lubow concealed from the Plaintiff that he was not making any cash investment in the property and that his contribution toward the expenses of carrying the property until sale, after rezoning, would not be currently paid by him, but would be paid (and was in fact paid) out of the cash proceeds received on the ultimate sale of the Venture 70 S property. Further, to the extent that any cash capital contribution to the partnership was made by Lubow, it was done on the basis of a loan to Lubow by Dr. Solomon and not
"48. Defendant Lubow processed a Loan Application, dated March 30, 1965, by Share A Like Corporation to Plaintiff for a loan of $640,000. On June 4, 1965, the Plaintiff made a mortgage in the amount of $640,000 to Ebb Tide, Inc. and Share-A-Like, Inc. secured by 63 acres of land in the Third Election District of Anne Arundel County, Maryland, known as the `Stoney Creek property' and secured by 462 acres in the Seventh Election District of Anne Arundel County, Maryland, known as the `Share-A-Like Farm.' Shortly thereafter, one Sidney Stein, the independent auditor for the Plaintiff, approached Lubow and sought advice concerning investment opportunities which would yield a good return. Although Lubow knew that the principals of Ebb Tide, Inc. and Share-A-Like, Inc. were seeking a loan for these corporations for which they were willing to pay both a substantial loan origination fee and also a broker's commission, Lubow referred the said Sidney Stein to Defendant Bank who, on July 7, 1965, effected a second mortgage loan by Sidney Stein to Ebb Tide, Inc. and Share-A-Like, Inc. in the principal amount of $50,000. For said services, Sol Bank was paid a brokerage fee of $10,000 by the borrowers. The aforesaid fee of $10,000 represents a business opportunity of the Plaintiff which was diverted from the Plaintiff by Lubow in violation of his duty of loyalty to the Plaintiff. Title Co. and Weisheit participated in said fraud on the Plaintiff by concealing from Sidney Stein, the lender, the fact that a $10,000 brokerage fee was being paid by the borrower. The concealment was effected by the calculated manipulation of copies of the settlement sheet so that the lender's copy would not reflect the $10,000 fee intended to be shown on the borrower's copy of said sheet.
"50. On January 26, 1967, Traders Mortgage Company, a partnership, in which Lubow was a partner, made a loan in the amount of $32,500 to Shirtan Investment Corp., secured by a First Purchase Money Mortgage on approximately one acre of land lying on the Suitland to Forestville Road in the Sixth Election District of Prince George's County, Maryland and further secured by cross collateral provisions by the Charles County property referred to in Paragraph 49 hereof. Said loan opportunity was presented to Lubow who, in violation of his duty to the Plaintiff, secretly diverted said opportunity to Traders Mortgage Company. Lubow is
"51. On March 21, 1966, the Plaintiff made a first mortgage loan to Danor Charles Corporation, secured by certain contiguous lots, and improvements thereon, in the 2600 block North Charles Street, Baltimore, Maryland. At or about the same time, the principal of Danor Charles Corp., P. Daniel Orlich, made, in substance, a second mortgage to Traders Mortgage Company on a shopping center in Vienna, Virginia, which property was also owned by him. Silverman was paid a fee by Orlich in the amount of $475 for services rendered as attorney for Traders Mortgage Company. Silverman failed to advise his client, the Plaintiff, that Lubow was engaged in the mortgage loan business in Traders Mortgage Company and failed to remit said fee to H & H, in order further to conceal the conspiracy among the Defendants.
"52. On July 15, 1966, the Plaintiff made a mortgage loan to Ed Jacobson, Jr., Inc. in the amount of $145,000 secured by certain lots in Burning Tree Estates development in Montgomery County, Maryland. At the closing of said loan, Weisheit charged the borrower a legal fee of $225 which Weisheit evenly divided between himself, Silverman and Lubow, as a secret commission for the referral of the transaction.
"53. On August 17, 1966, Traders Mortgage Company made a second mortgage loan to The Earl Lipchin Co., secured by two parcels of property in Anne Arundel County and by a property in Baltimore City. Silverman represented Traders Mortgage Company in the transaction for which he was paid a fee of $150 at closing. Silverman failed to advise his client, the Plaintiff, that Lubow was engaged in the mortgage loan business in Traders Mortgage Company and
"54. On September 7, 1966, Traders Mortgage Company made a second mortgage loan in the amount of $65,000 to Medichin, Inc., secured by two properties located in Baltimore City. Silverman represented Traders Mortgage Company in the transaction for which he was paid a fee of $150 at closing. Silverman failed to advise his client, the Plaintiff, that Lubow was engaged in the mortgage loan business in Traders Mortgage Company and failed to remit said fee to H & H, in order further to conceal the conspiracy among the Defendants.
"55. Unknown to the Plaintiff's President and Directors (other than Lubow), Lubow has for several years conducted a real estate business from his home. Licensed as real estate salesmen for the real estate company of the Defendant Lubow were two employees of the Plaintiff, Pacy Oletsky and Shepard Powell, as well as Bank and Jack Gordon, a broker who has had transactions with borrowers from the Plaintiff. Further without the knowledge of the Plaintiff's President, or of its Directors (other than Lubow), Lubow has been engaged at times material to this action as a principal in the business of 101 Holding Co., Selective Investment Company, Traders Mortgage Company and Gordon-Lubow, part of the business of each of which is to arrange or make real estate mortgage loans. The Plaintiff believes and avers that there are instances other than herein alleged of diversion by the Defendant Lubow, acting solely or in conjunction with others, of business opportunities from the Plaintiff; the full particulars of which are at present unknown to the Plaintiff.
"56. A. On October 8, 1965, the Defendant Bank submitted a loan application to the Plaintiff in the name of Warbling Meadows, Inc. In connection with said loan, Defendant Bank fraudulently concealed from the Plaintiff's officers and directors (other than Lubow), the fact that Bank was a 50% owner of Warbling Meadows, Inc. with one Reuben Schwartz, and that Bank was a principal in the transaction. Bank falsely represented that Warbling
"B. On November 8, 1965, the loan by the Plaintiff to Warbling Meadows, Inc., in the principal sum of $250,000 was closed and net loan proceeds in the amount of $192,609.69 were disbursed to Warbling Meadows, Inc. Said net proceeds were never used for the development of the mortgaged property as represented. On the contrary, and in accordance with the misrepresented and fraudulently concealed intent of Bank and Schwartz, said proceeds were taken by Defendant Bank and Schwartz out of the assets of Warbling Meadows, Inc., and applied to the credit of First Mortgage Company. In substance, Bank and Schwartz each contributed one-half of the net loan proceeds as his
"C. The Plaintiff relied on the false representations of Defendant Bank as aforesaid, and, had the true facts not been concealed and misrepresented by the fraud of the Defendant Bank, Plaintiff would not have made the loan to Warbling Meadows, Inc.
"D. Said loan is now in default. No part of the principal has been paid and no interest has been paid for the period following December 1, 1966. Plaintiff has and will suffer a substantial loss as a result of the fraud of Defendant Bank.
"57. At the closing of the aforesaid loan, the net sum of $192,609.69 received in cash by Warbling Meadows, Inc. became an asset of Warbling Meadows, Inc.
"Shortly after the aforesaid closing, the Defendant Bank and Schwartz each caused one-half of the said assets of Warbling Meadows, Inc., to be transferred to themselves, by Warbling Meadows, Inc., without any consideration to the said Warbling Meadows, Inc., for their own personal use and benefit. Said use and benefit included their funding, each as 50% owners, of the business of First Mortgage Corporation. The effect of the aforesaid transfer was to render Warbling Meadows, Inc. insolvent and to defraud its creditors. Said transfer was made at a time when Warbling Meadows, Inc., and Defendant Bank and Reuben Schwartz intended and believed that Warbling Meadows would incur debts beyond its ability to pay the same as they matured. Said transfer was made with the intent to hinder, delay and defraud the principal creditor of Warbling Meadows, Inc., the Plaintiff. The particulars of said fraud are set forth in Paragraph 56 of this Second Amended Complaint."
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