Consider the following (not so) hypothetical cases.
1. A lender made two loans to the same borrower. The borrower wanted to pay off one of the loans (Loan 1), but not the other (Loan 2). The lender agreed that it would release the financing statements that related to Loan 1. The borrower’s counsel performed a search of financing statements against the borrower and in favor of the lender. It prepared termination statements to release all of the financing statements it found – inadvertently including a termination statement for the financing statement relating to Loan 2 which was still outstanding. Lender’s counsel and lender were shown copies of the termination statements before they were filed, and they approved filing them. A year later, after the borrower had filed for bankruptcy, the lender first realized that the financing statement relating to Loan 2 had been released of record even though that loan had not been repaid.
2. A husband and wife sold real property in Maryland and obtained a purchase money mortgage from the purchasers. The husband and wife assigned that mortgage to a bank as collateral for their own loan. When that loan was repaid in full, the bank mistakenly filed a release of the mortgage when it intended to re-assign the mortgage to the husband and wife.
Wouldn’t it seem that the results should be the same in both cases – that inadvertent releases of termination statements either are effective or ineffective – especially if third parties are not adversely affected? Actually, the answer provided by a recent Second Circuit case under the Uniform Commercial Code (the “UCC”) is dramatically different from the decisions that courts have issued under Maryland real property law.
The Second Circuit Decision in the General Motors Bankruptcy
Case 1 above outlines the facts in In re Motors Liquidation, 777 F.3d 100 (2d Cir. 2015). General Motors Corporation entered into a $300 million synthetic lease transaction (essentially a financing) with JPMorgan Chase Bank, N.A. as administrative agent in 2001. In 2006 General Motors borrowed $1.5 billion under a term loan, also with JPMorgan as administrative agent. The two transactions were not related. In September 2008, shortly before the maturity of the synthetic lease and in anticipation of paying the final amount due thereunder, General Motors requested that its counsel, Mayer Brown, prepare the documents that would release the relevant collateral for the synthetic lease. Mayer Brown searched the Delaware UCC records to find what financing statements were outstanding showing General Motors as debtor and JPMorgan as creditor, and it found financing statements that were filed in connection with each of the transactions described above – two for the synthetic lease transaction and one for the term loan.
We know where this is going. A Mayer Brown paralegal who did not know that there were two distinct transactions prepared a termination statement (a “UCC-3”) for each of the financing statements (sometimes called “UCC-1s”) that were of record. No one at that firm, no one at Simpson Thacher & Bartlett LLP (counsel to JPMorgan), and no one at JPMorgan noticed the error before all of the UCC-3s were filed. To the contrary, counsel at Simpson Thacher sent notes to Mayer Brown indicating satisfaction with the UCC-3s.
JPMorgan first realized that there was a mistake after General Motors filed for bankruptcy in 2009. Upon discovering the error, JPMorgan advised the Committee of Unsecured Creditors in the General Motors Bankruptcy (the “Committee”) of the unauthorized termination statements. The Committee commenced an action to determine the rights of the parties.
It must be noted that pursuant to the last major revision of Article 9 of the UCC, which has been adopted in all 50 states and the District of Columbia and which became effective in Maryland in 2001, a termination statement does not need to be signed by anyone. However, it must be authorized by the secured party. See UCC §9-509.
In response to motions of the Committee and JPMorgan, the bankruptcy court held that the termination statement for the term loan was unauthorized and therefore ineffective to terminate JPMorgan’s security interest that related to the term loan.
The Committee appealed to the Second Circuit, and the Second Circuit certified to the Delaware Supreme Court the question of what is necessary for a lender to authorize the filing of a termination statement. Specifically, it asked: is it enough for a lender to authorize the filing of a particular termination statement that has been filed, or must the lender have intended to terminate the applicable financing statement that the UCC-3 purported to release?
The Delaware Supreme Court opined that “for a termination statement to become effective . . . it is enough that the secured party authorizes the filing to be made.” Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., 103 A.3d 1010, 1017-18 (Del. 2014). The Delaware Supreme Court held that this result is consistent with the literal wording of the UCC and that a secured party should be charged with the responsibility of carefully reviewing any termination statement that it authorizes to be filed.
Before the Second Circuit, JPMorgan contended that its authorization was only that the financing statements relating to the synthetic lease transaction should be released and that it did not authorize the filing of the mistaken UCC 3 pertaining to the term loan. However, the Second Circuit held that JPMorgan did authorize the filing of the UCC-3 that related to the term loan. The Second Circuit found that JPMorgan’s and Simpson Thacher’s communications to Mayer Brown indicated that JPMorgan and its counsel knew that the term loan UCC-3 would be recorded and that JPMorgan assented to the filing of that UCC-3. The Second Circuit concluded simply, “Nothing more is needed.”
Therefore, instead of having a secured interest in the collateral described in the financing statement filed for the term loan, JPMorgan will be an unsecured creditor on its $1.5 billion loan.
Maryland Cases on Inadvertent Releases of Mortgages
The facts of Case 2 stated above are those of Van Schaik v. Van Schaik, 35 Md.App.19 (1977). In that case, Marie Van Schaik and her husband sold a farm to their son and his wife and took back a purchase money mortgage. Marie and her husband assigned the mortgage to Provident State Bank of Preston, Maryland as security for their own loan. When that loan was paid off, the bank released the mortgage even though it intended to release only the assignment of the mortgage to the bank. Marie Van Schaik filed suit in the Circuit Court for Caroline County for a determination of the rights of the parties. After a hearing the court ordered that the inadvertently released lien of the purchase money deed of trust be restored.
On appeal, the Court of Special Appeals affirmed. The appellate court cited two cases by the Court of Appeals from the nineteenth century for the proposition that “if a release of mortgage is mistakenly recorded, that release is effective as to subsequent bona fide purchasers, but the mortgage remains valid as between the parties and equity will enforce it.” The Court of Special Appeals also noted two other Court of Appeals decisions which held that mistakenly released mortgages should be restored so long as junior creditors as of the time of the releases were not adversely affected by the restoration.
Two recent bankruptcy cases follow the holding of Van Schaik. In In re Hughes, No. 12-14427-DER, 2013 WL 1327119, at *5 (Bankr. D. Md. Mar. 29, 2013), Judge David Rice stated, “In Maryland, it is well settled that “[i]t is black letter law that a certificate of satisfaction recorded by mistake does not release a mortgagee from a lien or from the obligations that the lien secures,” citing Simpson v. Levitsky (In re Levitsky), 401 B.R. 695, 721 (Bankr.D.Md.2008).
Learning from These Cases
Like the Christmas song goes, when it comes to preparing a termination statement or a release, make a list and check it twice. Better yet, with respect to UCC-3s, review them and the applicable financing statements several times and have someone else check them as well to be sure that the UCC-3 is correct. If a mistaken termination statement is filed, there may be considerable negative consequences. Some banks are now instructing their outside counsel that whenever their firm files a termination statement or a release, a partner in the law firm must certify to the bank that those documents (a) relate solely to the original filings in the applicable transaction and (b) affect only collateral for that transaction.
Ed Levin (410-576-1900) wrote this article, which was published in The Daily Record on June 30, 2015.
TENANTS ALLOWED TO RETAIN LEASEHOLDS NOTWITHSTANDING BANKRUPTCY SALE FREE AND CLEAR OF INTERESTS
In IDEA Boardwalk, LLC v. Revel Entertainment Group, LLC (In re Revel AC, Inc. et al.), __B.R.__ (Bankr. D.N.J. June 24, 2015), a significant ruling for tenants whose landlords file for bankruptcy, the Bankruptcy Court for the District of New Jersey held that although §363(f) of the Bankruptcy Code permitted Revel to sell its hotel and casino complex free and clear of “interests,” the sale did not eliminate the right of Revel’s tenants from electing to retain their leaseholds under §365(h).
Under §365(h), a debtor landlord may reject its leases. However, each tenant then has the election to either terminate its lease and file a claim for damages, or retain its leasehold for the balance of the lease term and any extensions. If the tenant elects to retain its leasehold and the landlord discontinues services due under the lease, the tenant is granted the additional right to offset its damages against future rent.
The Bankruptcy Court’s decision is noteworthy because the issue of whether a sale in bankruptcy may be made free and clear of leasehold interests has divided the courts. In a 2003 decision, the Seventh Circuit Court of Appeals held that a lessor in bankruptcy may sell its property free and clear of a leasehold interest under §363(f). Precision Industries, Inc. v. Qualitech SBQ, LLC, 327 F.3d 537 (7th Cir. 2003). The Qualitech court held that the two sections are not in conflict in that §363(f) applies to sales and §365(h) applies to lease rejection by a landlord. Under the Qualitech approach, a tenant would need to oppose the sale and also move for adequate protection under §363(e). The tenant would argue that it is not adequately protected unless it is allowed to retain its leasehold. The tenant could prevail with this argument and end up with the equivalent of §365(h) protection. However, the Seventh Circuit approach places the burden on the tenant to act affirmatively or it will lose its rights.
Although the Qualitech decision has been widely criticized for its refusal to apply §365(h), subsequent court decisions have split on the issue. The issue is an open one in Maryland since there are no Fourth Circuit or Maryland district or bankruptcy court decisions on this point.
In the Revel case, the Bankruptcy Court followed the rule of statutory construction that the specific governs over the general, and held that “a §363 sale does not and could not trump the rights granted to the Tenants by §365(h).”
Although Revel’s tenants were allowed to retain their leaseholds following the sale of the hotel and casino complex, their victory may be short-lived. Under the unique facts of the case, Revel’s sole power source is privately held, and the buyer of the property has thus far been unable to work out a long-term agreement with the utility company. Although the Bankruptcy Court stated that the tenants were free to arrange their own source of power and deduct the cost from their future rent, it also ruled that neither Revel nor the buyer has the obligation to provide services or increase its liability.
For questions, please contact Larry Coppel (410) 576-4238.
The Court of Special Appeals has put those non-Maryland limited liability companies doing business in Maryland on notice: maintain an active registration with the State Department of Assessments and Taxation (SDAT), or lose access to Maryland courts. A Guy Named Moe, LLC v. Chipotle Mexican Grill of Colorado, LLC, ___ Md.App. ___, 2015WL 3440472 (2015).
The case arose when Chipotle received a special zoning exception to open a new location near Annapolis’ Dock Street, a location in close proximity to a location of a rival restaurant chain, Moe’s Southwest Grill (a Virginia LLC). Moe’s objected and sued in the Circuit Court of Anne Arundel County to overturn the special exception. At the time it sued, Moe’s doing-business registration as a foreign LLC had lapsed with the SDAT.
The Court of Special Appeals threw out Moe’s case, holding that, under applicable Maryland corporate law, the lapse in registration barred Moe’s from pursing any lawsuit in Maryland courts.
The court’s reasoning maximized the harsh effect of that law. First, the court held that Moe’s could not fix the lapse retroactively. Although Moe’s had re-activated its registration by the time the circuit court issued its decision, the Court of Special Appeals still dismissed the lawsuit because Moe’s was not reinstated during the 30-day period that decisions of the Board of Appeals could be challenged. Second, the Court of Special Appeals noted that the lawsuit ban applied even if the lapse had no nefarious intent (such as tax evasion), but rather resulted unintentionally from technical violations (such as failure to file certain reports or failure to identify a current resident agent). Finally, the Court of Special Appeals held that the lawsuit ban applies generally to any lawsuit brought by a lapsed LLC, including actions to enforce contracts, to recover insurance proceeds, or to contest zoning decisions or other government action.
In light of this ruling, non-Maryland LLCs doing business in Maryland should double-check to be sure that they are registered to do business with the SDAT.
For questions, please contact Jonathan Montgomery (410) 576-4088.
The Court of Appeals held as a matter of first impression that the “woodlands exception,” which has applied to prescriptive easement cases in Maryland for 150 years, also applies to adverse possession cases. But the Court ruled that the “woodlands exception” does not apply to a matter involving a claim of adverse possession to a quarter-acre parcel of land in Caroline County (the “Landing”) because it was not unimproved or otherwise in a general state of nature. Breeding v. Koste, No.66, Sept. Term, 2014, filed May 22, 2015.
The “woodlands exception” is a presumption that makes it very difficult for claimants to establish a prescriptive easement under certain circumstances. As a general matter, in order to prevail on a claim for a prescriptive easement, a claimant must show adverse, exclusive, and uninterrupted use of someone else’s property for 20 years. A landowner may defeat a claim for a prescriptive easement if it is established that the claimant’s use of the property was with the consent of the landowner – hence, it would not be “adverse.” It is often difficult to determine whether or not the landowner granted permission for the claimant to use the land. Over time, the courts have created a presumption – the “woodlands exception” – that if the property is “unenclosed,” “unimproved,” or “in a general state of nature” the landowner does not need to object to others passing through the property. In those situations, a prescriptive easement cannot be established.
This concept reaches all of the way back to Day v. Allender, 22 Md. 511 (1865). See also the much more recent case of Clickner v. Magothy River Ass’n, Inc., 424 Md. 253, 281 (2012), in which the Court stated that the “woodlands exception” provides that “[w]hen an easement is claimed on land that is unimproved or in a general state of nature, there is a legal presumption that the use is by permission of the owner.”
The Court in Breeding explained the purpose of this presumption by citing Forrester v. Kiler, 98 Md.App. 481 (1993), in which the Court of Special Appeals stated that if the presumption did not exist an owner would not allow others to pass over a trail without opening up the possibility of claims of adverse use, and a person who benefits others by allowing them to pass through open land should not be penalized by possibly losing rights to the property. The Clickner court added that an owner of woodlands or unimproved land may not see the activities of others on the land in order to object to them.
Like a prescriptive easement, in order to establish a claim by adverse possession, the user must show the use of another person’s land for 20 years, and “[s]uch possession must be actual, open, notorious, exclusive, hostile, under claim of title or ownership, and continuous or uninterrupted for the 20 year period.”
After reviewing the prior case law and considering the purpose of the rule, Judge Shirley Watts wrote for a unanimous Court in Breeding that the “woodlands exception” applies to adverse possession cases as well as to prescriptive easement claims.
Unfortunately for the Breedings, who had record title to the Landing, even though they won their legal argument, they lost on the facts. Their neighbor Koste asserted that his grandfather had done a number of things at the Landing over a 40-year period: he built an access road, cleared vegetation, created a loop that connected to the road so that vehicles could turn around, built a storage box in the middle of the loop, repaired a dock extending into Watts Creek, erected duck blinds and no trespassing signs facing the Breedings’ parcel, and erected metal stakes along the perceived boundary lines between the Koste and Breedings parcels. As a result, the Landing was not “unimproved,” as defined by Black’s Law Dictionary and the Court. (The Court considered property to be “improved” if man-made additions have been added to increase its value or utility or to enhance its appearance.) Therefore, the “woodlands exception” did not apply to this case.
Koste established that he or his grandfather had made open and continuous use of the Landing for the statutory period. Then, the burden shifted to the Breedings, the landowners, to show that the use was permissive. The Breedings wanted to meet this burden by getting under the umbrella of the “woodlands exception.” However, the “woodlands exception” did not apply to the Landing because it was improved, and the Breedings therefore failed to meet their burden. Accordingly, the Court of Appeals affirmed the decision of the Court of Special Appeals which held that Koste established a claim to the Landing by adverse possession.
For questions, please contact Ed Levin (410) 576-1900.
In Nimro v. Holden, 222 Md.App. 16, 110 A.3d 805 (2015), the Court of Special Appeals held that the failure by a person who obtained title to real property by adverse possession to file a timely claim in a decedent’s estate did not terminate that person’s interest in the property.
The case emerged from an action to quiet title filed in the Circuit Court for Anne Arundel County by Guy Nimro with respect to certain property located between his property and Herring Bay. He alleged that he acquired title to that property by adverse possession. At the time the case was filed, record title to the property was held by Jane Holder as personal representative of the Estate of Dan D. Westland.
Section 8-103 of the Estates and Trusts Article of the Maryland Code (ET) provides that “all claims against an estate of a decedent . . . are forever barred against the estate, the personal representative, and the heirs and legatees, unless presented within . . . 6 months after the date of the decedent’s death.” Nimro did not file a claim in time, and on that basis the circuit court dismissed his complaint.
On appeal, the Court of Special Appeals considered the nature of the title that is obtained by adverse possession. Judge Lawrence Rodowsky, who was specially assigned to the panel, wrote that when a property has been used in a manner to satisfy the requirements of adverse possession for the statutory period of time, the title that the adverse holder then has “is as perfect as a title by deed” (quoting Safe Deposit & Trust Co. v. Marburg, 110 Md. 410 (1909)). Judge Rodowsky added that obtaining an easement by prescription operates in the same way.
The court noted that a quiet title action is in rem; it is based on a person’s conduct (which is wrongful until the statutory period for possession has run) and the failure of the record owner to assert the rights of ownership. This differs in kind from a claim against an estate that is addressed by ET §8-103, which is based on a contract by a decedent and in an in personam action. Judge Rodowsky stated, “Where, as here, the title or ownership of specific property is alleged to have been fully acquired by an adverse possession before the decedent’s death, it would seem that the assertion of that right is not a claim against the estate.”
Therefore, the Court of Special Appeals held that Nimro’s action to quiet title was not barred by ET §8-103, and it reversed the order of the Circuit Court for Anne Arundel County.
For questions, please contact Ed Levin (410) 576-1900.
Injunctions are equitable remedies. Therefore, they are subject to equitable defenses, such as laches and the doctrine of comparative hardship. It also means that “the grant or denial of a request for injunctive relief rests within the sound discretion of the circuit court and therefore, appellate courts review these decisions under an ‘abuse of discretion’ standard.” These points were highlighted in Harper v. Smith, Court of Special Appeals, May 13, 2015, unreported. This decision was the second time the Court of Special Appeals considered this case.
Mr. and Mrs. Michael Harper owned a 9.133 acre tract in Cockeysville, Baltimore County and they resided in part of it at 857 West Padonia Road. They subdivided the property into three lots in 2004, and in 2005 they recorded a Declaration of Covenants, Conditions, Restriction and Easements (the “Covenants”) among the land records of Baltimore County. The Covenants provided in part that no structure, broadly defined, could be constructed on any of the lots unless plans and specifications were approved by the Harpers.
Kathleen Smith and her husband purchased one of the lots in 2011. At the closing of the house purchase, Ms. Smith received a title insurance policy and a copy of the Covenants. She asked the title agent about the Covenants, and the title agent said that Ms. Smith did not need to be concerned about them.
In early 2012, Ms. Smith signed contracts totaling more than $250,000 for the construction of a pool and deck, a sport court and fence, a hot tub, a perimeter fence, and a grill and outdoor kitchen equipment. She did not submit any plans to the Harpers or request their permission to build any of these items. Construction occurred rapidly – pool work began on February 7, 2012, and the entire project was finished by April 16, 2012. Mr. Harper noticed construction work in February or March, but he thought that it all related to a pool, and since he had approved the concept of a pool when an interim owner of the property presented it to him he was not concerned about it at first.
On May 2, 2012, Mr. Harper sent Ms. Smith a letter advising her that the property was subject to the Covenants, that she should have obtained prior permission before commencing any construction, and that she should remove the fences because they were not approved. Although the parties met and resolved some issues, they did not agree on all matters, and the Harpers filed a complaint for injunctive relief in the Circuit Court for Baltimore County asking that the court order construction to be undone.
After a trial the circuit court found that the Covenants were valid, that Ms. Smith had no knowledge of them, and that the Harpers’ claim was barred by laches.
On appeal to the Court of Special Appeals, the first time, the court held that laches did not apply, finding that the Harpers did not take too long to take action. The Court of Special Appeals remanded the case to the circuit court for further action.
The circuit court held a hearing on May 9, 2014 and then denied the Harpers’ request for injunctive relief. The circuit court held that the doctrine of comparative hardship applied and that an injunction would result in great disproportionate harm to Ms. Smith. The Harpers again appealed to the Court of Special Appeals.
In the decision that was issued on May 13, 2015, the Court of Special Appeals noted that the doctrine of comparative hardship is possible as an equitable remedy, but the court stated that it is only available to a person who committed the violation innocently or mistakenly. The circuit court had concluded that Ms. Smith had constructive notice of the Covenants when she started the construction, but that she had no actual awareness that they applied to her or her property.
The circuit court had found that Ms. Smith would suffer a greater hardship than the Harpers by the injunction, considering the benefit that the Harpers would get by having a view of the pond on the property that was obscured by Ms. Smith’s construction compared to the amount of money that Ms. Smith would have to pay to remove the improvements.
The Court of Special Appeals reviewed how “good faith” was defined in prior cases, and then it concurred with the determination of the circuit court in the subject case that Ms. Smith acted in “good faith.”
The Court of Special Appeals reviewed the case from “an abuse of discretion standard.” Because the Court of Special Appeals found no error in the circuit court’s decision, it affirmed the Circuit Court’s order denying the Harpers’ request for an injunction.
1. The Harpers had drafted the Covenants for a number of reasons, among them to assure a view of the pond on the property. Although the Harper case denied the equitable remedy of an injunction to the Harpers, perhaps the Harpers could be successful in an action for monetary damages against the Smiths.
2. The first time that the Court of Special Appeals considered this case, the court pointed out that the Smiths’ title agent actually discovered the Covenants and pointed them out to Ms. Smith. The court said, “The law does not permit property owners to avoid enforcement of restrictive covenants in their chain of title by simply failing to become fully aware of the content and legal effect of such documents.” One purpose of the recording system is to put the world on notice of documents that affect title to real property. Why didn’t the circuit court, and later the Court of Special Appeals when it considered the case for a second time, follow this concept and rule that the Smiths were bound by the terms of the Covenant?
3. The Court of Special Appeals’ discussion of comparative hardship provides for a balancing of the interests of the person who records restrictive covenants in the land records, on the one hand, with those of the person who ignores the limitation in that person’s chain of title, on the other. Shouldn’t there be substantial extra weight given to the declarant (the Harpers in this case) who follows the rules and takes the appropriate steps to protect the declarant’s property interests? And how does one balance the aesthetic loss suffered by the Harpers if the injunction is denied, against the economic loss that the Smiths would incur if the injunction were granted? In other words, how much is a view of a pond worth?
For questions, please contact Ed Levin (410) 576-1900.
The key sentence in the land development agreement, as amended (the “LDA”), between Lexington Square Partners and Baltimore City relating to the proposed development of the “Superblock” in the west side of downtown provided as follows:
In the event that by June 30, 2013, (a) Settlement does not occur, or (b) the conditions to Settlement have not been satisfied, and in either of the above circumstances, this Agreement shall, without further action by either party, terminate with no liability or obligation on either party.
Let’s read this provision carefully. It seems to say that if either event (a) or event (b) occurs, the LDA is terminated. However, wasn’t the point of the sentence that if settlement did not occur by June 30, 2013, the LDA was terminated – period?
What does clause (b) add? If the conditions to settlement did not occur, then probably settlement would not occur, and the LDA would be terminated for failure of condition (a) to occur. If the conditions to closing did not occur, but for some reason settlement did in fact occur, then the whole sentence would be ignored because the parties would have proceeded to settlement. If, on the other hand, the conditions to settlement did occur, but if settlement did not occur, then the LDA would terminate because of the failure of settlement to occur.
In short, condition (b) was unnecessary, and the sentence was poorly drafted for including that clause. By trying to gild the lily – the concept was complete by providing that if settlement did not occur the LDA was terminated, so adding anything to the clause did not enhance it – the drafter of this provision added language that served no purpose.
Lexington Square Partners challenged Baltimore City’s termination of the LDA after settlement did not occur by June 30, 2013. It argued that the LDA was ambiguous because clause (b) was superfluous and that a contract should not be read to cause express terms to be meaningless. However, the Court of Special Appeals did not buy this argument. Instead, it found that the LDA was not ambiguous and that the City had the right to, and did, terminate the LDA when settlement under the LDA did not occur by the stated date. Lexington Square Partners, LLC v. Mayor and City Council of Baltimore, Court of Special Appeals (May 26, 2015) (unreported).
The Daily Record reported on June 29, 2015 that Lexington Square has filed a petition for certiorari to the Court of Appeals.
Practice Note. This case highlights the important drafting point that if a document states what the parties intend, adding additional language to it may have the effect of clouding its meaning. A longer document is not necessarily a better document. Here, the inclusion of clause (b) provided Lexington Square with the argument that the LDA was ambiguous and that the court should consider allowing in parol evidence to determine its meaning. In this case, this argument was unsuccessful, but the possibility of extensive litigation was present because of the less than crisp drafting in the LDA.
For questions, please contact Ed Levin (410) 576-1900.
In State of Maryland, Comptroller of Maryland v. Shipe, No. 0009, Sept. Term 2014, CSA, filed February 3, 2005, the Court of Special Appeals held that a tax lien filed by the State of Maryland does not lapse and does not need to be renewed 12 years after notice if it is filed with a circuit court.
The State filed a “notice of lien of judgment for unpaid tax” on April 26, 2001 against Kenneth R. Shipe for unpaid income taxes regarding the 1997 and 1998 tax years in the amount of $2,111.70. The notice was recorded, indexed, and entered into the docket in the Circuit Court for Montgomery County on May 8, 2001. On June 19, 2013, more than 12 years later, Shipe filed a motion with the Circuit Court for Montgomery County to release the lien. After a hearing, the circuit court issued an order that found “that a plain reading of the statutes and cases cited clearly demonstrates the intent of the General Assembly to impose time limits on the Comptroller to enforce a tax lien once filed,” and the circuit court therefore released the lien. On appeal, the Court of Special Appeals disagreed and reversed.
Under Maryland Code, Tax-General Article (“TG”) §13-807, a tax collector may file a notice of lien with the clerk of the circuit court for a county; under TG §13-808, upon a filing, the lien has the effect of a judgment lien. The Court of Special Appeals held that based on prior cases, the seven-year limit imposed by TG §13-1103 does not apply to the enforcement of a tax lien recorded in accordance with TG §13-807 because TG § 13-1103 is not referred to in TG § 13-806.
Another possible limitation on the State’s lien is Maryland Code, Courts and Judicial Proceedings Article (“CJP”) §5-102, which provides that an action on specialties must be brought within 12 years. That statute includes “judgments” within the definition of “specialties.” However, CJP §5-102(c) provides that that section does not apply to the State. According to State Central Collection Unit v. Buckingham, 214 Md. App. 672 (2013), the State as the sovereign has immunity as to limitations and only waives that immunity if a statute so provides. The Buckingham court held that the State did not waive its immunity as to limitations with respect to judgments.
The Court of Special Appeals also considered TG §13-806, which relates to the duration of a tax lien, but that section provides that the lien continues until it is satisfied or released by the tax collector. The Court concluded that the General Assembly did not intend that there should be a specific period of time after which the lien would lapse.
Therefore, the Court of Special Appeals determined that the State’s lien did not lapse at any particular time, and it reversed the order of the Circuit Court for Montgomery County.
For questions, please contact Ed Levin (410) 576-1900.
PRESENTATION / APPEARANCE / PUBLICATION
On July 15, 2015 Ed Levin will be a panelist on the eCLE webinar sponsored by the American Bar Association's Section of Real Property, Trust & Estate Law (RPTE) entitled "Risky Business: Who Gets Sued Over Opinion Letters and How to Reduce Your Chances of Being Next." This is a reprise of the program that Ed participated on at the RPTE Spring Symposia of on May 1, 2015 in Washington, D.C. The other panelists include Charles L. Menges, of McGuireWoods LLP, Richmond, Virginia; Shauna Reeder of High Exposure Professional Services CNA, New York, New York; and Craig D. Singer and John K. Villa, of Williams & Connolly LLP, Washington, D.C.
Ed Levin appeared in the story of ABC2News, Baltimore, Maryland shown on June 5, 2015 entitled "When Neighbor's Tree, Bushes Overgrow, Who is Responsible?" See http://www.abc2news.com/news/region/baltimore-city/when-neighbors-tree-bushes-overgrow-who-is-responsible.
Ed Levin wrote, "A Tale of Two Inadvertent Releases" which was published in The Daily Record, Baltimore, Maryland on June 30, 2015. See http://thedailyrecord.com/2015/06/30/edward-j-levin-a-tale-of-two-inadvertent-releases/.
AWARDS / RECOGNITION
Gordon Feinblatt's Real Estate Practice Group was listed in Chambers USA 2015 under Chambers Maryland Real Estate 2015. Ed Levin, Tim Chriss, and David Fishman were individually listed as notable practitioners.
Who's Who Legal: Real Estate 2015 listed David Fishman and Ed Levin.