Relating to Real Estate

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Relating to Real Estate May 2016

In this issue:

Foreign LLCs May File Proceedings Even If Not Qualified to Do Business in Maryland, but Moe's Did Not Have Standing to Attack Chipotle's Zoning

The Court of Appeals decided that a foreign limited liability company may file an action in a Maryland court even if it was not then qualified to do business in this State, and it may pursue the case if it subsequently qualifies to do business in Maryland. However, the Court also decided that Moe's Southwest Grill may not challenge a special zoning exception in favor of Chipotle in Annapolis because it lacks standing. A Guy Named Moe, LLC, t/a Moe's Southwest Grill v. Chipotle Mexican Grill of Colorado, LLC et al., -- A.3d --, No. 56 Sept. Term 2015, 2016 WL 1637650 (Md. Apr. 26, 2016).

In 2012 Chipotle filed for a special exception to build a restaurant at 36 Market Space in Annapolis. Moe's operates at 122 Dock Street, which is 425 feet away. In the Spring of 2013 the Board of Appeals approved Chipotle's application following the recommendation of the Department of Planning and Zoning for the City of Annapolis. Moe's filed a petition for review with the Circuit Court for Anne Arundel County. Chipotle moved to dismiss because Moe's, a Virginia limited liability company, was not then qualified to do business in Maryland and because Moe's lacked standing.

The circuit court held that foreign limited liability company could maintain an action as long as it later qualified to do business in Maryland, but it dismissed Moe's petition because it found that Moe's lacked standing to petition for judicial review because it was not a "taxpayer" under §4-401(a) of the Land Use Article and the petition was brought "simply [as] a matter of competition."

On appeal, the Court of Special Appeals decided that "the petition at issue was void ab initio, given that, at the time that it was filed, Moe's had lost its right to do business in Maryland and was nonetheless continuing to do business in Maryland." A Guy Named Moe, LLC v. Chipotle Mexican Grill of Colorado, LLC, 223 Md. App. 240, 246 (2015). See the July 2015 issue of Gordon Feinblatt's Relating to Real Estate.

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Court of Appeals Upholds Municipal Stormwater Permitting Process

In a unanimous decision issued March 11, 2016, the Court of Appeals upheld the Maryland Department of the Environment's ("MDE's") flexible approach to permitting stormwater discharges from municipal stormdrains in Maryland's five most populated jurisdictions. Dept. of Env. v. Anacostia Riverkeeper, 447 Md. 88 (2016). The decision gives substantial deference to MDE's permitting decisions and allows for flexibility and innovation in how each jurisdiction will meet its stormwater permit requirements.

Stormwater (water from rain and melting snow) collects pollutants including trash, sediment, and other substances as it runs over surfaces and then into the ground or into stormdrains before discharging into a water body. MDE issued municipal separate storm sewer system ("MS4") permits to Baltimore City and Anne Arundel, Baltimore, Prince George's, and Montgomery Counties requiring the local jurisdictions to try to minimize the amount of pollutants that are discharged from their stormwater. Among other requirements, the MS4 permits require Baltimore City and the counties to restore 20% of their impervious surface area and to submit restoration plans and reports on their strategies to reduce stormwater pollution.

Several environmental groups and organizations (which the Court called the "Water Groups") challenged the issuance of the permits. The Water Groups argued that the permits were not sufficiently enforceable because the 20% standard was too vague and the permits did not contain specific and measurable limits on discharges. The Water Groups also argued that because the municipalities would be submitting restoration plans to MDE after issuance of the permits, there was insufficient opportunity for the public to participate in the restoration plans.

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The Town of New Market's Comprehensive Plan Complies with State Law

Upon a challenge by groups and individuals, in Friends of Frederick County v. Town of New Market, 224 Md. App. 185 (2015), the Court of Special Appeals held that the comprehensive plan for future development adopted by the Town of New Market complied with Maryland state law.

In 2005 the Town of New Market (the "Town"), which is a municipal corporation in Frederick County, adopted a comprehensive plan (the "Plan"). On November 17, 2010 the Town amended the Plan by adding both a water resources element and a municipal growth element (the "MGE"). The MGE proposed the annexation of two farms that were adjacent to the Town. Upon annexation, the MGE proposed changing the agricultural zoning of the farms to more intense uses.

The challengers filed an action in the Circuit Court for Frederick County seeking to set aside the Plan, the MGE, and the rezoning. The circuit court granted the Town's motion for summary judgment, and on appeal the Court of Special Appeals affirmed.

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Covenant Limiting Development to One House per Lot Is Still in Effect and Had Not Been Waived Even Though a Companion Clause Was Waived

In Shader v. Hampton Imp. Ass'n, Inc., 443 Md. 148, 115 A.3d 185 (2015), the Court of Appeals held that an 80-year-old recorded covenant continued to prohibit homeowners from building a second house on their land despite the fact that the improvement association had waived another restriction that was contained in the same sentence.

In 1930 the Hampton Company (predecessor to Hampton Improvement Association, Inc.) recorded a plat subdividing the Hampton estate in Baltimore County, and in 1931 it recorded restrictive covenants that affected the property. The applicable restrictions were contained in Paragraph C of the document, which contained four clauses in a single sentence. One clause prohibited the construction of any building on a lot other than private dwelling houses and garages. A separate clause stated that no more than one dwelling could be erected on a lot.

In 2002 Mr. and Mrs. Scott Shader bought property that included Lot 59, which was 2.246 acres, and the easterly part of Lot 75, which was 1.475 acres. The Shaders lived in a house on Lot 59, and they wanted to build a house on the part of Lot 75 that they owned.

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To Determine the Value of Property on the Date of Finality, It is Acceptable to Consider Comparable Sales Thereafter

In Lane v. Supervisor of Assessments of Montgomery County, -- A.3d --, No. 41 Sept. Term 2015, 2016 WL 1742793 (Md. May 3, 2016), the Court of Appeals held that sales of comparable properties made after the "date of finality" may be considered in the determination of the value of real property.
As part of the triennial assessment of all real property in the State of Maryland, each property is assessed with reference to its value as of the applicable "date of finality" under Maryland Code, Tax-Property Article ("T-P") §8-102(a). T-P §8-104(b)(2) provides that the "date of finality" is the "January 1 immediately before the 1st taxable year to which the assessment based on the new value is applicable."

On December 28, 2010, the Supervisor of Assessments of Montgomery County advised Ann Lane that the assessed value of her condominium unit in Parc Somerset on Wisconsin Avenue in Bethesda was $2,130,000, effective January 1, 2011. Ms. Lane protested, but the Supervisor and the Property Tax Assessment Appeal Board for Montgomery County ("PTAAB") ruled against her. She appealed to the Maryland Tax Court where she offered evidence of sales of certain condominium units that occurred prior to January 1, 2010. An expert for the Supervisor claimed a higher value based on sales that were made in the first half of 2010. Since 1992, it has been the policy of the State Department of Assessments and Taxation to consider sales made within six months after a date of finality. The Tax Court reduced the assessment to $2,075,000.

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The Issuer of Credit Insurance Is Not a Debt Collector

Old Republic Insurance Company is a credit insurer that issues insurance against loss or damage resulting from the failure of debtors to pay their obligations to a creditor. As such it issued a credit insurance policy to Countrywide Home Loans, which covered a loan of $95,000 to Nancy Gordon secured by a deed of trust on property in Parkville. Gordon defaulted and Old Republic paid Countrywide's claim. Then Old Republic pursued its remedies against Gordon and eventually sued her. Gordon claimed that Old Republic was an unlicensed collection agency, and that its judgment against her was therefore void, citing Finch v. LVNV Funding LLC, 212 Md. App. 748 (2013). The Circuit Court for Baltimore County agreed with Gordon and granted her motion for summary judgment. Old Republic appealed and the Court of Special Appeals reversed, finding that Old Republic was not a collection agency under the statutory scheme. Old Republic Ins. Co. v. Gordon, -- A.3d --, No. 1020 Sept. Term 2014, 2016 WL 1664934 (Md. Ct. Spec. App. Apr. 27, 2016).

Judge Nazarian dissented. In his view Maryland Code, Business Regulation Article §7 101(c) does not contain any ambiguity and applies to issuers of credit insurers. According to Judge Nazarian, the only differences between credit insurers and other debt collectors are in the timing of payments and the way that the amount paid by them is calculated.

For questions, please contact Ed Levin (410) 576-1900.

Amount of Attorneys' Fees Awarded Is Not Limited to Size of Judgment

As a step in the development of a high-rise apartment building in Bethesda, Bainbridge St. Elmo Bethesda Apartments, LLC obtained an easement and agreement from its neighbor White Flint Express Realty Group Limited Partnership, LLLP. Bethesda violated provisions of the agreement relating to the construction, and litigation ensued between the parties. The parties settled all open matters except for White Flint's claim for attorneys' fees. The Circuit Court for Montgomery County awarded White Flint $3,520,256.59 in attorneys' fees and $411,39.88 in costs. On appeal, the Court of Special Appeals affirmed. Bainbridge St. Elmo Bethesda Apartments, LLC v. White Flint Express Realty Group Ltd. P'ship, LLLP, No. 376 Sept. Term 2014, 2016 WL 1321205 (Md. Ct. Spec. App. Apr. 5, 2016).

The Court of Special Appeals held that the following clause in the agreement was sufficient to allow White Flint to recover attorneys' fees for first-party claims in addition to third-party claims:

Indemnity. Bainbridge hereby indemnifies and agrees to defend and hold harmless White Flint . . . from any and all claims, demands, debts, actions, causes of action, suits, obligations, losses, costs, expenses, fees, and liabilities (including reasonable attorney's fees, disbursements, and litigation costs) arising from or in connection with Bainbridge's breach of any terms of this agreement . . .

The court discussed the necessity and reasonableness of the fees that White Flint claimed, and it affirmed the award of the circuit court because of the "ferocious advocacy and multitudinous documents" in the litigation. The court noted that it had affirmed awards for attorneys' fees where the amount of the award was greater than the damages award.

For questions, please contact Ed Levin (410) 576-1900.

Business Judgment Rule Limits Judicial Review of Association's Decisions

The roof of Camille and Greg Baroni, who live in the Avenel Community in Montgomery County, was irreparably damaged by Hurricane Irene in August 2011. They applied to the Avenel Community Association, Inc. (the "Association") to replace their natural cedar shake roof with an asphalt shingle roof. The Association denied their request. The Baronis appealed that decision to the Montgomery County Commission on Common Ownership Communities, which reversed the decision of the Association. Upon judicial review, the Circuit Court for Montgomery County reversed the decision of the Commission. On appeal, the Court of Special Appeals affirmed the decision of the circuit court. Baroni v. Avenel Cmty. Ass'n, Inc., No. 857 Sept. Term 2015, 2016 WL 1644046 (Md. Ct. Spec. App. Apr. 26, 2016).

The Court of Special Appeals held that homeowners associations are entitled to the benefit of the business judgment rule. "The 'business judgment' rule . . . precludes judicial review of a legitimate business decision of an organization, absent fraud or bad faith." Quoting Black v. Fox Hills North Cmty. Ass'n, 90 Md. App 75 (1992). Because the Baronis had made no showing of fraud or bad faith, the court upheld the Association's decision.
For questions, please contact Ed Levin (410) 576-1900.

High Interest Rate in Advertisement Is Not a Basis for Dismissal of Foreclosure Sale

Mr. and Mrs. Felton R. Hood, the mortgagors, excepted to a foreclosure sale on the basis that the interest rate to be charged on the unpaid purchase price prior to settlement, which was set forth as a term of sale, was too high. In Hood v. Driscoll, -- A.3d --, No. 856 Sept. Term 2015, 2016 WL 1704638 (Md. Ct. Spec. App. Apr. 28, 2016), the Court of Special Appeals held that such a claim could be brought as an exception (overruling the Circuit Court for Harford County on this point). However, the Court of Special Appeals dismissed the exception on its merits because it said that the claim that a lower interest rate would have produced a higher sale price was pure speculation. This case is distinguished from Maddox v. Cohn, 424 Md. 379, 36 A.3d 426 (2012), in which the Court of Appeals overturned the ratification of a foreclosure sale because the advertisement of sale had required any successful purchaser to pay a $295 attorney fee for trustees' counsel's review of settlement documents, a fee not provided for in the mortgage documents or authorized by statute or court rule.

For questions, please contact Ed Levin (410) 576-1900.

Aberrant Activities Aren't Always Actionable

Charles and Cheryl Kirk sued their neighbors Thomas and Nanci Gardner in the Circuit Court for Anne Arundel County regarding certain property rights pertaining to their waterfront lots. The circuit court granted summary judgment to the Gardners on all of the claims of the Kirks. However, the circuit court ruled against the Gardners' on most of the issues raised by their counterclaim. On appeal, the Court of Special Appeals affirmed. Kirk v. Gardner, No. 366 Sept. Term 2015, 2016 WL 916352 (Md. Ct. Spec. App. Mar. 9, 2016). In reaching its decision, the Court of Special Appeals stated the following:

1. A covenant in a declaration providing that no dwelling shall be erected on certain portions of the lots and that such areas be kept "free and open spaces" did not prevent the landowner from planting trees and shrubs in those areas.

2. The Gardners planted peach trees and blueberry and raspberry bushes close to the Kirks' patio. The Kirks alleged that the Gardners did so because these plants attract bees and Mrs. Kirk has a severe allergy to bees and is susceptible to anaphylactic shock. The Court of Special Appeals agreed with the circuit court that this did not amount to a private nuisance because the legal standard is whether the action would be offensive or inconvenient to an ordinary person.

3. The Kirks challenged the circuit court's determination that the Gardners acquired legal title to a right of way by adverse possession, claiming that the Gardners had not established that their use was "hostile" for the requisite period of time. The court stated that "hostile" does not indicate enmity, but only that usage must be without license or permission, citing USA Cartage Leasing LLC v. Baer, 202 Md. App. 138, 200 (2011), aff'd 429 Md. 199 (2012).

For questions, please contact Ed Levin (410) 576-1900.