PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1869
BRADLEY D. PETRY, Individually and on behalf of a Class of
persons similarly situated; STACEY M. MILLER, Individually
and on behalf of a Class of persons similarly situated,
Plaintiffs - Appellants,
v.
PROSPERITY MORTGAGE COMPANY; WELLS FARGO BANK, N.A.; WALKER
JACKSON MORTGAGE CORPORATION, formerly doing business as
Prosperity Mortgage Corporation; WELLS FARGO VENTURES, LLC;
THE LONG & FOSTER COMPANIES, INC.; LONG & FOSTER REAL
ESTATE, INC.,
Defendants - Appellees.
----------------------------
MORTGAGE BANKERS ASSOCIATION,
Amicus Supporting Appellees.
No. 13-1924
BRADLEY D. PETRY, Individually and on behalf of a Class of
persons similarly situated; STACEY M. PETRY, f/k/a Stacey M.
Miller, Individually and on behalf of a Class of persons
similarly situated,
Plaintiffs - Appellees,
v.
PROSPERITY MORTGAGE COMPANY; WELLS FARGO VENTURES, LLC; WELLS
FARGO BANK, N.A.; LONG & FOSTER REAL ESTATE, INCORPORATED;
WALKER JACKSON MORTGAGE CORPORATION, formerly doing business as
Prosperity Mortgage Corporation; THE LONG & FOSTER COMPANIES,
INCORPORATED,
Defendants - Appellants.
----------------------------
MORTGAGE BANKERS ASSOCIATION,
Amicus Supporting Appellants.
Appeals from the United States District Court for the District
of Maryland, at Baltimore. William M. Nickerson, Senior
District Judge. (1:08-cv-01642-WMN)
Argued: May 14, 2014 Decided: July 10, 2014
Before NIEMEYER and WYNN, Circuit Judges, and Robert J. CONRAD,
Jr., United States District Judge for the Western District of
North Carolina, sitting by designation.
Affirmed by published opinion. Judge Niemeyer wrote the
opinion, in which Judge Wynn and Judge Conrad joined.
ARGUED: Benjamin Howard Carney, GORDON, WOLF & CARNEY, CHTD.,
Towson, Maryland, for Appellants/Cross-Appellees. Irene C.
Freidel, K&L GATES LLP, Boston, Massachusetts; Jay Norman Varon,
FOLEY & LARDNER LLP, Washington, D.C., for Appellees/Cross-
Appellants. ON BRIEF: Richard S. Gordon, GORDON, WOLF &
CARNEY, CHTD., Baltimore, Maryland; Cyril V. Smith, William K.
Meyer, ZUCKERMAN SPAEDER LLP, Baltimore, Maryland, for
Appellants/Cross-Appellees. Brian M. Forbes, K&L GATES LLP,
Boston, Massachusetts; Andrew Jay Graham, John A. Bourgeois,
KRAMON & GRAHAM, P.A., Baltimore, Maryland, for Appellees/Cross-
Appellants Wells Fargo Bank, N.A., and Wells Fargo Ventures,
LLC. Jennifer M. Keas, FOLEY & LARDNER LLP, Washington, D.C.,
for Appellees/Cross-Appellants Walker Jackson Mortgage
Corporation, The Long & Foster Companies, Incorporated, and Long
2
& Foster Real Estate, Incorporated. David L. Permut, William M.
Jay, Sirisha V. Kalicheti, GOODWIN PROCTER LLP, Washington,
D.C., for Appellees/Cross-Appellants Prosperity Mortgage
Company. Gary C. Tepper, Daniel J. Tobin, BALLARD SPAHR LLP,
Washington, D.C., for Amicus Mortgage Bankers Association.
3
NIEMEYER, Circuit Judge:
Bradley and Stacey Petry, who borrowed $220,000 from
Prosperity Mortgage Company to purchase a house in Baltimore,
Maryland, contend that because of the way Prosperity Mortgage
operated in relation to Long & Foster Real Estate, Inc., and
Wells Fargo Bank, N.A., each of which indirectly owned one-half
of Prosperity Mortgage, the fees that Prosperity Mortgage
charged at closing violated the Maryland Finder’s Fee Act, Md.
Code Ann., Com. Law §§ 12-801 to 12-809. They claim that they
are entitled to a return of the fees they paid Prosperity
Mortgage, as well as statutory damages of three times the amount
of those fees. The Petrys represent a class of similarly
situated borrowers.
When the Petrys purchased their house, their Long & Foster
real estate agent introduced them to a Prosperity Mortgage loan
officer, who in turn arranged a mortgage loan that enabled them
to purchase their house without any down payment. To fund the
loan, Prosperity Mortgage drew on a line of credit with Wells
Fargo. At closing, the Petrys paid Prosperity Mortgage typical
lending fees in the amount of $1,290. Several days after
closing, Prosperity Mortgage sold the Petrys’ loan to Wells
Fargo.
In their class action complaint, the Petrys alleged that,
while Prosperity Mortgage held itself out to the public solely
4
as a mortgage lender, it also operated as a mortgage broker that
helped borrowers obtain mortgage loans from Wells Fargo. They
alleged further that all the fees that Prosperity Mortgage
charged them (and the class of similar borrowers) were “finder’s
fees” within the meaning of the Maryland Finder’s Fee Act. In
doing this, they claimed, Prosperity Mortgage violated the Act
(1) by charging finder’s fees in transactions in which it was
both the mortgage broker and the lender and (2) by charging
finder’s fees without a separate written agreement providing for
them. Finally, the Petrys alleged that Long & Foster and Wells
Fargo were liable with Prosperity Mortgage as aiders and
abettors and as coconspirators.
After discovery was completed and the district court
certified the class, the court advised the parties that it had
concluded that the fees Prosperity Mortgage charged for
performing lending services were not “finder’s fees” within the
meaning of the Finder’s Fee Act, unless the fees had been
inflated so that the overcharge could be considered a disguised
finder’s fee. It advised the Petrys that they would have to
prove “that they paid some excessive or redundant fee to Wells
Fargo (in the guise of Prosperity) for finding Wells Fargo as a
lender.” When the plaintiffs acknowledged that they lacked
proof to meet that burden, the court entered judgment as a
matter of law in favor of the defendants.
5
We affirm, concluding that because Prosperity Mortgage was
identified as the lender in the documents executed at closing,
it was not a “mortgage broker” as the Finder’s Fee Act defines
that term and therefore was not subject to the Act’s provisions.
I
The Petrys’ house purchase and loan transaction
On October 21, 2005, the Petrys purchased a house on
Carroll Street in Baltimore, Maryland, for $220,000, which was
paid for with a mortgage loan from Prosperity Mortgage Company.
The Petrys had earlier met with a Prosperity Mortgage loan
officer, who helped them select a loan product based on their
financial needs and prequalified them for the loan. After the
Petrys signed a purchase agreement, the loan officer prepared
the formal loan application and ordered both a credit report and
an appraisal of the house on their behalf. At closing,
Prosperity Mortgage paid the purchase price to the sellers and
received a note from the Petrys made payable to Prosperity
Mortgage, which was secured by a deed of trust on the house.
For its services, Prosperity Mortgage charged the Petrys $1,290,
which included an application fee of $410 (most of which went to
covering the cost of the appraisal ($350) and the cost of the
credit report ($29.40)); a processing fee of $490; and an
6
underwriting fee of $390. All the closing documents identified
Prosperity Mortgage as the Petrys’ lender.
Four days after the transaction closed, Prosperity Mortgage
sold the Petrys’ loan to Wells Fargo.
The structure of Prosperity Mortgage’s operation
Prosperity Mortgage was formed in 1993 as a joint venture
between Prosperity Mortgage Corporation (now known as Walker
Jackson Mortgage Corporation, a wholly owned subsidiary of The
Long & Foster Companies, Inc. and an affiliate of Long & Foster
Real Estate, Inc.) and Norwest Mortgage, Inc. (a predecessor to
Wells Fargo Bank, N.A.). During the relevant time period,
Prosperity Mortgage was owned in equal shares by Walker Jackson
Mortgage and Wells Fargo Ventures, LLC, with the two partners
each appointing half of the company’s operating committee.
The joint venture agreement that created Prosperity
Mortgage stated that the company would operate “a residential
mortgage lending business principally with customers of Long &
Foster Real Estate,” and it did so using funds obtained through
a warehouse line of credit from Wells Fargo. Prosperity
Mortgage used the line of credit to make mortgage loans to
borrowers in its own name, and it charged borrowers underwriting
and processing fees at closing. Within days of closing,
Prosperity Mortgage sold most of its loans to Wells Fargo,
7
although some were sold to third-party investors, such as U.S.
Bank and Nationwide Bank. With respect to the sale of each
loan, Prosperity Mortgage also received a “service release
premium” as compensation for the sale of its right to service
the loan. After selling the loan, Prosperity Mortgage used the
proceeds to pay off the warehouse line of credit.
Prosperity Mortgage was licensed by Maryland, as well as by
other States, as a mortgage lender, and it employed
approximately 300 employees. It contracted with Wells Fargo for
services in connection with underwriting higher-risk loans and
with preparing loans for sale after closing.
The Petrys’ class action complaint
More than two years after the Petrys closed on the purchase
of their house, they received an unsolicited letter from the law
firm of Gordon, Wolf & Carney, Chtd., asking them to participate
in a class action against Prosperity Mortgage, Wells Fargo, and
Long & Foster. Bradley Petry testified that he first learned of
his legal claim through this letter and that his understanding
was that Prosperity Mortgage had violated the Maryland Finder’s
Fee Act because it acted as both “the arranger of the loan and
the source of the loan.” The Petrys agreed to serve as class
representatives, and Gordon, Wolf & Carney filed the complaint
in this case on June 23, 2008, naming the Petrys as plaintiffs
8
and class representatives. The complaint named as defendants
Prosperity Mortgage; Wells Fargo Bank and Wells Fargo Ventures
(collectively, “Wells Fargo”); and Walker Jackson Mortgage, The
Long & Foster Companies, and Long & Foster Real Estate
(collectively, “Long & Foster”).
As relevant to this appeal, the complaint alleged that
Prosperity Mortgage’s business model violated the Maryland
Finder’s Fee Act and that Long & Foster and Wells Fargo were
liable for Prosperity Mortgage’s violations as aiders and
abettors and as coconspirators. Under the complaint’s theory,
Prosperity Mortgage held itself out to the public as a mortgage
lender but actually functioned as a mortgage broker in that the
company was “established to procure, arrange or otherwise assist
Long & Foster customers in obtaining mortgage loans funded by
Wells Fargo.” The complaint alleged that all the fees
Prosperity Mortgage charged at settlement constituted “finder’s
fees,” in violation of the Finder’s Fee Act, and demanded a
refund of all the finder’s fees that Prosperity Mortgage had
collected from the Petrys and all other class members, as well
as statutory damages of three times the amount of finder’s fees
collected.
9
The district court’s decisions
The litigation continued for some five years before the
district court ultimately entered judgment as a matter of law in
favor of the defendants. Early in the proceedings, it had
granted the defendants’ motion to dismiss or for summary
judgment to the extent that the complaint sought to impose
aiding and abetting liability on Long & Foster and Wells Fargo.
The court stated that “Maryland courts have not yet extended the
scope of aiding and abetting liability . . . to statutes
providing for civil liability where the statute does not
expressly impose this additional avenue of liability.” Petry v.
Wells Fargo Bank, N.A., 597 F. Supp. 2d 558, 565 (D. Md. 2009).
The court also granted in part the defendants’ later filed
motion for summary judgment, concluding that Long & Foster and
Wells Fargo could not be held liable for conspiracy to violate
the Finder’s Fee Act because they were not legally capable of
committing the underlying tort, citing Shenker v. Laureate
Educ., Inc., 983 A.2d 408, 428-29 (Md. 2009). The court,
however, denied the defendants’ motions to dismiss the Petrys’
core claim that Prosperity Mortgage was a mortgage broker that
illegally collected a finder’s fee while also acting as the
lender.
The court also certified this action as a class action
under Federal Rule of Civil Procedure 23, defining the class as:
10
All persons who entered into a mortgage loan
transaction secured by real estate located in Maryland
where (1) Prosperity Mortgage (2) is identified as the
mortgage lender in the operative documents relating to
the transaction, (3) Prosperity Mortgage received a
fee for services in the transaction, and (4) the loan
was funded through a Wells Fargo line of credit.
Shortly before the scheduled trial date, the district court
sent counsel for the parties a letter addressing the parties’
“widely divergent views on the issue of what constitutes a
‘finder’s fee.’” The court indicated that it was inclined to
hold that fees charged for work actually performed by Prosperity
Mortgage in providing processing, underwriting, and application
services were not finder’s fees. The court noted that the
statute defined that term to include “compensation or commission
. . . for the broker’s services in procuring, arranging, or
otherwise assisting a borrower in obtaining a loan,” Md. Code
Ann., Com. Law § 12-801(d), and that nothing in that definition
required it to ignore what it described as the plain meaning of
the term finder’s fee -- “i.e., a fee paid to one entity for
finding another entity.” The court emphasized that “the scheme
alleged by Plaintiffs [could] only make[] sense if Defendants
hid some padded finder’s fee that was paid to Prosperity that
would not have been paid if the loan were taken directly from
Wells Fargo” and accordingly indicated that the plaintiffs would
have to prove “that they paid some excessive or redundant fee to
Wells Fargo (in the guise of Prosperity) for finding Wells Fargo
11
as lender.” The plaintiffs admitted that they could not meet
that burden, and the court accordingly took the case off the
trial calendar and entered a final judgment on June 20, 2013, in
the defendants’ favor. Giving the basis for its judgment, the
court stated that “fees charged for work actually performed are
not impermissible finder’s fees under the [Finder’s Fee Act]”
and that the plaintiffs had “acknowledg[ed] that they [had] no
evidence to present to a jury that Prosperity charged any
impermissible finder’s fees under this view of the [Finder’s Fee
Act].”
From the district court’s judgment, the Petrys filed this
appeal. The defendants filed a conditional cross-appeal
challenging the district court’s class certification order
should they lose on the merits. The Petrys filed a motion to
dismiss the defendants’ conditional cross-appeal, as well as a
motion to certify to the Maryland Court of Appeals questions of
how to define the term finder’s fees and whether persons can
conspire to violate the Finder’s Fee Act.
II
The district court expressed frustration with the Petrys’
changing theory of why Prosperity Mortgage was liable. It noted
that their original theory was that Prosperity Mortgage was a
sham lender that enabled Wells Fargo to pay Long & Foster
12
illegal kickbacks for mortgage loan referrals and that, as a
result, the Petrys had paid higher fees than they would have had
they borrowed directly from Wells Fargo. But after discovery,
the Petrys found that they were unable to support this theory.
Indeed, the district court noted, the evidence indicated that
the Petrys had paid Prosperity Mortgage less than what they
would have paid had Wells Fargo been the lender. The district
court found it significant that, in addition to “abandon[ing]
the claim that the fees paid to Prosperity were excessive,” the
Petrys also had “no claim that there were redundant or
duplicative fees paid to Wells Fargo or any other entity in
addition to the fees paid to Prosperity.” In the end, the court
concluded that the fees Prosperity Mortgage had charged the
Petrys for performing processing and underwriting services were
not mortgage broker’s finder’s fees, unless the Petrys were able
to show that Prosperity Mortgage had padded its lending fees so
as to disguise a hidden finder’s fee. When the Petrys agreed
that they could not show that they paid an inflated amount for
the lending services, the court concluded that there were no
further fact issues left for resolution by the jury, and it
entered judgment in favor of the defendants.
The Petrys now argue that the district court erred in
defining finder’s fees under the Maryland Finder’s Fee Act as
only “‘redundant and excessive’ fees charged for work not
13
actually performed.” They assert that the statutory definition
of a broker’s finder’s fee contains no reference to redundancy
or excessiveness, but instead includes all fees collected by a
broker. And, they maintain, since Prosperity Mortgage acted as
a broker by placing loans with Wells Fargo, the fees it
collected were necessarily “finder’s fees.” The district court
took a different view, concluding that Prosperity Mortgage could
legally charge fees for work done as a lender, unless it padded
those fees in such a way as to leave open the possibility that
it was also charging a finder’s fee.
While we agree with the district court’s ultimate
conclusion, we resolve the question of whether Prosperity
Mortgage violated the Finder’s Fee Act by focusing our analysis
on an antecedent step. Because Prosperity Mortgage was the
lender named in the loan documents, it was not a mortgage broker
under the Maryland Finder’s Fee Act, Md. Code Ann., Com. Law
§ 12-801(f), and the fees it charged were therefore not finder’s
fees, which are defined as fees “imposed by a broker . . . for
the broker’s services in procuring, arranging, or otherwise
assisting a borrower in obtaining a loan or advance of money,”
id. § 12-801(d) (emphasis added).
The Finder’s Fee Act “applies only to mortgage brokers and
the fees they charge borrowers.” Sweeney v. Sav. First Mortg.,
LLC, 879 A.2d 1037, 1048-49 (Md. 2005). Therefore, the Petrys
14
would have to show that Prosperity Mortgage functioned as a
“mortgage broker” to fall within the scope of the Act.
While determining the definition of “mortgage broker” in
the Finder’s Fee Act involves following multiple cross
references, its meaning is nonetheless clear. Section 12-801(f)
of that Act defines “mortgage broker” as “a person defined as a
mortgage lender under § 11-501(j)(1)(i) of the Financial
Institutions Article.” Md. Code Ann., Com. Law § 12-801(f).
That specific provision of the Financial Institutions Article,
in turn, states that a “‘[m]ortgage lender’ means any person who
. . . [i]s a mortgage broker.” Md. Code Ann., Fin. Inst. § 11-
501(j)(1)(i). The same section of the Financial Institutions
Article then defines “mortgage broker” as “a person who: (1)
[f]or a fee or other valuable consideration, whether received
directly or indirectly, aids or assists a borrower in obtaining
a mortgage loan; and (2) [i]s not named as a lender in the
agreement, note, deed of trust, or other evidence of the
indebtedness.” Id. § 11-501(i) (emphasis added). Thus, an
entity that is named as the lender in the operative loan
documents is categorically excluded from the definition of
“mortgage broker,” as that term is used in the Finder’s Fee Act.
This applicable statutory language is fatal to the Petrys’
claims because the loan documents in the Petrys’ transaction
identified Prosperity Mortgage as the lender. These documents
15
included the promissory note, the deed of trust, and the HUD-1
Settlement Statement. Because Prosperity Mortgage was so named
as the lender, it was not, by statutory definition, a “mortgage
broker” and therefore was incapable of violating the Finder’s
Fee Act in the manner alleged by the Petrys.
The Petrys’ primary argument against this conclusion rests
on a challenge to the rationality of the statutory definition.
They argue that the exclusion of the named lender from the
definition of “mortgage broker” is “irreconcilable” with § 12-
804(e), a provision of the Finder’s Fee Act that states that
“[a] mortgage broker may not charge a finder’s fee in any
transaction in which the mortgage broker . . . is the lender.”
Md. Code Ann., Com. Law § 12-804(e). 1 But this provision is not
irreconcilable with the statute’s definition of mortgage broker.
To be sure, the definition of “mortgage broker” means that an
entity that is named as the lender in the loan documents cannot
be a mortgage broker and therefore cannot violate § 12-804(e) by
charging a finder’s fee while serving as both broker and lender.
This does not, however, mean that it is impossible for an entity
1
Section 12-804(e) provides in full:
A mortgage broker may not charge a finder’s fee in any
transaction in which the mortgage broker or an owner,
part owner, partner, director, officer, or employee of
the mortgage broker is the lender or an owner, part
owner, partner, director, officer, or employee of the
lender.
16
to violate § 12-804(e) by charging a finder’s fee while acting
in a dual role. Rather, such a situation could occur if a
broker were to accept a finder’s fee to help a borrower obtain a
loan from an entity that merely put its name on the loan
documents while the broker secretly “table funded” the loan 2 --
essentially the reverse of what the Petrys alleged below. In
such a scenario, the broker would be charging a finder’s fee in
a transaction in which it was both the mortgage broker (since it
received a fee for aiding the borrower in obtaining a mortgage
loan but was not named as the lender in the loan documents, Md.
Code Ann., Fin. Inst. § 11-501(i)) and the lender, see Md. Code
Ann., Com. Law § 12-801(e); Md. Code Ann., Fin. Inst. § 11-
501(j)(1)(ii) (defining “lender” broadly as “any person who . . .
[m]akes a mortgage loan to any person”). In this example, § 12-
804(e) comfortably coexists with the statute’s definition of
“mortgage broker.”
At bottom, we are constrained by the plain meaning of the
Finder’s Fee Act and its definition of “mortgage broker.” We
simply cannot excise, as the Petrys would have us do, the
portion of the definition that excludes the entity named as the
lender in the transaction. See Taylor v. NationsBank, N.A., 776
2
“Table funding” is a term of art that describes “a
settlement at which a loan is funded by contemporaneous advance
of loan funds and an assignment of the loan to the person
advancing the funds.” 12 C.F.R. § 1024.2.
17
A.2d 645, 654 (Md. 2001) (noting that, in construing a statute,
the Maryland Court of Appeals will “neither add nor delete words
to a clear and unambiguous statute to give it a meaning not
reflected by the words the Legislature used or engage in forced
or subtle interpretation in an attempt to extend or limit the
statute’s meaning”).
Faced with the statute’s plain language defining “mortgage
broker,” the plaintiffs argue further that the definition “is
either the result of legislative error, or a mistake by the
Michie Company, which codifies the Maryland statutes.” But they
have provided no basis by which to justify that assertion. The
definition of mortgage broker in the Finder’s Fee Act is clear
and can be reasonably applied to the transaction before us.
Because Prosperity Mortgage was named as the lender in the
Petrys’ closing documents, it was not a mortgage broker as a
matter of law, and any fees that it charged were necessarily not
finder’s fees.
Since we conclude that Prosperity Mortgage did not violate
the Finder’s Fee Act, we need not resolve the question of
whether Long & Foster and Wells Fargo can be liable for
Prosperity Mortgage’s violations under theories of aiding and
abetting and conspiracy. See Alleco Inc. v. Harry & Jeanette
Weinberg Found., Inc., 665 A.2d 1038, 1045, 1050 (Md. 1995)
(recognizing that both conspiracy and aiding and abetting
18
liability require proof of an underlying wrong). It is also not
necessary for us to address the issues raised in the defendants’
conditional cross-appeal.
Accordingly, we affirm the judgment of the district court,
deny the Petrys’ motion to certify questions of law to the
Maryland Court of Appeals, and deny, as moot, the Petrys’ motion
to dismiss the defendants’ cross-appeal.
IT IS SO ORDERED.
19