Capitol Radiology, LLC v. Sandy Spring Bank

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1318
CAPITOL RADIOLOGY, LLC,
Plaintiff - Appellant,
v.
SANDY SPRING BANK,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Deborah K. Chasanow, Chief District
Judge. (8:09-cv-01262-DKC)
Argued: May 13, 2011 Decided: July 20, 2011
Before GREGORY, WYNN, and DIAZ, Circuit Judges.
Affirmed by unpublished opinion. Judge Diaz wrote the opinion,
in which Judge Gregory and Judge Wynn joined.
ARGUED: Michael John O’Rourke, O’ROURKE & MOODY, Chicago,
Illinois, for Appellant. James Taylor Heidelbach, GEBHARDT &
SMITH, LLP, Baltimore, Maryland, for Appellee. ON BRIEF: Steven
R. Freeman, FREEMAN, WOLFE & GREENBAUM, P.A., Towson, Maryland,
for Appellant. Patrick J. Madigan, GEBHARDT & SMITH, LLP,
Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.

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DIAZ, Circuit Judge:
Capitol Radiology, LLC (“Capitol”) appeals a decision
of the district court granting summary judgment in favor of
Sandy Spring Bank (“Sandy Spring”). Capitol sued Sandy Spring
for breach of contract after Sandy Spring declared Capitol in
default and accelerated Capitol’s payments on a commercial line
of credit and equipment loan. Even when viewing the evidence in
the light most favorable to Capitol, Sandy Spring did not breach
the loan agreement because the bank had a good faith belief that
it was insecure. Accordingly, we affirm.
I.
A.
Capitol is a radiology practice formed by Dr. Doriann
Thomas in January 2005. Shortly after its formation, Capitol
sought financing from Sandy Spring. In March 2005, Sandy Spring
issued Capitol a $225,000 equipment loan and a commercial line
of credit of up to $435,000. The loans were secured by
Capitol’s inventory, chattel paper, accounts, equipment, and
general intangibles. As additional collateral, Dr. Thomas
provided a junior lien against her residence and guaranteed both
loans.

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Capitol owed payment in full on the equipment loan by
September 2, 2008, while the line of credit was initially
payable May 31, 2006. Sandy Spring extended the term of the
line of credit four times. With each extension, the parties
executed a new Business Loan Agreement. The final Business Loan
Agreement was dated October 22, 2007 (“Loan Agreement”).
Pursuant to the terms of the final extension, Capitol owed
payment in full on the line of credit by August 31, 2008.
The Loan Agreement enumerated several events of
default. As is relevant here, the Loan Agreement stated as
follows:
Each of the following shall constitute an Event of
Default under this Agreement:
***
Adverse Change. A material adverse change occurs in
Borrower’s financial condition, or Lender believes the
prospect of payment or performance of the Loan is
impaired.
Insecurity. Lender in good faith believes itself
insecure.
J.A. A345.
Capitol made timely payments on the equipment loan and
the line of credit. The Loan Agreement, however, also required
Capitol to furnish financial statements or other information as
requested by Sandy Spring. As early as mid-2006, Capitol either

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wholly failed to provide or was delayed in providing such
information.
Roger Hanson was the Sandy Spring vice president and
commercial portfolio manager responsible for the Capitol
relationship. Between April 2006 and May 2008, Hanson sent
several emails and letters to Capitol and Dr. Thomas requesting
financial information, including tax returns, financial
statements, and accounts receivable reports. Hanson also
corresponded with Larry McKenney, Capitol’s chief financial
officer, regarding the requests. In addition, Hanson met with
McKenney and Capitol’s accountant on multiple occasions to
discuss the loans and Sandy Spring’s need for financial
information.
In an August 2006 email, Hanson explained that Sandy
Spring was “anxious” for financial information requested weeks
earlier from Capitol. Id. A325. Hanson warned Dr. Thomas that
Sandy Spring “may have to start pursuing other measures” if
Capitol did not timely comply with Sandy Spring’s requests. Id.
As a result of Capitol’s delay in providing financial
information, Sandy Spring added Capitol to its watch list of
risky borrowers in September 2006. A separate “Watch Report”--
prepared by Sandy Spring for borrowers on its watch list--also
noted that “[d]ebit card purchases on [Capitol’s] corporate
account appear to not be business related.” Id. A455.

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In January 2007, Hanson again requested Capitol’s 2006
financial information. Hanson told Capitol’s accountant and Dr.
Thomas that he had “been waiting most of the latter part of 2006
for something.” Id. A329. In the same correspondence, Hanson
stated that Sandy Spring could not “renew the line or
restructure anything until [he] saw how 2006 went.” Id.
In May 2007, Hanson again wrote Dr. Thomas to express
his frustration at Capitol’s failure to provide requested
information. In the letter, Hanson told Capitol that Sandy
Spring did not intend to renew Capitol’s line of credit:
This letter is to inform you that the bank is not
interested in renewing the line of credit for another
year. Over the last year or so we have made repeated
attempts to collect information on the line of credit
but have never obtained enough information to renew
the line. This process involved quite a bit of my
time and efforts. . . . Please be advised that we
will issue the last extension on the current line of
credit for 60 days to allow you to obtain financing of
your facility elsewhere.
Id. A342.
The parties later met to discuss the relationship and
a possible extension of the line of credit. Following the
meeting, Sandy Spring received sufficient financial information
to allow the bank to offer Capitol an extension. Capitol
accepted the extension--the final one as it turned out--
extending the due date of the line of credit to August 31, 2008.

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In April 2008, Sandy Spring learned of a judgment
against Capitol and Dr. Thomas in a Maryland state court case,
Capital Med. Mgmt. Assocs., LLC v. Thomas, No. 273430-V (Md.
Cir. Ct. Apr. 18, 2008) (“CMMA judgment”). The CMMA judgment--
including damages, attorneys’ fees, and costs--totaled
$179,749.16. Sandy Spring also discovered a $28,165 federal tax
lien against Dr. Thomas’s residence. The Loan Agreement
required Capitol to provide Sandy Spring written notification of
any litigation that could materially affect Capitol’s financial
condition. There is no evidence that Capitol took action to
notify Sandy Spring of either the CMMA judgment or the tax lien.
On April 28, 2008, following discovery of the CMMA
judgment and tax lien, Sandy Spring declared Capitol in default
of its obligations under the Loan Agreement. Sandy Spring
demanded immediate payment of both loans and advised Capitol
that it would exercise its rights and remedies under the Loan
Agreement if Capitol failed to pay.
At Capitol’s request, Hanson and his team leader Randy
McVey met with McKenney on May 9, 2008 to discuss the default.
At the meeting, McKenney asked Sandy Spring to reconsider,
contending that the CMMA judgment would be overturned on appeal
and that Capitol had sufficient funds to cover the judgment if
it were ultimately enforced. Following the meeting, Hanson

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wrote McKenney and Dr. Thomas requesting additional financial
information, which he never received.
Sandy Spring subsequently discovered that Capitol’s
corporate account was overdrawn on several occasions in May and
June 2008. A review of the account also revealed that Dr.
Thomas was using it to pay for personal expenses. During her
deposition, Dr. Thomas acknowledged that she used the Capitol
account to purchase meals, clothing, and tickets for personal
travel.
On July 30, 2008, CMMA took steps to enforce its
judgment when it secured a writ of garnishment against Capitol’s
deposit accounts. The writ of garnishment directed Sandy Spring
to freeze Dr. Thomas’s and Capitol’s accounts pending further
direction from the court.
On July 31, 2008, Sandy Spring informed Capitol that
the bank had elected to exercise its right of setoff--pursuant
to which Sandy Spring would apply funds in Capitol’s corporate
accounts to its loan obligations. Sandy Spring reiterated that
Capitol was in default due to the CMMA judgment and the tax lien
and added that “[t]he judgments represent an adverse change in
[Capitol’s] financial condition and it is believed that the
prospect of payment or performance of these Notes are [sic]
impaired.” Id. A403. Following the notification, Sandy Spring,
which had first priority over Capitol’s corporate accounts,

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began to apply the funds in Capitol’s accounts to its loans. As
a result of the setoff, Capitol’s loans were paid in full by
September 2008.
B.
Capitol sued Sandy Spring for breach of contract on
August 19, 2008 in Maryland state court. On May 14, 2009,
Capitol amended its complaint to add an allegation that Sandy
Spring discriminated against Capitol on the basis of race in
violation of the Equal Credit Opportunity Act (“ECOA”), 15
U.S.C. §§ 1691–1691f. In response, Sandy Spring removed the
case to federal court asserting federal question jurisdiction.
On November 11, 2009, Sandy Spring moved for summary
judgment on both the breach of contract claim and the ECOA
claim. The district court granted Sandy Spring’s motion.
Capitol timely appealed, challenging the district court’s order
on the breach of contract claim only.
II.
We review a district court’s decision granting summary
judgment de novo, “applying the same standard as the district
court.” Homeland Training Ctr., LLC v. Summit Point Auto.
Research Ctr., 594 F.3d 285, 290 (4th Cir. 2010). Summary
judgment is appropriate “if the movant shows that there is no

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genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a).
A.
Capitol contends that Sandy Spring breached the Loan
Agreement by declaring Capitol in default and accelerating
payment of the loans. In support of its claim, Capitol focuses
on the adverse change and insecurity clauses in the Loan
Agreement. Capitol argues that there are material issues of
fact as to whether the CMMA judgment and federal tax lien were
material adverse changes or rendered Sandy Spring reasonably
insecure. Because the undisputed facts show that Sandy Spring
believed in good faith that it was insecure, we affirm the
judgment of the district court.
B.
Consistent with the terms of the Loan Agreement, we
apply Maryland law to Capitol’s claim. A plaintiff asserting a
claim for breach of contract must show “that the defendant owed
the plaintiff a contractual obligation and that the defendant
breached that obligation.” Taylor v. NationsBank, N.A., 776
A.2d 645, 651 (Md. 2001). Maryland follows an objective theory
of contract interpretation under which courts apply the plain

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meaning of unambiguous contract terms. Ocean Petroleum, Co.,
Inc. v. Yanek, 5 A.3d 683, 690 (Md. 2010). And although the
issue of good faith is typically a jury question, summary
judgment is appropriate where there are no material disputes as
to the facts of the case. David A. Bramble, Inc. v. Thomas, 914
A.2d 136, 149 (Md. 2007); see also Rite Aid Corp. v. Hagley, 824
A.2d 107, 119–21 (Md. 2003) (affirming summary judgment in favor
of defendant in case involving allegations that defendant failed
to act in good faith).
The Loan Agreement provides that the occurrence of any
event of default terminates Sandy Spring’s obligations and, at
Sandy Spring’s option, renders the balance of the loans
immediately due and payable. As is relevant here, Capitol is in
default under the Loan Agreement if Sandy Spring “in good faith
believes itself insecure.” J.A. A345. Because the Loan
Agreement does not define “insecure” we give the term its
“customary, ordinary and accepted meaning.” Weichert Co. of Md.
v. Faust, 19 A.3d 393, 400 (Md. 2011). In this context,
“insecure” means “[h]aving a good-faith belief that the
possibility of receiving payment or performance from another
party to a contract is unlikely.” Black’s Law Dictionary 866
(9th ed. 2009).
The trial court concluded as a matter of law that
Sandy Spring had a good faith belief that it was insecure. We

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agree. Sandy Spring declared Capitol to be in default in April
2008 after learning of the CMMA judgment and federal tax lien.
Before taking such action, Sandy Spring regularly requested
information from several representatives of Capitol, including
Dr. Thomas, McKenney, and Capitol’s accountant. Capitol either
ignored the requests altogether or neglected to respond
promptly.
By failing to timely comply with Sandy Spring’s
requests, Capitol forced the bank to follow up repeatedly for
the basic financial information necessary to determine whether
to renew Capitol’s line of credit. As early as September 2006,
Sandy Spring added Capitol to its watch list of risky borrowers
based on Capitol’s failure to provide requested information, as
well as the bank’s observation that Dr. Thomas appeared to be
using Capitol’s corporate account for personal expenses. It is
in this context of non-compliance that Sandy Spring learned of
the CMMA judgment and tax lien in April 2008.
On appeal, Capitol contends that Sandy Spring did not
adequately analyze whether discovery of the CMMA judgment and
tax lien represented material adverse changes in Capitol’s
financial condition. Capitol argues that, at the very least,
whether the CMMA judgment and tax lien were material presents a
genuine issue of fact that precludes summary judgment.

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Capitol, however, has no adequate answer to Sandy
Spring’s contention that the bank had a good faith belief that
it was insecure--a wholly separate ground in the Loan Agreement
for declaring a default. In fact, Capitol offers no persuasive
evidence to suggest that Sandy Spring acted other than in good
faith.
Capitol contends that it assured Sandy Spring that its
financial condition was secure in the May 9, 2008 meeting
following the declaration of default. McKenney testified that
he explained to Sandy Spring that Capitol had sufficient funds
to cover the $179,749.16 CMMA judgment and that Dr. Thomas was
working with her accountant to rectify the tax lien. We agree
with the district court, however, that Sandy Spring was not
obligated to accept McKenney’s verbal assurances that Capitol
was financially sound, particularly given Capitol’s failures to
respond to requests for financial information and to provide
notice of the CMMA judgment and tax lien.
We consider Sandy Spring’s decision to declare a
default, accelerate payment, and exercise its right of setoff in
the context of the events surrounding it. Here, the undisputed
facts are that Capitol (1) failed repeatedly to honor Sandy
Spring’s requests for financial information; (2) allowed its
principal, Dr. Thomas, to use accounts securing the loans to pay
her personal expenses; (3) did not notify Sandy Spring of the

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CMMA judgment; (4) allowed a writ of garnishment to issue on
that judgment against the accounts securing the loans; and (5)
failed to report that the guarantor of the loans, Dr. Thomas,
was subject to a federal tax lien.
On these facts, we find as a matter of law that Sandy
Spring had a good faith belief that it was insecure.
Accordingly, Sandy Spring did not breach the Loan Agreement when
it took steps to protect its interests by declaring Capitol in
default and subsequently exercising its contractual right of
setoff.
III.
For these reasons, we affirm the district court’s
order granting summary judgment in favor of Sandy Spring.
AFFIRMED

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