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REPORTED

IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1061 September Term, 2002

FIRST UNION NATIONAL BANK v. STEELE SOFTWARE SYSTEMS CORPORATION

Adkins, Krauser, Bloom, Theodore G., (Retired, Specially Assigned) JJ.

Opinion by Adkins, J., Concurring Opinion by Bloom, J. (Retired, Specially Assigned)

Filed: December 17, 2003

In this high stakes business dispute, we are asked to review evidence of a lengthy business negotiation between a large bank and one of its vendors that culminated in a written contract, and the bank's deliberate breach of that contract. We must determine

whether the evidence was sufficient to support the vendor's claim that the bank, never intending to perform, fraudulently induced the vendor to enter the contract. In doing so, we differentiate

between actionable fraudulent misrepresentations and indefinite generalities that do not support fraud in the context of

discussions between two sophisticated businesses.

We also analyze

whether an ambiguous "best efforts" clause is enforceable in contract, and explore the limits of predicating a fraud claim on the bank's intentions with respect to performance of that clause. We shall reverse a $39 million jury verdict for compensatory damages and a $200 million verdict for punitive damages, both entered against appellant First Union National Bank ("First Union") in favor of Steele Software Systems Corporation ("3S") on a fraud theory. 3S's theory was that First Union fraudulently induced 3S

to enter into a written Service Agreement dated November 29, 1997 ("SA"), under which 3S would provide certain appraisal and title services in connection with residential real estate loans made by First Union to its customers without intending to perform

thereunder.

We shall affirm a judgment for approximately $37 The recovery

million against First Union for breach of contract.

by 3S is based on First Union's failure to fulfill its contractual

obligation to purchase these real estate settlement services from 3S as called for under the SA. We answer the following questions presented by First Union: I. Whether First Union was entitled to judgment on 3S's fraud claim because 3S failed to prove the elements of fraud. II. Whether First Union is entitled to judgment with respect to 3S's claim that it breached the "best efforts" clause of the SA. III. Whether the compensatory damages award must be set aside because the circuit court impermissibly limited the cross-examination of 3S's damages expert. IV. Whether the compensatory damage award must be set aside because it encompassed transactions outside the geographic scope of the SA.

We answer yes to question I, and no to questions II, III, and IV. We do not reach First Union's questions regarding the amount

of damages in the fraud claim, or the amount of punitive damages, because of our rejection of 3S's fraud claim. Nor do we reach

First Union's contention that 3S's fraud claim was improperly predicated on alleged theft of its business methods and is

therefore preempted by the Maryland Uniform Trade Secrets Act. FACTS1 AND LEGAL PROCEEDINGS 3S Provides Settlement Services To First Union 3S is a settlement service company, founded in 1987, that

In setting forth these facts, we have resolved all conflicts in evidence in favor of 3S. 2

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introduced First Union to a new, centralized and automated system for obtaining title searches and appraisals for home equity loans. First Union, a large bank with multiple branches in the eastern United States, makes a high volume of residential home equity loans. The new system introduced by 3S enabled First Union to move away from a paper-based title search and appraisal system that was individual to each branch, to a computer-based, centralized system. 3S first made a presentation about an automated title and appraisal processing system known as "ATAPS" to Glenn Kinard, manager of First Union's consumer lending business in Washington, D.C., in the fall of 1994. Kinard retained 3S to conduct a pilot During branches

program at a few First Union branches in the D.C. region. the pilot, an email sent by First Union to the

participating in the pilot said, "You are the pilot group testing this method of processing for the entire company, so your active participation in the use and evaluation of 3S is the cornerstone for our future efforts." 3S later began serving 15 to 20 branches in that area. First

Union also retained 3S to automate and centralize a pilot direct mail campaign for home equity loans in Roanoke, Virginia. 3S then

performed the title searches and appraisals associated with the transactions generated by the campaign. Scott Steele advised

Kinard that 3S could bring centralized, automation technology and standardization to First Union. Kinard was "very excited" about

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this program. Kinard told Steele that "this is such a unique opportunity, I want to get you to [First Union's headquarters in] Charlotte sooner [rather] than later." At First Union's request, Steele and another 3S officer flew to Charlotte and made a presentation to First Union officers Tom Muse, Parkes Dibble, Trent Thompson, and Doug Crisp. Parkes Dibble, vice president of Risk Management, told Steele at the meeting "that if everything I had presented, at a high level again, was real, and they had an opportunity to do due diligence and inspect what I had, that they would see this as being a longterm mutually beneficial relationship." According to Steele,

Dibble also told him that "if we delivered on our promise to deliver the concept of centralization and automation, executed what we were supposed to do, and helped them in their endeavor, that we would be their long-term partner. . . . We could be the beneficiary of all the transactions that they could send to us." At that same meeting Crisp, First Union's senior officer in charge of the Consumer Credit Division, asked Steele whether his firm "could handle 12,000 transactions on a monthly basis."2

Steele told Crisp that he "could not" at that time, but that he "could put together and implement a staged process where [3S] could build to that level." Crisp later told him that Steele's honesty

Steele clarified that Crisp "didn't say that he had 12,000 transactions to give me. He asked if I could handle them." 4

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"made [Crisp] feel really good, and he figured he would leave it to Parkes [Dibble] to work out the rest." In his testimony, Dibble confirmed that he and Steele

discussed a potential ten-year relationship, adding, "my term of relationship goes on for a long time." Dibble explained that First Union would attempt to give 3S all the transactions it could handle within First Union's "2,000 approximate branch blueprint": "I would put him in a position to where he could get that. correct." That is

"It was not an exclusive, it was not meant to be

everything, but that he could handle a significant portion of volume, yes." Dibble considered that a contract between the bank

and 3S would be the "first step to a long road partnership." Dibble thought that 3S's system provided a "big competitive

advantage to the bank."

Doug Crisp, a senior vice president and

Dibble's boss, acknowledged that he was aware that Dibble was "discussing a long-term relationship" with 3S. On January 23, 1995, Dibble brought Muse, Thompson, and other officers of the bank to Baltimore to inspect 3S. Steele told them

that the presentation "was confidential in nature and [he] expected them to treat it as such."3 that. Muse responded, "Don't worry about We'll just buy the damn

We won't go into this business.

As 3S made clear in its brief and repeatedly at trial, however, its claim against First Union was not a claim for misappropriation of trade secrets. See note 16, and accompanying text, infra. 5

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thing." Dibble left First Union in June 1996, and Bill Clewis took over contract negotiations with Steele. Steele testified that when Clewis took over, he told Steele "not to worry. Nothing's changed

and he was aware of what I had discussed with Parkes [Dibble] and we were the company and so I trusted these people." Dibble

confirmed that, although he never explicitly told Clewis what he said to Steele, "Bill knew pretty much what was going on. wasn't a one-way communication." It

Clewis acknowledged that he told He "expected once we revved up

Steele, "As we grow, you'll grow."

our business, that he would be a vendor, his business would grow with ours." Clewis' supervisor, Crisp, conveyed the same message.

As part of Steele's presentation at the December 8, 1994 and January 23, 1995 meetings, Steele proposed a long term service contract that would have a five-year term with an option for a five-year renewal. According to Dibble, he refused to commit to

that term, but said that if 3S delivered on its promises and achieved centralization and automation of home equity loans, 3S would be First Union's "long-term partner." Dibble said that he believed the competitive advantage that Steele was offering the bank was his electronic method of

performing appraisals, "his ability to do on-line appraisals. That was -- the bank's attempt was to shorten the home equity cycle by essentially integrating Scott into -- from 3S into our application

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handl[ing] system[.]" In May 1995, 3S made another presentation to First Union, seeking to sell the bank a range of automated and centralized loan settlement services for all of its offices nationwide. It again

proposed that the bank enter into some kind of formal, long-term relationship with it, suggesting that they create a joint venture or that First Union purchase 3S debentures that would give the bank a right of first refusal to acquire the company. what a joint venture would mean: It [was] more of a control business arrangement, where First Union has a volume of transactions that it [is] passing out to third parties today, and not capturing any of that revenue, because they are sending it out to independent third party providers. Early on, we thought of the concept of taking the business that it [was] passing out, and trying to capture that, and driving it through one entity, thereby sharing the revenue that they are now not participating in . . . . According to Steele, Dibble responded that there were Steele explained

regulatory barriers to such transactions, but that it was "a great idea and interesting." Dibble later introduced 3S to First Union's Capital Markets division with the idea that First Union might make a capital investment in, or a loan to, 3S, but negotiations broke down because the parties were far apart on a valuation for the company.

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Development Of The Parties' Relationship And Negotiations Leading To The SA Three years after their first discussions, First Union and 3S entered the SA. Negotiations over the exact terms of this

agreement spanned two and a half years, during which 3S provided extensive appraisal and title services for First Union. During

this process, 3S's request that the SA explicitly give 3S the right to supply 75% of First Union's needs for appraisal and title services for a five to ten year period was negotiated out. The

course of the negotiations, which is important to resolution of this appeal, was reflected in draft agreements, which are outlined below. Initial Contract Negotiations Between Steele And Parkes Dibble The first draft of the SA was a "letter of intent," which Steele sent to Dibble June 10, 1995.4 It purportedly addressed the

"understanding between [the parties] . . . concerning First Union's engagement of 3S as First Union's provider of real estate

settlement services and other related services . . . ."

It called

for 3S to be, after a defined transition period, "the exclusive provider to First Union of Real Estate Services for all Home Equity residential and/or consumer mortgages." It also required First

This letter of intent purported to be binding on the parties and recited that it would be "followed by final document . . . to be prepared and executed shortly after the execution of this letter of intent." 8

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Union to purchase from 3S a minimum number of such transactions, although the exact number was left blank. The term of the proposed

agreement was five years, "with an automatic renewal period of [five] years provided there are no uncured or incurable defaults at that time." First Union was to have the right to terminate the

agreement if 3S increased its price for the services "at a rate higher than 10% annually." proposal. Steele's second draft, in September 1995, proposed, inter alia, that

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