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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1856 September Term, 1995

ST Systems Corporation v. Maryland National Bank

Fischer, Davis, Bishop, John J. (Ret'd, specially assigned),

JJ.

Opinion by Fischer, J.

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Filed: November 1, 1996

ST Systems Corporation (STX) appeals from an order by the Circuit Court for Montgomery County that entered judgment in favor of Maryland National Bank (MNB). Specifically, the circuit court

found: (1) that MNB did not breach contractual obligations with respect to the alleged Alternative Loan Agreement (ATL) and the 12/5 proposal, which increased STX's credit line to $12,000,000 and gave STX a $5,000,000 term loan; (2) MNB not liable for STX's tort claims; and (3) in favor of MNB's counter-claim based on the Interest Rate Protection Agreement (IRPA) in the amount of

$278,893.13.

STX raised the following questions, which we have

condensed and reworded as follows: I. Did the circuit court err by denying STX's request for a jury trial on its claims based on: a. the ATL b. torts stemming from the breach of the loan agreements c. the 12/5 proposal? Did the circuit court err by finding for MNB with respect to the 12/5 proposal?

II.

FACTS
This case arises from a series of loan agreements between MNB, Equitable Bank, N.A. (Equitable), and STX. integration company incorporated in Maryland. CEO and owns 71.8% of STX stock. STX is a systems Sharad Tak is STX's

In 1989, Mr. Tak solicited

several banks in reference to negotiating a financing proposal to refinance both his and STX's preexisting financial obligations with National Bank of Washington (NBW). STX and Mr. Tak received a two-stage financial proposal from

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Equitable that was similar to what STX and Mr. Tak had requested. First, Equitable promised to provide a $20,000,000 revolving line of credit, plus an additional $10,000,000 six month bridge loan to Mr. Tak so that he could repay NBW. Second, Equitable promised to

provide a $25,000,000 term loan to STX to fund an Employee Stock Ownership Plan (ESOP) that would purchase 30% of Mr. Tak's stock. Despite a series of commitment letters signed by the parties, they cancelled the arrangement because STX's plan to purchase another company was unsuccessful. negotiate based on the STX and Equitable, however, continued to financing structure of the original

agreement and using reduced loan amounts to meet STX's financial needs. On September 18, 1989, STX and Equitable executed a Loan and Security Agreement (LSA) that provided STX with a $7,000,000 revolving credit line and a commitment for a $15,000,000 ESOP loan. The ESOP loan was contingent on STX having a value of at least $40,000,000. On the same day, Mr. Tak executed a promissory note

for the $10,000,000 six month bridge loan, whose proceeds were used to pay off Mr. Tak's $10,000,000 NBW loan. MNB assumed control of STX's account when the merger between MNB and Equitable became final in January 1990. Craig Poms of MNB

was assigned as the loan officer primarily in charge of STX's and Mr. Tak's loans. On January 25, 1990, at a meeting with Mr. Poms,

Mr. Tak informed Mr. Poms that he had hired a company to perform a valuation of STX. Mr. Tak, however, did not inform Mr. Poms that

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Mr. Tak's company, Tak Communications, Inc. (Tak Com) had missed approximately $4,000,000 in interest payments on outstanding debt obligations. In March 1990, STX was valued at between $28,000,000 and $33,000,000, thus falling below the required $40,000,000 figure necessary to secure the $15,000,000 ESOP loan. After the ESOP loan

fell through, Mr. Tak and MNB began discussions on restructuring Mr. Tak's $10,000,000 personal loan. On April 3, 1990, Mr. Tak

also informed Mr. Poms of an existing Makewell Agreement that made Mr. Tak personally liable for $3,000,000 if Tak Com defaulted on its loan payments. Mr. Tak, however, did not tell Mr. Poms that

Tak Com was still in payment default and that the payment of his $3,000,000 personal obligation had already been accelerated to March 1990. In June 1990 the parties reached an agreement on restructuring STX's loans. credit line MNB advanced the 12/5 proposal, which increased STX's from $7,000,000 to $12,000,000 and gave STX a

$5,000,000 term loan.

STX would then lend, or by way of dividend,

transfer $10,000,000 to Mr. Tak so he could pay his $10,000,000 personal liability, which was separate from his $3,000,000

liability under the Makewell Agreement. MNB sent the 12/5 proposal to Mr. Tak, who signed the proposal letter on June 25, 1990. loan committee's The 12/5 proposal was subject to the MNB and any conditions that the loan

approval

committee placed on the loan.

The loan committee approved the 12/5

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proposal subject to several conditions. inter alia, that (1) Mr. Tak

These conditions included, a $10,000,000 personal

provide

guaranty; (2) there be no material adverse change in Mr. Tak's or STX's financial condition as of April 1990; and (3) STX obtain at least $10,000,000 of interest rate protection by the loan closing date. Mr. Tak signed the proposal.

On August 27, 1990, after the parties drafted the closing documents, MNB sent Mr. Tak the revised guaranty agreement. On the

next day, however, Mr. Tak called Mr. Poms and stated that he could not sign the revised agreement because of the Makewell Agreement. This is the first time that Mr. Poms or any other MNB loan official was informed of Mr. Tak's outstanding personal liability for Tak Com's default. proposal On March 30, 1992, STX, its principal shareholders, and senior employees (collectively the plaintiffs) filed suit against MNB in the circuit court. The complaint alleged that MNB breached two The On September 24, 1990, MNB withdrew the 12/5

separate financing agreements; the ATL and the 12/5 proposal.

plaintiffs also filed eight tort claims based on MNB's conduct during the loan negotiation process. MNB filed a motion to dismiss plaintiff's claims and to dismiss the claims of the individual plaintiffs. the circuit court dismissed the claims of On June 22, 1993, each individual

plaintiff, including Mr. Tak, but allowed STX to continue with its suit.

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On July 14, 1993, MNB filed several pleadings with the circuit court. MNB answered STX's complaint and filed a counterclaim

alleging that STX breached the IRPA that was part of the 12/5 proposal. MNB also asked the circuit court to deny STX's request On September 28, 1993, after a hearing on the

for a jury trial.

merits, the circuit court denied STX's request for a jury trial. Between June 8, 1994, and June 30, 1994, the circuit court conducted a bench trial on STX's claims for: (1) breach of the ATL; (2) breach of the 12/5 proposal; (3) breach of the duty of good faith and fair dealing; (4) fraud in the inducement; (5) fraud in the performance; (6) tortious interference with prospective

advantage; and (7) breach of fiduciary duty.

Following STX's case

in chief, the circuit court granted MNB's motion for a judgment dismissing STX's tort claims. On May 5, 1995, the circuit court,

in a written opinion, found that MNB did not breach any contractual obligations and ruled for MNB on its counterclaim. Following the circuit court's decision, STX filed this timely appeal.

DISCUSSION
Our limited. scope in reviewing the circuit court's findings is

Maryland Rule 8-131(c) reads as follows: When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the

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witnesses. The clearly erroneous standard does not apply to questions of law or legal conclusions drawn from factual findings, which are

afforded no deference.

Davis v. Davis, 280 Md. 119, 124, cert.

denied, 434 U.S. 939 (1977); Van Wyk v. Fruitrade, 98 Md. App. 662, 669 (1994).

I.
STX argues that the circuit court erred when it denied STX's request for a jury trial on its claims against MNB. MNB counters

that the circuit court correctly found that the LSA's jury waiver provision applied to the ATL, the 12/5 proposal, and the tort claims. MNB also asks this Court to find, independently of the

circuit court, that the alleged ATL was not enforceable, thus rendering the jury waiver argument with respect to the ATL and the tort claims moot. Our discussion of the jury waiver issue

bifurcates into statute of frauds and contractual interpretation issues. A. Section 5-317 The threshold question that needs to be addressed before this Court can apply the jury waiver provision to the ATL is whether the ATL is an enforceable oral agreement. If the ATL is not an

enforceable agreement, as MNB argues in its brief, then the issue of whether the jury waiver provision applies is moot. In 1989 the Maryland Legislature adopted a lenders liability

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provision

which

mandates

that

"a

credit

agreement

is

not

enforceable by way of action or defense unless it: (1) Is in writing; (2) Expresses consideration; (3) Sets forth the relevant terms and conditions of the agreement; and (4) Is signed by the person against whom its enforcement is sought." Md. Code (1974,

1995 Repl. Vol., 1996 Supp.),

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