Atlantic Richfield Co. v. Sybert

Davidson, J., delivered the opinion of the Court. This case presents three questions. The first question concerns the circumstances under which a contract between an attorney and a client for the payment of compensation may be enforced by an attorney who simultaneously represents another client with adverse interests. The second question concerns the circumstances under which an attorney, who is not licensed as a real estate broker, may recover a commission on the sale of real estate, notwithstanding the prohibitions contained in Maryland Code (1957, 1979 Repl.Vol.), Art. 56, § 217 (a) and § 228.

The third question concerns the burden of proof applicable when a trial court determines the existence and terms of a contract allegedly made between an attorney and a client at a time when the attorney/client relationship existed. ³⁴⁹ The respondents, Cornelius F. Sybert, Jr. (Sybert) and Lewis S. Nippard (Nippard), are attorneys and partners in the law firm of Sybert, Sybert, and Nippard (law firm). In 1972, the petitioner, Atlantic Richfield Company (ARCO), a Pennsylvania corporation, otherwise represented by counsel, retained Sybert for the purpose of obtaining a special exception on property located in Howard County (Schultz property) to be used as a pipeline terminal facility. Sybert’s main contact at ARCO was George Tracy (Tracy), who was then ARCO’s Real Estate Manager, Special Projects. Tracy was then close to 65 years old and had been employed at ARCO for close to 25 years, during which time he had been actively engaged in the acquisition and sale of properties for ARCO.

Although neither Sybert, Nippard, nor any other member of the law firm was a licensed real estate broker, in September 1974, Citadel Corporation (Citadel), otherwise represented by counsel, retained Nippard for the purpose of locating a suitable property and obtaining the necessary zoning clearances for the construction of a petroleum storage facility. At that time, Sybert was still representing ARCO in the then ongoing proceedings to obtain a special exception on the Schultz property that was ultimately obtained in 1975. See Gowl v. Atlantic Richfield Co., 27 Md.App. 410 , 341 A.2d 832 (1975). In the fall of 1974, Tracy informed Sybert that ARCO was having second thoughts about developing the Schultz property.

Sybert, aware of Citadel’s interest in purchasing such a property, agreed with Nippard that he would contact Tracy to learn if ARCO would be interested in selling the Schultz property. Sybert informed Tracy that the law firm had another client who might purchase the Schultz property, and Tracy indicated that he was interested in pursuing the matter. Nippard then informed Roger Keohneke (Keohneke), a vice president of Citadel, that his law firm represented another client who might have a suitable piece of property for sale. ³⁵⁰ While the appeal of ARCO’s requested special exception was still pending, Sybert and Nippard arranged for a meeting between Tracy and Keohneke to take place on 16 October 1974 at the law firm’s offices. Before that meeting, Sybert and Nippard met with Tracy.

At that time, Tracy indicated that in addition to the Schultz property, ARCO might be interested in selling two other properties, its Key Highway Terminal, located in Baltimore, and its Belvoir Terminal, located in Virginia. Additionally, Tracy, Sybert, and Nippard agreed that ARCO would compensate Sybert and Nippard in the event of a sale of its properties to the law firm’s other client, Citadel. Subsequently, there was a meeting between Sybert, Nippard, Tracy, and Keohneke. Keohneke expressed an interest in purchasing one of the three properties.

At that time, Tracy and Keohneke were aware that ARCO and Citadel were each represented by members of the same law firm. However, no explanation of the implication or possible effect of such common representation was offered. Moreover, no explicit consent to such dual representation was given. Commissions were not discussed at the meeting.

On 29 October 1974, Tracy wrote to Sybert that ARCO would not sell the Schultz property but might sell the Key Highway or Belvoir terminals. Tracy indicated that if Citadel was interested in purchasing either property, it should contact the manager of ARCO’s Commercial Properties Department. After Sybert gave this information to Nippard, Nippard called the manager, who sent him a brochure describing the two properties. Again, commissions were not discussed.

On 24 January 1975, Nippard forwarded the brochure to Keohneke. Thereafter, neither Sybert nor Nippard had any contact with Citadel or ARCO concerning the sale of any of these properties. Rather, Alan O. Keiler, counsel for Citadel, communicated directly with the manager of ARCO’s Commercial Properties Department, and they negotiated for the sale of the Belvoir Terminal. On 30 May 1975, ARCO sold the Belvoir Terminal to Belvoir Terminal Corporation, an entity formed by the prin ³⁵¹ cipals of Citadel, for $3,125,000.

Upon learning of the sale, Sybert repeatedly demanded a commission from ARCO. The demands were rejected. On 20 August 1976, Sybert and Nippard filed a declaration in the Circuit Court for Howard County alleging that ARCO owed them a commission on the sale of the Belvoir Terminal. On 4 November 1977, the case was removed to the Circuit Court for Carroll County.

On 20 February 1980, ARCO filed a motion to dismiss. That motion was premised in part on an allegation that, because Sybert and Nippard were not licensed as real estate brokers, they were prohibited from recovering a commission on the sale. On 21 February 1980, the trial court denied that motion. At a bench trial, most of the relevant facts were undisputed.

Tracy, Sybert, and Nippard each testified, in essence, that Tracy had agreed that ARCO would compensate Sybert and Nippard in the event of a sale of ARCO’s properties to Citadel. The major area of disagreement centered upon the nature and amount of the compensation to be paid. According to Tracy, he never agreed to pay Sybert or Nippard a commission for any possible sale of ARCO’s properties. However, he failed to offer any affirmative evidence to show the nature and amount of the compensation that he had agreed to pay.

Indeed, according to Tracy: "My only recollection of any discussion of compensation was to the effect that, since Mr. Sybert was our attorney — was the company’s attorney in another matter, and the matters were sort of interrelated — that, if anything came of it, that something would have to be worked out about how to be compensated. ” (Emphasis added.) According to Sybert and Nippard, Tracy had agreed that ARCO would pay a "usual” or "normal” commission in the event that a sale of the Schultz property or any other property was arranged as a result of the meeting. According to ³⁵² one expert in the field of real estate, ten percent of the purchase price constituted a usual or normal commission. According to another such expert, there was no "usual” or "normal” commission for the sale of improved industrial property. However, there was a "fair and reasonable” commission that would be "six percent of the first $500,000 of the sale price and three percent of the balance.” On 1 April 1981, the trial court, in a written opinion in which the standard of proof applied was not articulated, determined that Tracy had real or apparent authority to bind ARCO to a contract to pay a commission to Sybert and Nippard; that Tracy agreed that ARCO would pay a usual commission in the event of a sale; that a usual commission was ten percent of the sale price; and that a valid contract had been created.

Moreover, after determining that Tracy was informed of the law firm’s dual role as attorneys for both ARCO and Citadel, the trial court determined that ARCO’s agreement to pay Sybert and Nippard a commission was enforceable. On 6 April 1981, the trial court entered a final judgment in favor of Sybert and Nippard. ARCO appealed to the Court of Special Appeals. Although the trial court had not articulated the standard of proof it had applied, the Court of Special Appeals concluded, among other things, that in the absence of an allegation of fraud or undue influence, proof by a preponderance of the evidence, rather than by clear and convincing evidence, was the appropriate standard to be applied in determining the existence of a contract allegedly made between an attorney and a client at a time when the attorney/client relationship existed.

The Court of Special Appeals affirmed the judgment of the trial court. Atlantic Richfield Co. v. Sybert, 51 Md.App. 74 , 441 A.2d 1079 (1982). ARCO filed a petition for a writ of certiorari that we granted. We shall affirm the judgment of the Court of Special Appeals.

However, as we shall later explain, the record in this case makes it unnecessary to determine the applicable standard of proof. ³⁵³ I ARCO contends that its agreement to pay Sybert and Nippard compensation was null and void because of their alleged conflict of interests arising from their simultaneous representation of clients with adverse interests. It points out that Sybert and Nippard, members of the same law firm, simultaneously represented ARCO and Citadel, the seller and buyer, in a potential real estate transaction. It asserts that Sybert and Nippard failed to disclose fully "the potential pitfalls of their dual representation,” and also "failed to obtain any informed consent to such dual representation.” Because we do not agree with these assertions, we find that the compensation agreement was enforceable. This Court has repeatedly recognized that ordinarily an attorney representing a client may not represent interests adverse to those of the client.

See, e.g., Wooddy v. Mudd, 258 Md. 234, 246, 250 , 265 A.2d 458, 464, 466 (1970); Keyworth v. Israelson, 240 Md. 289, 302 , 214 A.2d 168, 175 (1965); Rippon v. Mercantile-Safe Deposit & Trust Co., 213 Md. 215, 223 , 131 A.2d 695, 698 (1957); see also, e.g., Sinclair v. State, 278 Md. 243, 253-54 , 363 A.2d 468, 474-75 (1976); see also DR 5-10RA); DR 5-103(A); DR 5-105(A), (B) & (D). Thus, in Derlin v. Derlin, 142 Md. 352 , 121 A. 27 (1923), with respect to an attorney’s representation of clients with adverse interests, this Court said: " 'An attorney at law who has once been retained and received the confidence of a client, is thereafter disqualiñed from acting for any other person adversely interested in the same general matter, however slight such adverse interest may be. Nor does it matter that the intention and motive of the attorney are honest. This rule is a rigid one, and designed not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties, or be led to an ³⁵⁴ attempt to reconcile conflicting interests, rather than to enforce to their full extent the rights of the interest which he should alone represent.’ ” Derlin, 142 Md. at 364 , 121 A. at 31 (emphasis added).

Notwithstanding the apparent rigidity of this rule, this Court has determined that the consequences that flow from an attorney’s simultaneous representation of adverse interests vary depending upon the facts and circumstances of each case. Thus, this Court has repeatedly held that ordinarily a transaction will be set aside if it is shown that a party to the transaction was represented by an attorney who simultaneously represented adverse interests, whether the adverse interests were those of the attorney or of other clients, and that the attorney exercised undue influence or perpetrated a fraud, or that the transaction was otherwise unfair. E.g., Iula v. Grampa, 257 Md. 370, 384 , 263 A.2d 548, 555 (1970) (other client’s adverse interest); Hughes v. McDaniel, 202 Md. 626, 633-35 , 98 A.2d 1, 4-5 (1953) (attorney’s adverse personal interest); Cook v. Hollyday, 185 Md. 656, 668-69, 671 , 45 A.2d 761, 766, 768 (1946) (attorney’s adverse personal interest); Baker v. Otto, 180 Md. 53, 58 , 22 A.2d 924, 927 (1941) (attorney’s adverse personal interest); Derlin, 142 Md. at 364 , 121 A. at 31 (attorney’s relative’s adverse interest); Merryman v. Euler, 59 Md. 588, 590-91 (1883) (attorney’s adverse personal interest); see Crest Inv. Trust, Inc. v. Comstock, 23 Md.App. 280, 302 , 327 A.2d 891, 907 (1974) (other client’s adverse interest).

However, while reaching that result, this Court explicitly acknowledged that, if after full disclosure of the attorney’s conflict of interest, a client had voluntarily and knowingly consented to enter into a transaction, such a transaction would not be set aside. Thus, in Baker v. Otto, 180 Md. 53 , 22 A.2d 924 (1941), although this Court set aside a transaction because a party was represented by an attorney who had an adverse personal interest in the transaction, this Court said: ³⁵⁵ " 'No part of the jurisdiction of the court is more useful, it has been said, than that which it exercises in watching and controlling transactions between parties standing in a relation of confidence to each other. *** The broad principle *** is that wherever there exists such a confidence *** the court will not allow any transaction between the parties to stand, unless there has been the fullest and fairest explanation and communication of every particular resting in the breast of the one who seeks to establish a contract with the person so trusting him.’ ” Baker, 180 Md. at 56 , 22 A.2d at 926 (emphasis added). Similarly, in Keyworth v. Israelson, 240 Md. 289 , 214 A.2d 168 (1965), although this Court set aside a fee agreement between an attorney and a client because the attorney had simultaneously represented another client with adverse interests, this Court said: "It is also true, however, that even when a transaction between an attorney and his client is questioned, if the attorney can show that the client entered into the relationship voluntarily, deliberately and advisedly, knowing its nature and effect, and that there was no concealment of any kind or undue means used to obtain the client’s consent, the transaction will be sustained.” Keyworth, 240 Md. at 302-03 , 214 A.2d at 175 (emphasis added). The same principle has been articulated by the Court of Special Appeals.

Thus, in Crest Investment Trust, Inc. v. Comstock, 23 Md.App. 280 , 327 A.2d 891 (1974), although that Court set aside a contract because the complaining party had been represented by an attorney who simultaneously represented the other party to the contract, that Court said: "Furthermore, if dual representation does occur, fidelity to the Code of Professional Responsibility ³⁵⁶ and prudent concern for legitimate self-interest against possible liability dictate that full disclosure be made of the possible dangers involved and that the legal representation be fundamentally fair to both sides. The requirements of full disclosure were spelled out in In re Kamp, [40 N. J. 588, 595-96, 194 A.2d 236, 240 (1963)] in terms not inappropriate to the instant case: 'Full disclosure requires the attorney not only to inform the prospective client of the attorney’s relationship to the seller, but also to explain in detail the pitfalls that may arise in the course of the transaction which would make it desirable that the buyer have independent counsel. The full signiGcance of the representation of conGicting interests should be disclosed to the client so that he may make an intelligent decision before giving his consent. If the attorney cannot properly represent the buyer in all aspects of the transaction because of his relationship to the seller, full disclosure requires that he inform the buyer of the limited scope of his intended representation of the buyer’s interests and point out the advantages of the buyer’s retaining independent counsel.’ ” Crest Investment Trust, Inc., 23 Md.App. at 303 , 327 A.2d at 905 (some emphasis in original) (some emphasis deleted) (some emphasis added).

Indeed, this Court has held that generally a transaction in which a party is represented by an attorney who simultaneously represents adverse interests will not be set aside if the client, after full disclosure by the attorney, voluntarily and knowingly consents to enter into the transaction. E.g., Shoreham Developers, Inc. v. Statland, 260 Md. 689, 691-92 , 273 A.2d 152, 153 (1971) (attorney’s adverse personal interest); Rippon, 213 Md. at 223 , 131 A.2d at 699 (other client’s adverse interest); McLean v. Maloy, 136 Md. 467, 512-13 , ³⁵⁷ 517, 111 A. 91, 107-08, 109 (1920) (attorney’s adverse personal interest); see Roman v. Mali, 42 Md. 513, 558-59 (1875) (attorney’s adverse personal interest). More particularly, in McLean v. Maloy, 136 Md. 467 , 111 A. 91 (1920), this Court refused to set aside a transaction in which a party was represented by an attorney who had an adverse personal interest in the transaction. There, this Court said: " '[T]he rule [governing transactions between client and attorney] does not go the length of absolutely avoiding transactions between parties standing in that relation.

The attorney is under no actual incapacity to deal with or purchase from his client. All that can be required is, that there has been no abuse of the confidence reposed; no imposition or undue influence