Benjamin v. Erk

ADKINS, Judge. In this dispute over commercial real estate, we consider whether the trial court erred in submitting rescission claims to the jury. A Baltimore City jury rendered a special verdict in favor of Nurreddin Erk, M.D., and Perihan Erk, Inc., appellees, on their complaint against Jay A. Benjamin and Jabeo Property Management Services, LLC (“Jabeo”), appellants. The jury found that appellees did not agree to sell this property for a grossly discounted price of $250,000, and that appellants conspired and fraudulently induced Dr. Erk to sign a deed and other documents transferring the property to them for that amount.

It awarded appellees $30,000 in compensatory damages for rental income they lost after the transfer. The trial judge then set aside the deed based on this verdict, and ordered the property returned to appellees. Appellants raise a number of issues arising from the unusual way this case was decided by both the jury and the trial ⁴⁶⁴ judge. 1 We shall not address all of these questions, however, because we conclude that appellees’ equitable claims should not have been submitted to the jury at all, and therefore, that the case must be remanded for a new trial. FACTS AND LEGAL PROCEEDINGS This case revolves around the sale of commercial property located at 6609-6615 Reisterstown Road in Baltimore City (the “property”).

There are two buildings on the property, with 25 commercial offices and 130 parking spaces. Erk, a retired medical doctor who conducts some business through Perihan Erk, Inc., purchased the property in 1996 for $1,225 million. In April 1998, Erk offered the property for sale through his long-time friend, real estate broker Rafil Atlas. Pursuant to a six month listing agreement, Atlas listed the property for $1.25 million.

On April 23, 1998, Jay Chopra contracted to purchase the property for $1.7 million. He offered this premium price above the list price on the advice of Jay Benjamin, who suggested the higher price would facilitate financing that Benjamin was trying to arrange for Chopra. After Erk, Atlas, and Chopra obtained legal and accounting advice, however, they agreed to rewrite the contract with a purchase price of $1.2 million, with a financing contingency. The resulting contract was dated April 28,1998.

Benjamin, however, was not successful in obtaining the necessary financing for Chopra. On June 28, 1998, Erk and Atlas met with Benjamin, who suggested that he might purchase the property himself. On July 20, Benjamin, Erk, and ⁴⁶⁵ Atlas met at the property. Benjamin agreed to purchase the property for the same $1.2 million price that Chopra had offered.

According to Erk and Atlas, he also agreed to make a deposit of $250,000 within one week, even though the Chopra contract specified a deposit of only $200,000. The agreed settlement date was August 1,1998. The parties did not prepare a new contract. At Benjamin’s suggestion, they simply “overwrote” the April 28, 1998 contract between Chopra and Erk.

On that same document, Benjamin inserted the name of his business entity, “Jabeo Property Mgmt,” over the name Jay Chopra on the line identifying the purchaser. He also wrote “JayB.” next to the purchaser line, and signed his initials “JAB” on the line stating that the purchase price was “1,200,000.00.” He executed the contract on behalf of Jabeo, and dated it 7/20/98. On July 27 or 28, Erk and Atlas went to Benjamin’s office, ostensibly to pick up the $250,000 check. What happened there is disputed.

Benjamin testified that before the meeting, he learned that he would not be able to obtain financing for the $1.2 million deal. He claimed that at this meeting, he informed Erk and Atlas that he could not complete the July 20 contract, but then offered to purchase the property for $250,000 in cash. He admitted, however, that Erk never told him he would accept that offer. Erk and Atlas testified that when they arrived for the meeting, Benjamin had a $250,000 check for the deposit.

Both alleged that Benjamin initially gave the check to Erk, then took it back. They testified that Benjamin told them the check would be delivered and “registered” at the title company as part of the settlement process, and that once the settlement officer had processed it, she would deliver it to Erk. The settlement officer, Dorinda Hughes, and her title company, Midas Title Company (“Midas”), had an office on the third floor of Benjamin’s building. The nature of the relationship between Hughes, Midas, Benjamin, and Jabeo was disput ⁴⁶⁶ ed.

Erk and Atlas claimed that Hughes and Midas acted as Benjamin’s agents, and conspired with Benjamin and Jabeo to induce Erk to transfer the property for $250,000. Benjamin and Jabeo characterized the relationship as merely involving business referrals and transactions, but no agency, and certainly no conspiracy. At trial, appellees’ theory of the case was that Hughes 2 and Benjamin fraudulently misrepresented that the $250,000 was a mere deposit rather than the full purchase price, and that they conspired to trick the elderly Erk into signing a deed and other documents transferring the property for that amount. Although Benjamin did not settle by the August 1 settlement date in the July 20 contract, Erk and Benjamin had continued to deal with each other.

Erk claimed that they extended the contract, but Benjamin disputed that. Erk testified that by late June, he knew he had another buyer at $1 million, and by August 3, Benjamin knew that Erk had another buyer in the event that Benjamin did not complete the deal. Atlas testified that notwithstanding the August 1 settlement date, Benjamin told him he would settle on the property. On August 8, 1998, Erk and Atlas went to Hughes’ office.

Their purpose was to discuss settlement-related matters and to obtain the deposit check, as Benjamin had stated. Benjamin was not present. At trial, Atlas and Erk testified that Hughes sent Atlas out of the office while she obtained Erk’s signature on documents that changed the purchase price from $1.2 million to $250,000. Hughes asked Atlas to photocopy some gas bills for the property on a machine located on a lower floor of the building.

Atlas testified that when he returned, Hughes met me in front of door. She took the copies I made, gave ... additional copies. I went back, made the copy, came back, doctor and Mrs. Hughes were talking about other [matters]____[D]octor said to me I signed some papers. I turned to Ms. Hughes and I said what kind of ⁴⁶⁷ papers he signed?

She said ... papers related to title search. And then turned back and started talking----[I] waited and they talked and then she said okay, deposit---She said I let you know when you’re going to have the deposit!,] and she was, after this conversation ..., going to talk to Mr. Benjamin letting us know when we are going to get the deposit. Atlas asked for a copy of the papers Erk signed, but Hughes did not give him any copies. Dr. Erk testified that he signed a number of papers that Hughes put before him, believing that he was signing to obtain his $250,000 deposit.

Although he wanted to wait for Atlas to return, Hughes “pushed” him, saying “we have no time.” Three days later, on August 11, Erk and Atlas returned to Hughes’ office. Atlas testified that Hughes gave them the $250,000 check, and emphasized that it was a nonrefundable deposit on the $1.2 million contract from July 20. When Atlas asked when settlement would be, she replied it would be in approximately eight to fifteen days. In the following days, Atlas called Benjamin every other day, asking whether Benjamin’s loan package was finalized and when settlement would be.

Although Benjamin was busy most times, he did tell Atlas that settlement would be “soon.” On August 24, Benjamin finally told Atlas that settlement would be the next day. Erk and Atlas went to Hughes’ office. Hughes told them Benjamin would see them at the property. They went there, and waited three and a half hours for Benjamin.

"When they asked about settlement, Benjamin initially replied “within ten days.” As they walked through the building, however, Erk and Atlas continued to press Benjamin about a settlement date. Finally, Benjamin told them to talk to his “legal representative.” When Atlas asked him “[w]hat are you saying?” Benjamin went to his car. Atlas testified that just before he disappeared from the parking lot, a woman ... walked straight and handed [an] envelope to Dr. Erk and envelope said settlement documents. Doctor said, ⁴⁶⁸ “What you mean settlement documents?

I didn’t settle.” She said, “This the documents.” Dr. Erk ... just scratched and signed and got the documents, ... and we ... opened up the file and I saw the paper and I said, “Doctor, you sold your property.” He said, “No, I didn’t.” All papers signed. He said, “Well, I signed some papers for this woman but I did not sell [the] property.” Erk denied even discussing selling the property for $250,000, much less agreeing to do so or voluntarily signing any papers doing so. He testified that he did not understand he was signing papers to reduce the price, and that he believed Hughes altered the documents after he signed them. On or about August 25, 1998, Atlas told Benjamin that Erk wanted to withdraw.

Benjamin refused. On August 31, appellees sought a temporary restraining order. Four days later, on September 3, appellees filed an amended verified complaint alleging fraud and conspiracy, and asking for compensatory and punitive damages. The complaint also asked the court for an injunction to prevent appellants “from performing under the Amended Contract,” and to prevent them from collecting rents and conveying the property to a third party.

The complaint further requested that the transaction be declared null and void, and that “the court restore the [plaintiffs’ legal and equitable title to the aforesaid property.” In December 1998, Jabeo filed a counter-complaint, alleging that appellees tortiously interfered with its rental contracts with tenants of the property, and that appellees breached their contract assigning those rents to Jabeo. Appellees’ claims against appellants went to the jury. The trial judge drafted a special verdict form, reviewed it with counsel, and entertained objections and exceptions. The jury responded as follows: Was there a valid, enforcible [sic] binding contract between the Plaintiff Seller Nurreddin Erk and/or Perihan Erk, Inc. to sell the subject property ... to the Defendant Buyer Jay A. Benjamin and/or Jabeo Property Management for $250,000 that included the three (3) elements of ⁴⁶⁹ (a) offer by ...

Benjamin Yes / No (b) acceptance by ... Erk Yes / No (c) meeting of the minds (mutual assent) by ... Erk and ... Benjamin Yes No y The verdict sheet then set forth a series of questions regarding whether Benjamin, individually or on behalf of Jabeo, fraudulently induced the transfer.

Although the jury found that Benjamin did not intentionally misrepresent the $250,000 purchase price by concealing it, it concluded that appellees proved by clear and convincing evidence that he did conspire, individually and on behalf of Jabeo, to fraudulently induce appellees to enter into the $250,000 contract, and that he committed fraud in inducing appellees into that contract. Following the instructions on the verdict sheet, the jury then proceeded to award appellees $30,000 in “compensatory damages” for such fraud. This covered “loss of rent.” To separate questions asking whether punitive damages should be awarded against Benjamin, Jabeo, Hughes, or Midas Title, the jury answered, “no.” The trial judge interpreted the jury’s verdict as calling for rescission. He issued a written order declaring the transfer and deed null and void, and ordering that the property “shall revert to its former status” under the deed naming Perihan Erk, Inc. as the grantee.

In a separate handwritten order, the court also “[ojrdered ... in light of the jury’s verdict rescinding the contract (8/8/98) between the parties, that pending further Order of the Court that the Defendant ... shall not remove any items personalty or otherwise from the subject premises____” Seeking to avoid the rescission, Benjamin filed a motion for judgment notwithstanding the verdict, or alternatively for a new trial, or to alter and amend the judgment. At the hearing ⁴⁷⁰ initially scheduled for that motion, the trial judge advised the parties there was a new decision from this Court that might bear upon their case. He instructed them to review Merritt v. Craig, 130 Md.App. 350 , 746 A.2d 923 , cert. denied, 359 Md. 29 , 753 A.2d 2 (2000), and to brief him regarding its significance. Appellants argued the rescission order should be vacated because “[t]he teaching of Merritt v. Craig [is] ... that rescission cannot be decided by a jury.” After post-trial memoranda and a hearing, the court denied the motion.

This appeal followed. DISCUSSION I. The Effect Of Submitting Appellees’ Claims To The Jury Appellants brought this appeal to challenge the trial court’s rescission order. They argue that the court had no jurisdiction to order rescission because appellees had elected a legal damages remedy that foreclosed the possibility of rescission. Appellants contend that the effect of appellees’ decision to submit their claims against appellants to the jury was to elect purely legal remedies, and, necessarily, to abandon their equitable claim for rescission.

Now, they ask us to hold that appellees’ sole remedy should have been the jury’s $30,000 award for what they contend were “legal damages,” and that the trial court had no jurisdiction to “add on” the ultimate equitable remedy — return of the property. Naturally, with the ownership of this valuable property at stake, appellees disagree. They counter that the jury decided only the factual issues of whether appellants obtained the property by fraudulent means, and if so, the amount of rental income that appellees lost as a result. They argue that based on the jury’s factual findings, the trial judge properly exercised his equitable powers to award the appropriate remedy of rescission.

We review the rescission order of the trial court on both the law and the evidence. See Md. Rule 8-131(c). We ⁴⁷¹ do not agree with appellants that, as a matter of law, they are entitled to keep the property merely because appellees sought monetary damages. Appellants’ argument ignores that restitutionary damages may be awarded in connection with an equitable claim for rescission. “Restitution is ‘a party’s unilateral unmaking of a contract for a legally sufficient reason,’ ... and it in effect ‘restores the parties to their pre-contractual position.’ ” Merritt v. Craig, 130 Md.App. at 366 , 746 A.2d 923 .

Restitutionary damages arising from a fraudulently induced deed are limited to the amount necessary to put plaintiffs back into the same position they were in before the fraudulent transaction. These damages, frequently referred to as “incidental” damages, are equitable rather than legal damages, because a court sitting in equity can award such damages as part of its equitable “clean up powers.” Id. at 364 , 746 A.2d 923 . Thus, “damages which are ‘restitutionary,’ e.g., ‘disgorgement of improper profits’ or ‘incidental to or intertwined with’ certain equitable relief, ... may be equitable.” Mattingly v. Mattingly, 92 Md.App. 248, 259 , 607 A.2d 575 (1992); see Local No. 391 v. Terry, 494 U.S. 558, 571 , 110 S.Ct. 1339, 1348 , 108 L.Ed.2d 519 (1990); Fink v. Pohlman, 85 Md.App. 106, 122 , 582 A.2d 539 (1990). In this case, appellees prayed for damages in the amount of the rental income that they allegedly lost after appellants obtained the property by fraud.

These lost rent damages are restitutionary or incidental damages, because they represent a disgorgement of improper profits and were intended to restore to appellees the rental income they would have collected if the fraudulent transaction had not occurred. We conclude that the damages prayer appellees took to judgment was purely equitable, and did not in itself make the action “legal.” But we do find merit in appellants’ complaint regarding the jury’s role in this case. Appellants’ unsuccessful election of remedies argument is implicitly based on another principle that is fundamental to the resolution of this case-that a jury has no authority to decide an equitable claim of rescission or to award restitutionary damages. As the trial ⁴⁷² court recognized at the JNOV hearing, we recently addressed the relationship between equitable claims, election of remedies, and the right to a jury trial in Merritt v. Craig, supra.

We shall follow Merritt’s teachings to resolve this appeal. In Merritt , the plaintiffs purchased a home that they later discovered had incurable well water problems. They sued the seller, alleging that she failed to disclose that the property was served by a single well on adjacent property he retained, that she cut the water line to the house in anticipation of the sale, and that she then unsuccessfully tried to reactivate abandoned water sources located on the property. The buyers sued the seller for common law and statutory fraud, praying both for rescission of the deed and for compensatory and punitive damages.

After discovery, they moved for a jury trial. The jury awarded the buyers compensatory and punitive damages. Because the buyers still wanted to rescind the transaction, they moved to alter or amend the judgment. The trial court denied the motion, finding that the buyers had abandoned their rescission claim by requesting a jury trial.

The buyers appealed, arguing that they never intended to abandon their rescission claim; they took their other claims to the jury because they understood that the trial court would consider their rescission claim after the jury rendered its verdict. The parties’ arguments in Merritt resemble the ones now before us, except that in Merritt , the parties seeking rescission were the buyers rather than the sellers. The Merritt plaintiffs argued that “because fraudulent conduct is common to both the rescission claims ... and the [damages] claim ..., the jury is entitled to hear the ease before the court decides the claim for rescission.” Id. at 357 , 746 A.2d 923 . The defendant responded that the plaintiffs could not pursue both rescission and damages, and “because they elected to have their claim for damages presented to a jury, they had waived their right to pursue a claim in equity for rescission of the deed and contract.” Id. at 357-58 , 746 A.2d 923 .

We held that before submitting their claims to the jury, the plaintiffs “must elect the form of relief, i.e., damages or ⁴⁷³ rescission, which will dictate whether [they] are entitled to a jury trial or a court trial.” Id. at 368 , 746 A.2d 923 . We recognized, however, that the trial judge had led plaintiffs’ counsel to believe that no election was necessary. See id. Because they “justifiably relied on the court’s assurances that it would consider rescission after the legal issues had been presented to the jury,” 3 the plaintiffs were entitled to a new trial.

Id. We find three teachings of Merritt applicable to the instant case. First, Merritt teaches that not all cases involving claims for both equitable and legal relief are cases involving inexorably intertwined questions of law and equity requiring a jury trial. We emphasized that only in cases where the claim for legal relief is distinctly available in addition to a claim for equitable relief is the trial court required to preserve the right to a jury trial. [T]he equitable claim is solely within the province of the court in the exercise of its equitable jurisdiction____It is only where the ultimate relief sought is equitable and there are collateral legal issues or a plaintiff is entitled to equitable relief which is compatible with and recoverable in addition to legal relief that the trial court must narrowly exercise its discretion [to] preserv[e] the right to jury trial---- Id. at 364-65 , 746 A.2d 923 . 4 We vacated the jury verdict in Merritt on the grounds that the trial court should have required the plaintiffs to ⁴⁷⁴ choose between their equitable claim (rescission) and their alternatively pled legal claim (breach of contract).

Writing for the Court, Judge Davis explained that the trial court’s promise to consider the rescission claim after the jury returned its verdict revealed its erroneous belief that the case presented questions of both law and equity. This error resulted from the court’s failure to distinguish cases involving inexorably intertwined legal and equitable claims from cases involving alternative but mutually exclusive claims for equitable and legal relief. Merritt teaches that making this distinction is a critical step in determining whether any party is entitled to a jury trial. “[T]he determinative factor on the issue of entitlement to a jury trial is the nature of the relief sought.” ... The error made by the trial court in first observing that “this case has mixed questions, both in equity and law,” and then proceeding to submit initially the legal issues to the jury, was that the instant case does not require a selection between the jury and the trial court as the “determiner of ⁴⁷⁵ common issues” during the trial of the case, but rather a selection between two distinct and mutually exclusive forms of relief, one equitable and one legal, one inherently within the province of the court exercising its equitable jurisdiction and the other to be relegated to a determination by a jury.

Id. at 363-64 , 746 A.2d 923 (emphasis added) (quoting Calabi v. Gov’t Employees Ins. Co., 353 Md. 649, 655-56 , 728 A.2d 206 (1999)). Second, Merritt illustrates that the presence of a particular factual issue common to both legal and equitable claims, such as fraud, does not in itself require a jury trial. Instead of focusing on the nature of the factual questions at issue, the trial court should focus on the nature of the relief at issue. [T]he equitable and legal issues presented in the case at hand are on two separate tracks and are controlled only by the nature of the relief sought; thus, this case neither involves inexorably intertwined legal and equitable issues or legal issues merely incidental to the equitable relief sought.

Rather, the alternative relief sought is itself legal in nature and the fact that both types of relief are based on a common factual predicate in no way [affects] the legal requirement that ... an initial election as to the type of relief must be made which, in turn, is dispositive of whether appellants are entitled to a jury trial. Id. at 364 , 746 A.2d 923 (emphasis added). Finally, Merritt makes it clear that a fraud claim seeking rescission should not be submitted to a jury at all. “Rescission is a purely equitable remedy whereby no right to a jury trial exists because a jury is without power or jurisdiction to decide such questions.” Id. at 366, 746 A.2d 923 (emphasis added). Clearly, we have some “issues of Merritt” in the instant case.

Here, we have similar misconceptions about equitable and legal claims arising from common allegations of fraud, about election of remedies, and about submitting claims to the jury. At the outset, appellees alleged a single fraud ⁴⁷⁶ scenario involving multiple defendants. Based on these common allegations of fraud, they asserted alternative but mutually exclusive prayers for compensatory plus punitive damages, and for rescission plus restitutionary damages. Although appellants counterclaimed for breach of contract, and appellees asserted claims against other defendants, by the time the case was ready to go to the