Bessette v. Weitz

THEODORE G. BLOOM, Judge, Retired, Specially Assigned. In a suit brought by appellee, Benjamin B. Weitz, 1 against Community Management Corporation of Maryland (“CMC”) and appellants, Margaret Bessette, Arvind Shah, and Quantum Property Management Corporation (“Quantum”), the Circuit Court for Montgomery County entered judgment against appellants 2 in the amount of $887,829. In this appeal from that judgment, appellants present the following issues: 1. When defendants did not guarantee a note, and the jury found that defendants did not knowingly sign or agree to be bound by personal guarantees, is it error for the trial court to enter an inconsistent judgment against defendants for the amount due on the note plus attorneys fees? 2.

Does a trial court err by submitting equitable claims to the jury over objection, by declining to make the findings required of common law equity courts, and by entering a judgment based on a claim of unjust enrich ²²⁰ ment when there was no evidence upon which the trial court could find that the defendants were unjustly enriched? 3. Are claims filed in 1998 and 1999 based on unwritten promises allegedly made and not performed in 1998 and 1992 barred by the three-year statute of limitations? 4. Does the statute of frauds bar vague and indefinite unwritten promises made in 1991 and 1992 to answer for the debt of another, for which draft written agreements were created but rejected by plaintiff, notwithstanding the statute of frauds? 5. Does a trial court err by entering judgment on alleged unwritten agreements that defendants promised to pay the promissory note of another, when there is no evidence that the maker ever defaulted under the terms of the note, when the trial court denied defendants the opportunity to prove the maker’s legal and equitable defenses for nonpayment, when the holder of the note elected as his exclusive remedy to take stock pledged under a security agreement, and when the terms of the alleged oral agreements are so vague and indefinite that it is impossible to determine the full intention of the parties? 6.

May a trial court award attorneys’ fees in the absence of a statute or contract providing for attorneys’ fees? 7. When a long-term management agreement provides for termination at the end of a calendar month only on mutual consent, and a declaration of interest filed among land records assures the continuation of the agent’s management for the term of a governmental regulatory agreement, is it error for a trial court to grant summary judgment to an owner who unilaterally terminated the management agreement before the end of the term solely because the agent inserted “Month to Month” in a two-inch blank in a government form? As cross-appellant, Weitz presents the following two issues: ²²¹ 1. Should the case be remanded when the trial court erred in denying part of the attorneys’ fees incurred and paid by Weitz based solely on the fact that Weitz had two attorneys? 2.

Where Weitz was entitled to attorneys’ fees in the case in chief, is Weitz also entitled to attorneys’ fees for this appeal? For the reasons that follow, we shall reverse the judgment of the circuit court. FACTUAL SUMMARY Appellee formed CMC in 1972 to manage various apartment properties. As of 1990, appellee owned all of the stock of CMC, which then managed fifteen properties.

Eight of those properties were regulated by the United States Department of Housing and Urban Development (“HUD”) and were owned by limited partnerships in which appellee was the managing partner. In 1990, appellee decided to sell CMC. He discussed the sale with several large property management companies, but eventually agreed to sell it to two of CMC’s employees, Margaret Bessette and Arvind Shah, who had been employed by CMC since 1978 and 1987 as Vice President and Comptroller, respectively. As part of that transaction, on 15 October 1991 the parties executed a Stock Redemption Agreement; a Promissory Note; a Loan, Collateral Pledge, and Security Agreement (“Security Agreement”); and two Employment Agreements, one for Shah and one for Bessette.

The Redemption Agreement provided for purchase of all of Weitz’s stock by CMC for $1,100,000, with all that stock to be pledged as collateral security for the payment and performance of the Promissory Note. It also provided that the Promissory Note would be personally guaranteed by Bessette and Shah. In the Promissory Note, CMC, the maker, promised to pay $1,100,000 to Weitz. The note incorporated by reference ²²² provisions of all the other agreements concluded on that day.

The note also provided, inter alia: Any of the following events shall constitute an event of default under this note (“Event of Default”): (a) The failure of Maker to pay any of Maker’s obligations hereunder within fifteen (15) days after the Maker receives written note that such payment is due and payable; or (b) any default by Maker under the terms of the Loan and Security Agreement. The Note further stated: In addition, if an Event of Default should occur, Maker hereby authorizes any attorney of any court of record to appear for Maker, and confess judgment against Maker, without prior notice or opportunity for prior hearing, in favor of the holder of the Note in and for an amount equal to the total of (a) the amount of the unpaid balance of the Note, together with accrued and unpaid interest thereon, (b) all collection costs then incurred, (c) costs of suit, and (d) attorney’s fees, as aforesaid. The Security Agreement named CMC as a Borrower and Weitz as Lender. It provided, in part: 6.

GENERAL COVENANTS OF BORROWERS. Borrower, from and after the date hereof, covenants and agree [sic] as follows: L. The Borrower shall not sell, dispose of, grant any option or security interest or otherwise pledge or encumber any of its assets without first obtaining the written consent of the Lender first had and obtained [sic]. 10. REMEDIES, ETC. CUMULATIVE.

Each right, power and remedy of the Lender provided for in this Agreement or in the Note or in the Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concur ²²³ rent and shall be in addition to every other such right, power or remedy. The Employment Agreements of both Bessette and Shah provided: Covenants of Employee. Employee covenants, promises and agrees as follows: b. Not, during the term of Employee’s employment, to be interested in or engage, either directly or indirectly, in any manner, including, but not limited to, as principal, agent advisor or otherwise, in any business similar to or in competition, directly or indirectly, in any manner howsoever or whatsoever, with Employer’s business....

In 1990, HUD conducted an audit of CMC and the Partnerships. As a result of the audit, HUD officials advised CMC that it would not be permitted to manage any new HUD properties as long as CMC has any connection to Weitz. Instead, HUD officials recommended that appellants form a new corporation that would have no connection to Weitz. In April 1992, Bessette and Shah incorporated Quantum, a management firm that, technically, competed with CMC.

Bessette owned two-thirds and Shah owned one-third of the issued stock of both CMC and Quantum. Prior to incorporation, they had sought Weitz’s permission to form Quantum, as required by the Redemption Agreement. Weitz orally agreed, on the condition that Bessette and Shah would be personally liable on the Promissory Note from CMC and that Quantum would “stand in the shoes of CMC” and be subject to the CMC’s obligations under the Sales Agreement. After formation of Quantum, CMC stopped seeking new management contracts, and all new management business was obtained in the name of Quantum.

In late 1992, Weitz’s attorney drafted a written agreement (“Draft Agreement”), formalizing previous oral agreements between Weitz, on one hand, and Bessette and Shah, on the other. It stated, in part, that the formation of Quantum would not be used to circumvent the intent of the CMC Sales Agreement. ²²⁴ Between 1992 and 1995, Weitz assisted appellants by allowing them to transfer management contracts to Quantum and designating CMC as the managing agent of one of the partnerships. Weitz also advised appellants on many aspects of the business. In January 1995, appellants’ attorneys revised the Draft Agreement to include a provision acknowledging personal guarantees of the Promissory Note by Shah and Bessette.

The Draft Agreement, however, was then further revised, so that the final version, which was executed on 22 - February 1995, no longer provided for those appellants’ personal guarantee of the Promissory Note. Thereafter, based on the absence of a personal guarantee, Weitz notified appellants and CMC that they were in default of the Redemption Agreement. Following that notice, in September 1997 Weitz filed a suit against CMC and appellants in the United States District Court for the District of Maryland. That suit was ultimately dismissed in 1998 for lack of diversity jurisdiction.

Within 30 days of the dismissal, Weitz, pursuant to Maryland Rule 2 — 101(b), caused a new suit, Trustco. v. Bessette, et al. (Case No. 190210) to be filed against Bessette, Shah, Quantum, and CMC in the Circuit Court for Montgomery County. Trustco. was a corporation created by Weitz, who was later substituted as a plaintiff in that litigation. The claims were for breach of contract and for a declaratory judgment. The breach of contract claim alleged that a default occurred when appellees Shah and Bessette founded Quantum, a competing business, thus impairing CMC’s financial stability and, consequently, violating the terms of the Redemption Agreement.

Another default was alleged to be appellants’ failure to obtain Weitz’s consent to the founding of Quantum. Case No. 186683 Weitz was a general partner of Jefferson House Associates Limited Partnership (“Jefferson”); Shenandoah Associates Limited Partnership (“Shenandoah”); Leesburg Manor Asso ²²⁵ dates Limited Partnership (“Leesburg”), and several other partnerships that owned various real properties in Maryland and Virginia. Jefferson and Shenandoah had entered into Management Agreements with CMC on 16 November 1983 and 25 February 1982, respectively. By virtue of those agreements, CMC was appointed as an agent to lease, maintain, and operate the properties owned by Jefferson and Shenandoah.

Paragraphs 26 and 28 of each agreement provided, inter alia: TERM OF AGREEMENT. This Agreement shall remain in effect until canceled by HUD, the Owner or the Agent, subject, however, to the following conditions: b. This Agreement may be terminated by the mutual consent of the Principal Parties as of the end of any calendar month, provided that at least thirty (30) days advance written notice thereof is given to the Consenting Parties HUD and the mortgagee! ].... As required by HUD, Shenandoah and CMC filed with HUD, on 1 September 1992, a “Management Certificate.” An identical certificate was filed by Jefferson and CMC on 1 June 1993.

Each of those management certificate forms contained, inter alia, the following certification language. 1. We certify that: a. We have executed or will execute, within 30 days after receiving the approval required by paragraph b below, a Management Agreement for this project. The agreement provides/will provide that the Management Agent will manage the project for the term and fee described below.

Changes in the term or fee will be implemented only in accordance with HUD’s requirements. (1) Term of Agreement: MONTH TO MONTH (2) Fees: (Then follows a detailed schedule of management fees.) ²²⁶ Previous certifications had described the term, i.e., duration, of agreement “OPEN ENDED.” In January 1997, Jefferson unilaterally terminated its management agreement with CMC. Shenandoah unilaterally terminated its agreement with CMC in December 1997. In May 1998, CMC filed suit in the Circuit Court for Montgomery County against Weitz, his wife, his co-partners in real estate partnerships, Herbert Cohen, Donald Hudson, and Roy Scuderi, and the Jefferson, Shenandoah, and Leesburg Partnerships (Community Management Corporation of Maryland v. Weitz, et al., Case No. 186683).

That case was consolidated, on CMC’s motion, with the case of Weitz v. Bessette, et al., No. 190210, in August 1998. All of CMC’s claims were later reasserted by CMC as counterclaims in appellee’s suit against it. In a related development, in 1998, some of the partnerships filed law suits in Virginia against CMC, Bessette, Shah, and Robert Pelton, a director of CMC. The partnerships successfully opposed CMC’s October 1998 motion to enjoin the partnerships from prosecuting these claims in Virginia.

On 18 March 1999, the Circuit Court for Montgomery County granted appellee’s motion to dismiss appellants’ separate count against appellee for breach of the covenant of good faith and fair dealing because it held that such a cause of action did not exist on its own. On 20 April 1999, the partnerships attempted to file counterclaims against CMC. The trial court granted CMC’s motion to permit the partnerships to dismiss their Virginia litigation and consolidate all their claims in the Circuit Court for Montgomery County. The partnerships, however, elected to maintain the Virginia litigation, as a result of which their counterclaims against CMC were dropped from the Montgomery County case.

On 12 July 1999, Jefferson and Shenandoah moved for summary judgment on Counts VIII and IX of CMC’s second amended complaint against them. Those counts were based on CMC’s claim that the Partnerships, through Weitz and the ²²⁷ other general partners, had wrongfully terminated their management agreements with CMC. Jefferson and Shenandoah argued that the terminations were proper because the original management agreements with CMC had been amended by the Management Certifications which, in addition to increasing the percentage fee to be paid to CMC, also changed the term of the agreement to “Month to Month.” At a hearing on 27 October 1999, the circuit court granted the partnerships’ summary judgment motions, stating, in relevant part: The Court is satisfied upon considering argument, counsel, with respect to the motion of Shenandoah for summary judgment found at Tab 186, and at [sic] Jefferson House set out at Tab 188, that upon consideration of the arguments set out therein, there is no material dispute of fact, and the summary judgment shall be granted in both instances, and it shall be granted. The court subsequently considered and denied CMC’s motion to alter or amend the summary judgments entered for Shenandoah and Jefferson.

On 5 November 1999, during a continuation of the 27 October 1999 hearing, the circuit court granted additional summary judgments in favor of appellee against appellants on their claims against appellee for fraud and fraud in the inducement. By Order of 21 January 2000, the circuit court dismissed the portion of Count XII of CMC’s second amended complaint on which summary judgment had not yet been granted. It also ordered that Leesburg shall no longer be a party in this case, and that Weitz, Cohen, and Hudson shall no longer be parties to Count XII. Case No. 190210 In September 1998, CMC ceased making payments on the Promissory Note.

In the summer of 1999, appellee’s complaint was amended to add claims for fraudulent conveyance, unjust ²²⁸ enrichment, and promissory estoppel. As noted above, the court submitted the following special issues to the jury: 1. Do you find that Margaret P. Bessette and Arvind Shah knowingly signed and agreed to be bound by personal guarantees to Benjamin Weitz in the October 15, 1991 Stock Redemption Agreement? Answer: No. 2.

Do you find that Benjamin Weitz reasonably relied upon clear promises of Margaret P. Bessette and Arvind Shah in selling CMC to them that they would execute guarantees? Answer: Yes. 3. Do you find that Benjamin Weitz conferred benefits upon Margaret P. Bessette and Arvind Shah and that allowing them to retain these benefits would be unjust? Answer: Yes. 4.

If you answered “Yes” to Question 1, 2, or 3, what judgment do you enter in favor of Benjamin Weitz against Margaret P. Bessette and Arvind Shah jointly and severally? Answer: $581,484 5. Do you find that the parties orally agreed that Quantum would have the same obligations as CMC under the October 15,1991 agreements? Answer: Yes. 6.

Do you find that Benjamin Weitz reasonably relied upon clear promises of Margaret P. Bessette and Arvind Shah that by permitting them to establish Quantum, it would be subject to the same obligations as CMC under the October 15,1991 agreements? Answer: Yes. 7. If you answered “Yes” to Question 5 or 6, what judgment do you enter in favor of Benjamin Weitz against Quantum Property Management Corporation? Answer: $581,484 ²²⁹ 8.

Do you find by clear and convincing evidence that Benjamin Weitz fraudulently inserted the personal guarantee language in the 1991 Stock Redemption Agreement? Answer: No. On 17 April 2000, the trial court entered a judgment against appellants based on the jury verdict, to which the court added attorneys’ fees of $306,345, for a judgment in the total amount of $887,829. Bessette, Shah, and Quantum filed this appeal from the judgment entered on 17 April 2000. As noted above, CMC had filed a petition for bankruptcy on 17 February 2000; consequently, the circuit court at its February 2000 hearing stayed all proceedings against CMC.

Quantum, Bessette, and Shah filed for bankruptcy in the summer of 2000, but their appeal was resumed when the stay of bankruptcy was lifted by the bankruptcy court in March 2001. Additional facts will be included as necessary in the discussion that follows. DISCUSSION I. Before considering the merits of the case, we must address appellee’s motion, pursuant to Maryland Rule 8-603, to dismiss this appeal. For the reasons explained below, that motion is denied.

Appellee maintains that dismissal is warranted because appellants have committed five violations of the Maryland Rules of Procedure. Appellee alleges that appellees violated Rule 8-205 by failing to file a timely information report; that appellants violated Rule 8-411(C) by filing a trial transcript with the circuit court on 16 September 2001 instead of 16 July 2001, i.e., three months late; and that appellees violated Rule 8-502 by not timely filing a brief on the merits. The brief was due on 27 August 2001, but appellants did not file a motion for extension of time until 7 September 2001, ten days later. ²³⁰ Appellee further asserts that appellants violated Rule 8-501(d)(1) by failing to timely provide appellee with a statement of those portions of the record that appellants desired to include in the record extract. The statement was due by 31 July 2001, but was not served on appellee until 4 December 2001.

Appellee further alleges that appellants violated Rule 8-114(b) by citing an unpublished opinion in their brief. We note initially that, pursuant to Maryland Rule 8-602, only one of the alleged violations could be considered grounds for dismissal. Maryland Rule 8-602 provides, in relevant part: Rule 8-602. Dismissal by Court.

(a) Grounds. On motion or on its own initiative, the Court may dismiss an appeal for any of the following reasons: (1) the appeal is not allowed by these rules or other law; (2) the appeal was not properly taken pursuant to Rule 8-201; (3) the notice of appeal was not filed with the lower court within the time prescribed by Rule 8-202; (4) an information report was not filed as required by Rule 8-205; (5) the record was not transmitted within the time prescribed by Rule 8-412, unless the court finds that the failure to transmit the record was caused by the act or omission of a judge, a clerk of court, the court stenographer, or the appellee; (6) the contents of the record do not comply with Rule 8-413; (7) a brief or record extract was not filed by the appellant within the time prescribed by Rule 8-502; (8) the style, contents, size, format, legibility, or method of reproduction of a brief, appendix, or record extract does not comply with Rule 8-112, 8-501, 8-503, or 8-504; ²³¹ (9) the proper person was not substituted for the appellant pursuant to Rule 8-401; or (10) the case has become moot. It is immediately apparent that in this case only two of the alleged violations could serve as grounds for dismissal under Rule 8-602:(l) the violation of Rule 8-205 by failing to file a timely information report and (2) the violation of Rule 8-502 by the failure to file appellants’ brief timely. On 19 July 2000, this Court dismissed the appeal sua sponte because of appellants’ failure to file a Prehearing Information Report pursuant to Rule 8-205 on or before 7 July 2000.

The appeal was later reinstated on appellants’ motion for reconsideration. Appellee fails to set forth any prejudice resulting to him from the above violations. He merely states, “Weitz has been prejudiced by the delays caused by appellants’ failure to comply with the rules.... Appellants’ repeated tactical delays and violations of the rules have significantly hindered the resolution of this appeal and have thwarted Weitz’s ability to enforce the judgment.” We are not persuaded that the failure to file an information report timely and the ten-day delay in requesting an extension of time to file a brief were sufficiently prejudicial to the appellee to warrant dismissal of this appeal.

See Reed v. Baltimore Life Ins. Co., 127 Md.App. 536, 546-47 , 733 A.2d 1106 (1999). Consequently, appellee’s motion is denied.

II

We next address appellants’ Motion for Order Pursuant to Rule 8-602(e)(l)(C). Appellants concede that all the claims by and against CMC in the case sub judice have not been finally adjudicated, and that there was no entry of final judgment. Nevertheless, they request “that this Court exercise its discretion under Rule 8-602(e)(l)(C) to direct that the April 17, 2000 judgment be deemed final.... ” Appellee, on the other hand, asserts that all claims by and against CMC have been finally adjudicated. ²³² For an appellate court to have subject matter jurisdiction, an appeal must generally be taken from a final judgment or an appealable interlocutory order. Md.Code (1974, 2002 Repl.

Vol.) §§ 12-301 and 12-303 of the Cts. & Jud. Proc. Art. (“C.J.”); Harris v. Harris, P.A., 310 Md. 310, 314 , 529 A.2d 356 (1987). Maryland Rule 2-602(a) provides: (a) Generally.

Except as provided in section (b) of this Rule, an order or other form of decision, however designated, that adjudicates fewer than all of the claims in an action (whether raised by original claim, counterclaim, cross-claim, or third-party claim), or that adjudicates less than an entire claim, or that adjudicates the rights and liabilities of fewer than all the parties to their action: (1) is not a final judgment; (2) does not terminate the action as to any of the parties; and (3) is subject to revision at any time before the entry of a judgment that adjudicates all of the claims by and against all of the parties. Section (b) of Rule 2-602, however, permits the court, if it expressly determines in a written order that there is no just reason for delay, to direct the entry of a final judgment: (1) as to one or more but fewer than all