Billman v. State of Maryland Deposit Insurance Fund Corp.

BISHOP, Judge. This appeal is one of several related cases, each of which stems from the savings and loan difficulties that have plagued Maryland for the past several years. See, e.g., Billman v. State Deposit, 80 Md.App. 333 , 563 A.2d 1110 (1989), vacated and remanded, 321 Md. 3 , 580 A.2d 1044 (1990). On September 29, 1986, suit was brought by the State of Maryland Deposit Insurance Fund Corporation (MDIF), as Receiver for Community Savings & Loan, Inc., and Community Savings & Loan, Inc. (Community) against Batts Neck Corporation (BNC), the First through Sixth Batts Neck Companies, Epicenter Consolidated, Ltd., Epic Holdings, Ltd., Crysopt Corporation (Crysopt), Tom J. Bill-man (Billman) and other individuals who were former officers and directors of Community.

The claims against several of the defendants were dismissed so that only BNC, the First through Sixth Batts Neck Companies, Crysopt and Billman remained. William J. Harnett filed a Motion to Intervene which was granted for the sole purpose of contesting the priority of MDIF’s judgment against Crysopt. Harnett’s claim has been dismissed. On November 10, 1989, MDIF and Community filed a Motion for Sanctions for failure to provide discovery.

The Circuit Court for Montgomery County (Joseph H. H. Kaplan, J., sitting by designation) granted the Motion for Sanctions and ruled, pursuant to Md.Rule 2-433(a), that the facts in the Complaint were deemed admitted and taken to be established and that the defendants were prohibited ⁶ from opposing plaintiffs’ designated claims. 1 An interlocutory order was entered against defendants on the issue of liability. The remedy was determined after a hearing on March 6, 1990, at which a final judgment was entered in favor of plaintiffs. The court ruled, inter alia, that Community was entitled to either the property or the proceeds of foreclosure sales in certain cases then pending in the Circuit Court for Queen Anne’s County, that otherwise would have been paid to the grantors of the deeds of trust. Additional facts will be included in our discussion of the questions presented.

ISSUES PRESENTED Appellants present the following issues: I. Whether the trial court erred in granting a default judgment in favor of MDIF as sanction for a discovery violation without a hearing on the issue of damages; II. Whether the relief granted by the trial court was correct; III. Whether the trial court erred in denying appellants’ motion for summary judgment on the grounds of res judicata; and, IV. Whether the trial court erred in denying appellants’ motion for summary judgment under Md.Corps. & Ass’ns.

Code Ann. § 2-419 (1985). ⁷ I. On September 29, 1989, appellees noted the depositions of Billman, Crysopt, and the First through Sixth Batts Neck Companies. The depositions were set for November 7, 1989, and included requests for production of documents, including BNC’s state income tax returns for 1985 and 1986 which had not been requested previously. 2 On November 6, 1989, one day before the scheduled depositions, appellants filed a Motion for Protective Order That Discovery Not Be Had. The trial court denied the motion and ordered that the depositions proceed as scheduled. Appellants failed to appear for their depositions and to produce the requested documents.

Appellees filed a Motion for Sanctions requesting that a judgment by default be entered against each of the appellants. After a hearing, the trial court granted the Motion for Sanctions. The trial court ruled that, pursuant to Maryland Rule 2-433(a), the facts in the Complaint were deemed admitted and taken to be established, and that Billman, Crysopt, BNC and the First through Sixth Batts Neck Companies were prohibited from opposing appellees’ designated claims. An interlocutory judgment was entered in favor of appellees on the issue of liability and a hearing was scheduled to determine the appropriate remedy.

MDIF requested the court to restore to Community the property, or the right to the proceeds of sale of that property, that Billman acquired during the “reorganization” of Community and its parent company. MDIF informed the court that it was seeking only this equitable relief and would abandon the remaining claims for relief requested in the Complaint. After the hearing on the remedy, the trial court granted the relief sought by MDIF. ⁸ Appellants argue that the trial court erred in granting a default judgment in favor of appellees as a sanction for a discovery violation. Specifically, under this first issue, appellants contend A) that the trial court erred in granting a default judgment as a sanction because the deposition was noticed in bad faith and because there was no prejudice to appellees; B) that they were deprived of their constitutional right to a jury trial on the issue of damages; and, C) that they were deprived of due process by entry of a default judgment on the issue of damages.

We will discuss each of these contentions seriatim. A. The trial court granted the default judgment in favor of MDIF pursuant to Md.Rule 2-433(a) which provides: (a) For Certain Failures of Discovery. — Upon a motion filed under Rule 2-432(a), the court, if it finds a failure of discovery, may enter such orders in regard to the failure as are just, including one or more of the following: (1) An order that the matters sought to be discovered, or any other designated facts shall be taken to be established for the purpose of the action in accordance with the claim of the party obtaining the order; (2) An order refusing to allow the failing party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence; or (3) An order striking out pleadings or parts thereof, or staying further proceeding until the discovery is provided, or dismissing the action or any part thereof, or entering a judgment by default that includes a determination as to liability and all relief sought by the moving party against the failing party if the court is satisfied that it has personal jurisdiction over that party. If, in order to enable the court to enter default judgment, it is necessary to take an account or to determine the amount of dam ⁹ ages or to establish the truth of any averment by evidence or to make an investigation of any matter, the court may rely on affidavits, conduct hearings or order references as appropriate, and, if requested, shall preserve to the plaintiff the right of trial by jury. Instead of any order or in addition thereto, the court, after opportunity for hearing, shall require the failing party or the attorney advising the failure to act or both of them to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust, (emphasis added).

In Maryland, “a trial judge has a large measure of discretion in applying sanctions for failure to adhere to the discovery rules.” Mason v. Wolfing, 265 Md. 234, 236 , 288 A.2d 880 (1972). Maryland Rule 2-433(a) clearly provides that entry of a default judgment is an appropriate remedy for a discovery violation. Where the ultimate penalty of a default judgment is invoked, it cannot be disturbed on appeal without a clear showing that the trial court abused its discretion. Id.

Appellants maintain that the deposition notices in the instant cases were an attempt by appellees to posture for a default judgment and avoid a trial. Appellants argue that the depositions were not noticed in a good faith effort to undertake discovery since the plaintiffs had already deposed Billman and cross-examined him in a separate but related trial. Appellants also argue that their failure to submit to the depositions in no way prejudiced the ability of appellees to prepare and try their case. Finding no merit in appellants’ arguments, we affirm.

The depositions were not noticed in bad faith. Appellees were entitled to avail themselves of all discovery procedures permitted under the Maryland Rules governing civil cases, including the taking of depositions. Maryland ¹⁰ Rule 2-402(a) governs the scope of discovery, and it provides: (a) Generally. — A party may obtain discovery regarding any matter, not privileged, including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons having knowledge of any discoverable matter, if the matter sought is relevant to the subject matter involved in the action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party. It is not ground for objection that the information sought is already known to or otherwise obtainable by the party seeking discovery or that the information will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

An interrogatory or deposition question otherwise proper is not objectionable merely because the response involves an opinion or contention that relates to fact or the application of law to fact. Appellees sought to question Billman concerning the documents he had already produced. They also sought the two state tax returns which appellants had not produced. Maryland Rule 2-411 states that a party may depose a person for the purpose of discovery or for use as evidence in the action or for both purposes.

It is not a ground for objection that the information sought is already known or otherwise obtainable by the appellees. See, Md.Rule 2-402(a). Similarly, it is not a ground for objection that the information sought was discovered by appellees in a different civil action. Leave of court to take a deposition is required only in certain limited situations including when an individual has previously been deposed in the same action.

Md.Rule 2-411. Since Billman had not been deposed previously in this action and, since the discovery sought was clearly relevant, appellees were entitled to conduct discovery pur ¹¹ suant to the Maryland Rules, including the taking of depositions. 3 Appellants’ argument, that the trial court erred in granting a default judgment because their failure to submit to the deposition did not prejudice the appellees, must also fail. The Maryland Rules do not require that a showing of prejudice is necessary to support the entry of a default judgment for failure to comply with the discovery rules. In fact, Md.Rule 2-433(a) clearly provides that once the trial court finds a failure of discovery, it may impose various sanctions.

In Williams v. Williams, 32 Md.App. 685 , 363 A.2d 598 (1976), although holding that there was an abuse of discretion, the Court stated: As for the circumstances where the “ultimate penalty” may properly be imposed, Chief Judge Hammond observed in Lynch v. R.E. Tull & Sons, Inc., 251 Md. 260, 261 , 247 A.2d 286 (1968): “There have been suggestions that this ultimate sanction usually will be invoked only where the failure is wilful or contumacious [citing cases], but the power of the court to act is not thus limited and there may be other occasions when this gravest sanction can properly be invoked.” (Emphasis added.) Id. at 691, 363 A.2d 598 . In virtually every case where the ultimate sanction has been imposed, such action has been taken in the presence of contumacious or dilatory conduct on the part of the plaintiff or when the noncomplying party had disobeyed a direct order of the court to depose, or to show cause, to answer interrogatories, or to respond to his opponent’s motion for dismissal or default judgment. While the Court of Appeals has held that dismissal or default may ¹² be imposed even where a party’s failure to comply with a discovery order is neither wilful nor contumacious, Lynch v. R.E. Tull & Sons, Inc., 251 Md. 260 , 247 A.2d 286 (1968), supra, its ground there for affirming such action by the trial court was principally that appellant had not provided a transcript and “[t]hat which is before us does not permit us to find an abuse of discretion in Judge Shure’s actions.” 251 Md. at 262 . Id. at 695, 363 A.2d 598 .

Other cases have similarly held that the “ultimate penalty” of default judgment may be imposed where a party’s failure to comply with a discovery order is neither wilfull nor contumacious. In Kipness v. McManus, 14 Md.App. 362 , 286 A.2d 829 (1972), we recognized that “the power of the court to invoke the ultimate sanction of dismissal of the action with prejudice or entering a judgment by default against the offending party is not limited to instances where the failure is wilful or contumacious.” Id. at 364 n. 1, 286, A.2d 829. In Rubin v. Gray, 35 Md.App. 399, 400 , 370 A.2d 600 (1977), we stated that “[t]he authority to impose this ‘gravest of sanctions’ ... is not limited to wilful or contemptuous failures to answer [interrogatories], but may be imposed for a deliberate attempt to hinder or prevent effective presentation of defenses or counterclaims, or for stalling in revealing one’s own weak claim or defense.” Finally, in Berkson v. Berryman, 63 Md.App. 134 , 492 A.2d 338 (1985), we ruled that the trial court did not abuse its discretion when it imposed the ultimate sanction for a party’s violation of a discovery order even when there were less stringent sanctions available. The power of the court to impose a default judgment is not limited to situations where the failure to comply with a discovery order is wilful or contumacious.

Id. at 142 , 492 A.2d 338 . One of the fundamental objectives of Maryland’s broad and comprehensive discovery rules is to require disclosure of facts and thereby to eliminate, as far as possible, the necessity of any party going to trial while confused ¹³ about the facts that gave rise to the litigation. Rubin v. Weissman, 59 Md.App. 392, 400-01 , 475 A.2d 1235 (1984); Klein v. Weiss, 284 Md. 36, 55-56 , 395 A.2d 126 (1978); Williams v. Moran, 248 Md. 279, 290-92 , 236 A.2d 274 (1966). Although the court did not explicitly find that appellants were prejudiced, and no such finding was required, appellants’ failure to appear for deposition certainly deprived appellees of the opportunity to avail themselves of all the discovery procedures permitted under the Maryland Rules.

Appellants’ Motion for a Protective Order was denied and the court ordered that the depositions proceed as scheduled. There was disobedience of this direct order of the court. Based on the foregoing, we hold that the court did not err in awarding a default judgment in favor of appellees as a sanction for a discovery violation. B. Appellants contend that they were deprived of their constitutional right to a jury trial on the issue of damages.

Article 23 of Maryland’s Declaration of Rights 4 clearly guarantees the right of trial by jury only in certain instances. The right is guaranteed 1) when issues of fact exist; 2) in a civil proceeding; 3) in a court of law; and 4) where the amount in controversy exceeds five hundred dollars. It follows then, that where liability has been decided by a default, where there is no issue of fact for a jury to decide and where the only relief requested is equitable in nature, there is no constitutional right to a jury trial and the relief may be determined by the court. See State Farm v. Schlossberg, 82 Md.App. 45, 63 , 570 A.2d 328 (1990).

In Maryland, there is no right to trial by jury in equity cases. Chase v. Winans, 59 Md. 475 (1883); Penn ¹⁴ sylvania v. Warren, 204 Md. 467, 474 , 105 A.2d 488 (1953). Although for some purposes law and equity were merged by revisions to the Maryland Rules in 1984, 5 the merger was never intended to limit or expand the right to trial by jury in matters of law or to expand the right in equity cases. See Committee Note to Md.Rule. 2-301 (“The merger of law and equity does not affect the right to jury trial.”). “If a claim is brought that