Chesley v. Goldstein & Baron, Chartered

⁶⁰⁹ DEBORAH S. EYLER, Judge. The Circuit Court for Prince George’s County granted summary judgment to Leonard R. Goldstein, Esquire, and his law firm, Goldstein & Baron, Chartered (“G & B”), the appellees, on claims asserted against them by William F. Chesley, the appellant. On appeal, Chesley poses one question, which we have rephrased: Did the circuit court err in ruling that his claims were barred, as a matter of law, by claim or issue preclusion or by the law of the case doctrine? FACTS AND PROCEEDINGS This case has a long and convoluted history.

In 1986, Dr. Ervin Rose decided to sell commercial property (“the Property”) he owned in Seabrook, Prince George’s County. He entered into a listing agreement with Coldwell Banker Residential Real Estate, Inc. (“Coldwell Banker”), and one of its agents, C. Michael Parrish, that would give Coldwell Banker a 10% brokerage fee if the Property were sold by March 18, 1987. Coldwell Banker and Parrish made efforts to market the Property, including distributing information about it. Chesley, a successful real estate agent and developer in the Seabrook area, was one of the people who received the marketing information.

The Property did not sell by March 18, 1987. Thereafter, Rose and Coldwell Banker allegedly entered into an agreement modifying the original listing agreement and extending its expiration date. Before the new expiration date, and before the Property sold, Rose died. Rose’s sister, Rosalind Marsh, was appointed personal representative of his estate (“the Estate”).

She retained Goldstein and G & B to represent her in her role as personal representative. Coldwell Banker and Marsh did not enter into a new listing agreement for the Property, and Marsh did not sign the listing agreement her brother had entered into with Coldwell Banker. Parrish continued marketing the Property for sale, however. His efforts resulted in two offers to purchase the ⁶¹⁰ Property, which were communicated to Marsh; she did not respond to them.

In the meantime, Chesley began negotiating with Goldstein, on behalf of Marsh and the Estate, to purchase the Property. When the negotiations culminated in an oral purchase agreement, Goldstein notified Parrish that Marsh had sold the Property. On April 11, 1988, Chesley and Marsh reduced their oral agreement to a written contract of sale. The contract of sale was drafted by Chesley and his lawyer, except for an indemnification clause, which was drafted by Goldstein.

In that clause, at paragraph 12 of the contract, the parties agreed that the Estate would not pay any real estate commission in connection with the sale, and payment of any such commission, if required, would be Chesley’s sole responsibility. They further agreed that in any claim or action brought by an agent or broker to recover a commission, Chesley would hold harmless, defend, and indemnify the Estate, not only for any commission owed by also for all related costs, including attorney’s fees incurred in defense. The closing on the sale of the Property to Chesley took place on July 8, 1988. On September 1, 1988, in the Circuit Court for Prince George’s County, Coldwell Banker sued the Estate on the listing agreement, claiming it was owed a 10% commission on the sale.

Pursuant to the indemnification clause in the contract of sale, Chesley retained G & B to defend the Estate in the Coldwell Banker suit, and agreed to pay the firm’s fees. Coldwell Banker’s case against the Estate went to trial. At the close of Coldwell Banker’s case-in-chief, the court granted judgment in favor of the Estate. The evidence at trial included proof that the alleged modification agreement was a forgery.

Coldwell Banker took an appeal, and on October 1, 1992, in an' unreported opinion, this Court reversed the judgment and remanded the case for a new trial. After remand, the case was settled. Thereafter, Chesley made some payments to ⁶¹¹ ward G & B’s attorney’s fees in the case, but then stopped paying and refused to pay the balance. On August 4, 1995, in the Circuit Court for Prince George’s County, G & B sued Chesley for the fees it claimed he owed for its defense of the Estate in the Coldwell Banker suit, under the indemnification clause of the contract of sale (the “original claim”).

G & B did not demand a jury trial. Chesley was served with the complaint, and on November 2, 1995, filed an answer. He did not file a demand for a jury trial then, or within 15 days. On December 5, 1995, Chesley filed a “Counterclaim And Third Party Claim,” against G & B (as counterdefendant) and Goldstein (as third-party defendant).

At the same time, he filed a demand for jury trial, as “Defendant, Counter Plaintiff, and Third Party Plaintiff.” Chesley’s counterclaim and third-party claim sounded in fraud, negligent misrepresentation, and legal malpractice. Chesley’s fraud claim was two-pronged. First, he alleged that, during the purchase negotiations, Goldstein told him the Estate would not agree to pay any commission or brokerage fee on the sale. In justifiable reliance on that representation, he agreed to include the indemnification clause, undertaking liability for any commission or fee and for the cost of defense in any case for recovery of a commission or fee.

Chesley then learned, after the sale, that Goldstein had petitioned and ultimately had received in the Orphans’ Court for Prince George’s County a $100,000 commission on the sale. Chesley alleged that that award was a commission on the sale of the Property, and Goldstein’s having sought it showed that his statement during the purchase negotiations was a fraudulent misrepresentation communicated to induce Chesley to agree to the indemnification clause. Second, Chesley alleged that because Goldstein and G & B had represented him in the Coldwell Banker suit, from October of 1988, to the Spring of 1993, Goldstein owed him a fiduciary duty to make disclosures about the Property honestly and fully; and that, in violation of that duty, Goldstein had ⁶¹² fraudulently concealed Coldwell Banker’s involvement in bringing potential purchasers to the Property. Chesley further alleged that he had been induced to enter into the contract of sale, including the indemnification clause, in justifiable reliance on that allegedly fraudulent misrepresentation/omission.

In his fraud claim, Chesley sought compensatory damages of $150,000, and punitive damages of $1,500,000. . The factual allegations supporting Chesley’s negligent misrepresentation claim were the same as those supporting his fraud claim, with one addition. Chesley alleged that it was a conflict of interest for Goldstein and G & B to represent him and the Estate; that they had had a duty to disclose the conflict, but failed to do so; and that while representing him they had been acting out of a primary allegiance to others, namely the Estate and Marsh. Chesley asserted that he had justifiably relied on Goldstein’s and G & B’s negligent representations and omissions and as a consequence had entered into the contract of sale, including the indemnification clause, without consulting independent counsel.

He sought $150,000 in compensatory damages. Finally, in his legal malpractice claim, Chesley alleged that Goldstein and G & B had breached their attorney-client relationship with him by 1) failing to disclose “the true nature of the facts and circumstances related to” Coldwell Banker’s claim against the Estate; 2) failing to advise that because they were in a conflict of interest position, due to their representation of the Estate, he should engage independent legal counsel; and 3) failing to disclose that Goldstein had received a $100,000 “commission” the orphans’ court award) from the Estate for the sale of the Property, contrary to the purpose of the indemnity clause. He further alleged that Goldstein and G & B had charged attorney’s fees “which were induced by the fraud and/or negligent misrepresentation by Leonard R. Goldstein to Mr. Chesley, and were otherwise not necessary, fair and reasonable.” He claimed the same injury ⁶¹³ as in the first two counts, and sought $150,000 in compensatory damages. Goldstein and G & B responded to the counterclaim and third-party claim with a joint motion to dismiss or for summary judgment, on the ground of limitations, which Chesley opposed.

The court granted the joint motion. The court then held a pretrial conference and scheduled a trial date for the original claim. The Pre-Trial Conference Report is marked with a check next to “yes” for whether there was a jury demand. After being postponed and rescheduled, trial commenced on December 7, 1998.

That day, when it became apparent that the case was scheduled to be tried to the court, not by jury, Chesley’s lawyer argued that even though summary judgment had been granted on the counterclaim and third-party claim, Chesley still was entitled to a jury trial on the original claim. The court disagreed and the case proceeded to a court trial. Trial lasted three days. At the close of the evidence and after hearing argument, the court ruled in G & B’s favor and awarded $57,767.81 in attorney’s fees and interest.

The court made detailed factual findings, which we quote in relevant part: The testimony before me, and I find as a fact, is that [the indemnification clause in the April 11, 1988 contract of sale] was the subject of negotiations between Mr. Chesley and Mr. Goldstein on behalf of the estate. I find that the negotiations were arms length negotiations, and further that the estate sought to avoid the risk of any claim for any commission by any broker for the sale of the property. The discussions were specific as to the Coldwell-Banker listing agreement, and the discussions were specific that the estate did not wish to pay any real estate commission to ColdwellBanker. The defendant, Mr. Chesley, assumed the risk for this commission or any fees to defend any claim for this commission by executing the ... contract for sale dated April 11, 1988. ⁶¹⁴ Settlement on this contract was had on July 8, 1988, and the lawsuit by Coldwell-Banker was filed on September 1, 1988.

Upon service on the estate Mr. Goldstein, on behalf of the estate, wrote on September 21, 1988 in Plaintiffs exhibit number seven to Mr. Chesley, informing him that the lawsuit had been filed, that the estate looked to him to indemnify the estate pursuant to paragraph twelve of Plaintiffs exhibit number three. Mr. Goldstein identified two options to Mr. Chesley. Those being Mr. Chesley could pay the attorney’s fees for Mr. Goldstein’s firm’s continued representation of the estate in the lawsuit or Mr. Chesley could seek whatever counsel he wished to represent the estate in the lawsuit. At that point Mr. Chesley had the option to permit the estate to continue its own defense and to then be subject to ... any defense costs for the estate and, if entered, any judgment against the estate.

He could retain any attorney of his own choosing to defend the estate or he could retain Mr. Goldstein’s law firm to continue to defend the estate. I find as a fact that a telephone call between Mr. Chesley and Mr. Goldstein occurred subsequent to Mr. Chesley’s receipt of Plaintiffs exhibit number seven. I find that during that call Mr. Chesley acknowledged his duty to defend under the indemnity agreement, which is contained in paragraph number twelve of Plaintiffs exhibit number three. I find that Mr. Goldstein identified his law firm’s fee schedule and that Mr. Chesley agreed to pay that fee schedule for Mr. Goldstein’s law firm to continue to defend the estate in ... the suit brought by Coldwell-Banker.

The lawsuit proceeded ultimately to trial, appeal and settlement. The bills of the law firm of Goldstein and Baron were submitted to Mr. Chesley. Partial payments on those bills were made up to and including August of 1992.... Sometime in March of 1993 Mr. Chesley met with Mr. Parrish ..., after which he refused to pay any further legal expenses of the law firm of Goldstein and Baron---- ⁶¹⁵ I find that the fees that were billed [by Goldstein & Baron] were fair and reasonable and necessary for the protection of the estate by the law firm in [the ColdwellBanker suit], I find no evidence of fraud in the inducement of ... the contract of April 11, 1988, nor in the oral contract in September of 1988 or early October of 1988, wherein Mr. Chesley agreed to pay the legal fees for the estate in the law firm’s defense of [the Coldwell Banker suit]....

Chesley noted an appeal. He posed two questions respecting the original claim: 1) “Is an attorney who represents an estate and the personal representative and who has received a commission for sale of real property from the estate to the indemnitor entitled to attorney’s fees from the indemnitor, in the absence of full and complete disclosure of the facts and the conflict of interest?”; and 2) “Is an indemnitee entitled to indemnification for the indemnitee’s own negligence, in the absence of specific language in the controlling contract?” In a third question, he claimed the court had erred in granting summary judgment on his counterclaim and third-party claim on the ground of limitations. On May 22, 2000, this Court filed an unreported opinion affirming the judgment in favor of G & B on its fee claim, reversing the summary judgment against Chesley on his counterclaim and third-party claim, and remanding the case to the circuit court for further proceedings. We began our discussion of Chesley’s first issue by giving an overview of his main defense to the original claim: LChesley’s] primary defense to G & B’s claim for attorney’s fees is based upon the principle that a fee agreement between the attorney and a client ordinarily will be set aside if it is shown that a party was represented by an attorney who simultaneously represented adverse interests, whether such interests were those of the attorney or those of other clients, and the attorney either exercised undue influence or perpetrated a fraud, or if the transaction was otherwise ⁶¹⁶ unfair.

Only full disclosure can prevent the transaction from being set aside. Chesley v. Goldstein & Baron, No. 6227, slip op. at 7 (Md.Ct.Spec.App. July 27, 2000). We concluded that Chesley was G & B’s client, as a matter of law, and Goldstein and G & B therefore were obligated to disclose “all known information that [was] significant and material to the affairs ... of the [the fiduciary relationship] .... ” Chesley, Slip op. at 10 (quoting Homa v. Friendly Mobile Manor, Inc., 93 Md.App. 337, 346-47 , 612 A.2d 322 (1992), in turn, quoted in, Platinum v. Impala Sales, 283 Md. 296, 324 , 389 A.2d 887 (1978) (quoting Herring v. Offutt, 266 Md. 593, 597 , 295 A.2d 876 (1972)). See also Allen v. Steinberg, 244 Md. 119, 128 , 223 A.2d 240 (1966); Hambleton v. Rhind, 84 Md. 456 , 36 A. 597 (1897).).

We rejected Chesley’s contentions that the evidence compelled a finding of a conflict of interest • and of fraudulent inducement, however. With respect to the claimed conflict of interest, we said that, on the uncontested evidence, though. Chesley later was a client of Goldstein and G & B, he was not their client when the contract of sale was negotiated; rather, at that time, Goldstein was representing Marsh—the other party to the negotiation. We concluded that as a matter of law, “there could have been no conflict of interest on Goldstein’s part'in the arm’s length transaction conducted by Chesley as the buyer and Goldstein as attorney for the seller.” .

Chesley, Slip op. at 11. With respect to the issue of fraudulent inducement to include the indemnification language in the contract of sale by failing to disclose information vital to Chesley’s acceptance of that contract provision, we stated:" [T]he simple responsé is that the trial court specifically found that there was no fraud and that Goldstein disclosed all pertinent information then available to him. Chesley, Slip op. at 11. We next rejected as legally incorrect Chesley’s contention, at trial and on appeal, that Goldstein had received a “commission” on the sale of the Property.

We explained that upon ⁶¹⁷ petition to the orphans’ court, under Md.Code (1974), § 7-602 of the Estates and Trusts Article (“ET”), Goldstein had received a fee for legal services rendered to the personal representative. At the time, ET § 7-601(a) permitted payment to the personal representative, called a “commission,” based on a percentage of the value of the property subject to administration, and ET § 7-601(d)(l) specifically provided that in the event of a sale of real property by the personal representative the court could allow a commission on the proceeds as it considered appropriate, not to exceed 10%. In his petition for counsel fees, Goldstein had listed the maximum commission to which the personal representative would be entitled under that statute, and had requested a fee, which the orphan’s court approved, that was in excess of the personal representative’s total commissions. We held that the fee Goldstein received in the orphans’ court for representing Marsh as the personal representative of the Estate was not a commission on the sale of the Property, as a matter of law; and even if the fee was “considered as equivalent to a commission to him for the sale of’ the Property, the trial court’s findings were legally correct because “[pjayment of a commission to Goldstein on the sale of the ... to [Chesley] would not be a material fact because the estate never sought indemnity from [Chesley] based on any sum paid to Goldstein by the estate.” Slip op. at 14.

Thus, “in no way [did the fee to Goldstein] create[] a conflict of interest between him and [Chesley] that required disclosure to [Chesley] when [Chesley] agreed to retain G & B to represent his interests in the Coldwell Banker suit.” Slip op. at 14. We went on to point out that Goldstein’s “commission” could not have created an undisclosed conflict of interest that precipitated the Coldwell Banker suit because the suit predated the fee petition by years and the holding in that case, by this Court, was that the Estate possibly could be liable to Coldwell Banker if Marsh acknowledged that original listing—and not because of anything having to do with the fee that later was paid to Goldstein. ⁶¹⁸ We addressed and rejected Chesley’s second issue, the indemnification argument, and then agreed with his argument on issue three, whether the circuit court had erred in granting summary judgment on the counterclaim and third-party claim on limitations. Specifically, we held that the date that Chesley was on inquiry notice of those claims was a genuinely disputed material issue of fact that precluded the granting of summary judgment. In the last part of the opinion, we pointed out that Chesley was arguing that if we were to reverse the grant of summary judgment on the counterclaim and third-party claim (which we were doing), he would be entitled to a jury trial on all issues, including on G & B’s original claim.

We explained that we were not going to consider that point because the record showed that the circuit court had stricken Chesley’s jury trial demand, for not being timely; i.e., Chesley had waived his right to trial by jury, and Chesley had not challenged that decision on appeal. After the unreported opinion was filed, Chesley timely filed a motion for reconsideration, asserting that the circuit court had not stricken his demand for jury trial. We granted the motion for reconsideration, withdrew our May 22 opinion, and on July 27, 2000, issued what became the final, filed opinion in the case. The opinion was unchanged on issues one and two.

On issue three, we agreed that a review of the record disclosed that Chesley’s jury trial demand had not been stricken. Accordingly, because Chesley had prayed a jury trial when he filed his timely counterclaim and third-party claim, he was “entitled, on remand, to a trial by jury on all issues ‘triable of right by a jury.’ ” Slip op. at 26 (quoting Hawes v. Liberty Homes, 100 Md.App. 222, 233 , 640 A.2d 743 (1994) (in quoting Md. Rule 2-325(e)). We went on to point out that, in his motion for reconsideration, Chesley was arguing that the circuit court had erred in ruling that once it granted summary judgment on the counterclaim and third-party claim, Chesley no longer was entitled to a jury trial on the original claim. Declining to address the issue, because Chesley had not raised it in his brief, we commented: ⁶¹⁹ In reversing the summary judgment on [Chesley’s] counterclaim we do not venture any opinion as to what, if any, preclusive effect the judgment of the circuit court on [G & B’s] suit for attorney’s fees [ie., the original claim] and our affirmance of that judgment may have on [Chesley’s] counterclaim.

This is not a matter before us on this appeal. Slip op. at 27. Our mandate affirmed the judgment in favor of G & B on the original claim and vacated the judgment against Chesley on the counterclaim and third-party claim. Chesley filed a petition for certiorari in the Court of Appeals, which was denied on December 12, 2000.

On remand in the circuit court, Goldstein and G & B moved for summary judgment, arguing that the doctrines of res judicata, collateral estoppel, and the law of the case precluded any further litigation of the issues raised in Chesley’s counterclaim and third-party, claim. Chesley filed an opposition memorandum. The court held a hearing and granted the motion for summary judgment. It ruled that, in the court trial on the original claim, Chesley had pursued affirmative defenses based on the same set of operative facts central to his counterclaim and third-party claim; and those facts were actually litigated and decided against him.

Therefore, under the doctrine of collateral estoppel, the facts were conclusively established, and could not be genuinely disputed. Because the facts were inconsistent with any finding in favor of Chesley on his counterclaim and third-party claim, G & B and Goldstein were entitled to judgment in their favor, as a matter of law. The court also ruled that Chesley’s affirmative defenses to the original claim and his affirmative claims (as asserted in the counterclaim and third-party claim) could not be split, and therefore the counterclaim and third-party claim were barred by res judicata: I find based on my review of the transcript of the previous proceedings, the motion for judgment filed at the close of the plaintiffs case, and relied on again at the close of the defense case, my review of the counter claim and third ⁶²⁰ party claim and my review of the opinion of the Court of Special Appeals that the issues raised now affirmatively— the issues raised now requesting affirmative relief on behalf of Mr. Chesley against [Goldstein and G & B] were raised, were litigated, were decided, in the original claim when I granted the affirmative relief to the plaintiff Goldstein and Baron. The defense to ... that claim for legal services was that the attorney, Mr. Goldstein, and the law firm, Goldstein and Baron, had a conflict of interests, did not disclose fully the facts to Mr. Chesley, and consequently committed legal malpractice.

These are the claims in both the counter claim and the third party claim. I find that I resolved the facts to those— to that counter claim and third party claim by granting the affirmative relief in the complaint. If there was not a specific fact so found, I find that the counter plaintiff and third party plaintiff cannot split their claims by litigating a portion in one lawsuit and saving a portion of that for a second lawsuit. That is not what is required by the appellate case law requiring that a claim to be litigated either as a claim for affirmative relief or as a defense to a claim for affirmative, relief must be fully litigated or lost.

And for these reasons I will find no dispute of any material fact as to whether ... or not those issues have been decided. I find that they have. Chesley noted a timely appeal to this Court. DISCUSSION Chesley contends that the circuit court’s decision to grant summary judgment on his counterclaim and third-party claim was legally incorrect, and was inconsistent with, and defeated, this Court’s decision in the prior appeal that he was entitled to a jury trial on all issues triable of right by jury.

He also contends, alternatively, that the court’s collateral estoppel ruling was in error because not all the facts essential to his ⁶²¹ counterclaim and third-party claim actually were litigated in the court trial on the original claim. Article 28 of the Maryland Declaration of Rights guarantees the right of trial by jury in a civil action in which more than $10,000 is in controversy. Rule 2-325 governs the procedure for electing a jury trial in a civil action. “Any party may elect a trial by jury of any issue triable of right by a jury by filing a demand therefor in writing ...” Md. Rule 2-325(a). Traditionally, claims that are triable of right by a jury are legal, as opposed to equitable, claims.

Kann v. Kann, 344 Md. 689, 699-700 , 690 A.2d 509 (1997). If a party does not file a demand for jury trial “within 15 days after service of the last pleading filed by any party directed to the issue,” he waives his right to trial by jury. Md. Rule 2-325(b). The Rule spells out the effect of the election of a jury trial: When trial by jury has been elected by- any party, the action, including all claims whether asserted by way of counterclaim, cross-claim, or third-party claim, as to all parties, and as to all issues triable of right by a jury, shall be designated on the docket as a jury trial.

Md. Rule 2-325(e). A counterclaim and a third-party claim are “pleadings.” Md. Rule l-202(s). The times for filing a counterclaim and a third-party claim are the same, and are set forth in Rules 2-331 and 2-332, respectively. If a party files either one more than 30 days after the time for filing that party’s answer, any other party may object and move to strike it.

Md. Rule 2-331(d); Md. Rule 2-332(e). In this case, Chesley filed his counterclaim and third-party claim December 5, 1995. Neither G & B nor Goldstein objected or moved to strike. While the counterclaim and third-party claim were based on the same set of operative facts as the original claim, and asserted defenses that if accepted by a fact finder would negate G & B’s original claim, they also sought affirmative relief for fraud and negligence in the form of compensatory and punitive damages.

Thus, the counterclaim and third-party claim were not merely mirror ⁶²² image denials of the original claim,' that is, an answer dressed up as a counterclaim/third-party claim. See East v. Gilchrist, 293 Md. 453, 461-62 , 445 A.2d 343 (1982). Chesley’s demand for jury trial was filed with the counterclaim and third-party claim, and thus was filed within 15 days of service of the last pleading filed by any party directed to the issue. Accordingly, under Rule 2-325(e), when Chesley elected a jury trial, “the action, including all claims,” i.e., the original claim, counterclaim, and third-party claim, was to be “designated on the docket as a jury trial.” The doctrine of res judicata (also called direct estoppel or claim preclusion) applies when the parties to a subsequent suit are the same or in privity with the parties to a prior suit; the first and second suits present the same claim or cause of action; and there was a final judgment rendered on the merits in the first suit,