Creamer v. Helferstay

Wilner, J., delivered the opinion of the Court. On July 9, 1976, a Declaration was filed in the Superior Court of Baltimore City that touched off this long, complex, bitter, and most unfortunate litigation. The docket entries alone, to this point, comprise 47 pages, giving some indication of the time, effort, and expense invested by the parties, their counsel, and the court. And there has yet been no trial on the merits.

It is not necessary, in this appeal, to recount the underlying charges and counter-charges in any significant detail. Suffice it to say that, as of October 15, 1979, the case was in this posture: (1) In a Second Amended Declaration, four individuals who had been partners in a venture known as Route 29 — Lewis Property (RLP), on behalf of themselves and 24 of their co-partners, sued Weinberg & Green (W&G), a Baltimore law firm, alleging negligence (Count I), breach of ²⁴⁵ contract (Count II), and fraud (Count III) arising from the manner in which the firm dealt with RLP, its property, and certain of its partners. 1 (2) In a counterclaim, W&G sued seven of the plaintiffs, including one of the four "real” plaintiffs (Helferstay), alleging, in essence, that, to the extent W&G acted in such manner as to cause loss to the plaintiffs, it was because the counter-defendants failed to disclose certain information to W&G that would have allowed or caused the firm to take alternative courses of action. Although W&G was by no means enamored with the charges of negligence or breach of contract, it not unexpectedly took the sharpest exception to the claim of fraud. Indeed, W&G formed and made clear a determination not to discuss, or even to consider, settlement of the litigation so long as the allegation of fraud remained extant.

It was a matter of strongly felt principle, or, as W&G puts it, an "implacable resolve.” This resolve, though understandable, was nevertheless a significant stumbling block to any settlement negotiations. The plaintiffs had made their own "implacable resolve” — not to accept less in settlement than substantial reimbursement for their losses, after payment of attorneys’ fees. In other words, they demanded "to be made whole.” The problem was that the expense of the litigation made it uneconomical for the plaintiffs to pay their attorneys on an' hourly basis, and so they agreed to a contingency fee arrangement based on the amount of ultimate recovery — initially 40%, subsequently increased to 50%. Thus, in order to achieve their economic goal of near total recoupment, they would have to effect a recovery nearly twice that which would accrue from compensatory damages alone.

Only through the fraud count, from which substantial punitive ²⁴⁶ damages might be recovered, could that result possibly be achieved. The negligence and contract actions, which, even if successful, would produce neither reimbursement for attorneys’ fees nor punitive damages, would simply not suffice in that regard. Thus, it was that two immovable objects were in stalemate. The plaintiffs needed the fraud claim to achieve their minimum objective and the defendant (W&G) refused even to consider a settlement with that claim open.

This was the situation on October 15, 1979, when the parties appeared before Judge David Ross in connection with certain pretrial matters. Facing the prospect of a four-month trial, Judge Ross suggested a possible "framework of a settlement” — that "if the plaintiffs were to, in effect, confess not guilty as to fraud allegations. .. [t]hat might open up the opportunity to settle on the claim of negligence.” The parties pursued that suggestion. At the invitation of W&G, the parties, and their counsel, met on October 23, 1979; and, after some four hours of discussion, they arrived at what they thought would be an appropriate mechanism to resolve the impasse, and thus the litigation. The agreement reached, which was committed to writing and signed the next day (October 24), was in five parts, as follows: 2 (1) The plaintiffs agreed to release W&G from any claim of fraud or conspiracy and to dismiss, with prejudice, Count III of their Declaration, in which such claims were made.

(2) W&G agreed to dismiss, with prejudice, its counterclaim, and to release all counter-defendants from any claim related to RLP. (3) W&G agreed to forebear and release the plaintiffs from and with respect to any claim W&G might have against them for malicious prosecution or abuse of process arising out of the litigation. ²⁴⁷ (4) W&G "further agreeLd] to enter into good faith settlement negotiations with respect to Counts I and II of the Second Amended Declaration immediately upon execution of this Agreement. . . and the filing of notices of dismissal by all parties.” To "facilitate settlement negotiations and as evidence of its intent to enter into good faith negotiations,” W&G agreed (i) that its independently retained counsel, Williams & Connolly, and the two W&G partners most directly involved in the litigation (Messrs. Creamer and Garfink) would withdraw from participation in the settlement negotiations, and (ii) that W&G would be represented in the negotiations by Howard Miller, a W&G partner, and by Richard Whiteford and Natalie McSherry, members of the firm retained by W&G’s liability insurance carrier in connection with the malpractice claim. (5) An "integration” clause, worded as follows: "This Agreement . . . and various Notices of Dismissal [attached as exhibits] constitute the entire agreement of the parties.

There are no additional promises made by the parties except those expressly set forth in this agreement.” With this Agreement, the parties also signed the dismissals called for in paragraphs 1 and 2, these being filed with the court on Thursday, October 25,1979. Negotiations, of a sort, commenced that same evening, with a 2Vz hour meeting between David Freishtat, counsel for plaintiffs, and Miller, Whiteford, and McSherry, representing W&G. A second session was held the next day, Friday. Both of those meetings were taken up largely with an explanation by Freishtat of the plaintiffs’ version of the facts of the case for Miller’s elucidation and benefit; there was little discussion of "dollars,” and no offer of money was made by or on behalf of W&G. At a third session, on Sunday morning (October 28), Miller presented an offer of $80,000. Freishtat, believing such an offer to be not only wholly unacceptable but an indication of bad faith on the part of W&G, immediately terminated the meeting, ended all discussion of settlement, and, the next day, moved to rescind ²⁴⁸ the agreement of October 24 and to strike the dismissals filed pursuant to it.

After an evidentiary hearing, the court granted that relief. On December 31, 1979, it entered an Order, accompanied by a Memorandum Opinion, rescinding the October 24 agreement and striking the dismissals filed on October 25 pursuant to it. What is before us now is W&G’s appeal from that order. In considering the issues raised by W&G, it is, of course, important to understand why the court acted as it did.

Only then can we determine whether it committed reversible error in its findings of fact or in its conclusion and application of law. The crux of the problem, as noted, was the conflict of "implacable resolves” pertaining to the fraud claim. Plaintiffs contended that they made crystal clear to W&G both before and during the October 23 negotiating, session, and that W&G fully understood, that plaintiffs would not abandon the fraud claim unless assured of a recovery well in excess of that which, at best, could flow from the negligence and contract actions. In that regard, they advised W&G that the amount needed to provide full compensation, after attorneys’ fees, was $550,000, whereas the maximum recovery under the non-fraud counts was only $275,000, which, for purposes of settlement, was wholly unacceptable..

The fraud claim was viewed by the plaintiffs as the "leverage” to achieve their minimum demands. W&G, on the other hand, would not discuss "dollars” in any way until the charge of fraud was formally withdrawn. This dilemma was resolved, according to the plaintiffs, by W&G intimating to them, in unmistakable fashion, that "dollars” were not a problem. If the fraud claim were withdrawn, W&G indicated, the negligence claim could be settled "on a business basis” — i.e., taking into account not the merits of the claim but rather the cost to W&G of defending it.

That cost, everyone agreed, would substantially exceed the maximum recovery (and thus exposure to W&G) if plaintiffs prevailed at trial on the non-fraud counts. Taking into account the cost of attorneys’ ²⁴⁹ fees and the loss of productivity of W&G partners in a four-month trial, not to mention possible appeals, it was estimated by both sides that the cost of defense to W&G would range from $375,000 to over $500,000. Thus, a settlement effected on that basis could produce a recovery in excess of the value of the non-fraud counts on their merits and within a range acceptable to the plaintiffs. This, plaintiffs asserted, was the quid pro quo for their agreeing to give up their "leverage” — the promise by W&G to negotiate the remaining claims on a "business basis,” understanding that the minimum acceptable figure would have to be one that, after payment of attorneys’ fees, would substantially reimburse the plaintiffs for their losses.

Thus, according to the plaintiffs, a two-step process was envisioned. First, the fraud count would be dismissed (along with W&G’s counterclaim), thereby enabling the parties to discuss "dollars”; then, in quick fashion, the remaining counts could be resolved on a "business basis.” This understanding, they said, could not be reduced to writing in so precise a fashion because of W&G’s sensitivity as to the public perception of such an arrangement; an express agreement to negotiate the negligence and contract actions on a "business basis” would lend the appearance of indirectly settling the fraud claim as well. It was for that reason, plaintiffs contended, that (1) the promise was couched in terms of "good faith settlement negotiations” rather than language more specific, and (2) W&G insisted on an "integration” clause — paragraph 5, disclaiming any "additional promises” not "expressly set forth in this agreement.” When, the following Sunday, Miller returned with an offer of $80,000, well below even the $275,000 which W&G had previously been told was unacceptable, the plaintiffs concluded either that there had never been a true meeting of the minds over what "good faith settlement negotiations” meant, or that W&G had breached its covenant. That is what led to its "Motion for Appropriate Relief.” The court, after considering testimony from the ²⁵⁰ participants comprising 960 pages of transcript (plus a 68-page deposition) and countless pages of exhibits and legal memoranda, concluded, in relevant part, that, (1) When the plaintiffs agreed to W&G’s proposal on October 23, and the written agreements of October 24, "they and Freishtat honestly thought that Weinberg & Green intended to negotiate settlement of the two remaining counts of the declaration solely on the basis of the economic factors of cost of defense and loss of productivity to Weinberg & Green during trial for an amount within the range of something more than $275,000 but less than $550,000 and but for this understanding they would not have entered into the agreement.” (2) "This understanding of the plaintiffs was induced by the statements and conduct of those representing Weinberg & Green at the October 23 discussions.” (3) "The plaintiffs arrived at their conclusion regarding Weinberg & Green’s intention as a result of the failure of anyone on behalf of Weinberg & Green to clearly state that the settlement range suggested by Freishtat’s statements as to the $275,000 and $550,000 figures was out of the question and the affirmative statements made on behalf of Weinberg & Green....” (4) "The plaintiffs’ understanding as to Weinberg & Green’s intention had a reasonable basis.” Moreover, "it would not have been unreasonable for Weinberg & Green to have concluded that it made good business sense to settle the case for an amount which was less than the total cost of defense and the exposure on the negligence and contract counts of the declaration even though that amount might be greater than the exposure alone on the negligence and contract counts of the declaration.” (5) Witnesses for W&G denied that "they intended to negotiate solely on an economic basis within a given range of amounts,” and further denied "that their conduct on October 23 was intended to, or in fact did, indicate such an intention on their part.” In light of that testimony, "it is ²⁵¹ apparent that the plaintiffs were mistaken as to Weinberg & Green’s intention.” (6) There is no evidence of intentional misrepresentation.

(7) Rescission may be ordered where there is justifiable reliance upon an innocent misrepresentation of a material fact. It may be ordered in a case of unilateral mistake if the four conditions set forth in Mayor of Baltimore v. DeLuca-Davis Construction Co., Inc., 210 Md. 518 (1956), are satisfied. They are satisfied in this case. (8) "Whether this case is treated as a form of honest misrepresentation or as one of a special class of unilateral mistake induced by the other party, the plaintiffs are entitled to rescission.

The criteria for relief under either classification are satisfied by the facts.” Although the thrust of appellant’s attack on the court’s action is apparent, its articulation of the specific issues which it desires us to review is somewhat imprecise. It states as the general question presented for review "[w]hether an executed transaction, based upon a written and integrated contract that has been fully performed without breach, can be rescinded for 'mistake’ that is not a mutual mistake.” It then raises two "subsidiary” issues: (1) "Whether negotiating statements that generated the asserted mistake were merged into the integrated contract under the parol evidence rule, and hence were not actionable upon performance of the contract because they could not be a basis for liability in equity in the absence of fraud, duress, or mutual mistake?” (2) "Whether a theory of unilateral mistake, heretofore strictly a defense to suits in equity to enforce executory contracts, is available to rescind an executed transaction and, if so, whether such theory is applicable on the facts of this case?” One problem with this statement of the issues is that it makes certain assumptions that are not necessarily valid. It ²⁵² is not at all clear, for example, that the written contract, which required "good faith settlement negotiations” was, in fact, "fully performed,” or that, despite the language of paragraph 5, the contract was completely integrated. A second complication is that the argument presented by W&G is not couched in language that is directly responsive to the issues raised.

W&G frames its argument to us as follows: "I. Rescission Cannot Be Sustained On An Honest Misrepresentation Theory A. There Was No Misrepresentation B. Honest Misrepresentation Theory Is Not Applicable As A Matter of Law II. Rescission Cannot Be Sustained On a Unilateral Mistake Theory.” Attempting to integrate the argument made with the questions presented, and then relating it all to what the court below said and did, it appears to us that the real issues presented are these: (1) Did the court properly admit and consider parol evidence pertaining to the antecedent negotiations in light of the written agreement, the "integration” clause included in it, and the parol evidence rule? (2) If such evidence was properly before the court, were the court’s factual conclusions clearly erroneous? (3) If the court was not clearly erroneous in its findings of fact, did it, through the misconstruction or misapplication of law, err in rescinding the agreements and striking the dismissals?

Parol Evidence The first of these restated issues is, of course, a threshold one, for it was the evidence relating to the settlement ²⁵³ negotiations occurring on October 23, 1979, that formed the basis of the court’s ultimate findings of fact. The parol evidence rule was succinctly defined in Glass v. Doctors Hospital, Inc., 213 Md, 44, 56 (1957): "Stated broadly, the rule is that as a matter of substantive law, parol evidence is inadmissible to vary, alter or contradict a writing which is complete, unambiguous and valid, where no fraud, accident or mistake is claimed.” This very statement of the rule suggests its limitations. As pointed out in Whitney v. Halibut, Inc., 235 Md. 517 (1964), and again in 4500 Suitland Road Corp. v. Ciccarello, 269 Md. 444 (1973), the rule has no application and does not serve to bar parol evidence with respect to "issues such as: (1) have the parties made a contract; (2) is that contract void or voidable because of illegality, fraud, mistake, or any other reason; (3) did the parties assent to a particular writing as the complete and accurate 'integration’ of that contract....” 4500 Suitland Road Corp., supra, at 451. The proceeding triggered by plaintiffs’ motion raised those issues, of course.

The motion itself specifically alleged that the written agreement was fraudulently induced; the collateral issues of whether there ever was a meeting of the minds, whether there was a mistake (either a mutual or a unilateral one induced by W&G), and whether W&G breached the agreement arose during the subsequent course of the proceeding. The one question common to all of those issues, however, and the one truly central issue before the court, was the meaning of the term "good faith settlement negotiations.” What precisely was it that W&G promised to do in exchange for withdrawal of the fraud claim? What was the bargain, the primal consideration expected in exchange for plaintiffs giving up their presumed "leverage”? Did the term (and thus the covenant) mean negotiations strictly on a "business basis” without regard to the "merits” of the remaining claims, as plaintiffs believed, or did it have a broader meaning, as W&G insisted.

Upon that hinged the answer to all of the underlying issues raised in or by the motion. ²⁵⁴ In that light, it becomes clear that, in deciding whether to rescind the agreement, the court first had to interpret it, to determine what that covenant to enter into good faith settlement negotiations meant. Corbin states, in that regard (3 Corbin on Contracts, § 579): "No parol evidence that is offered can be said to vary or contradict a writing until by process of interpretation it is determined what the writing means. The 'parol evidence rule’ is not, and does not purport to be, a rule of interpretation or a rule as to the admission of evidence for the purpose of interpretation. Even if a written document has been assented to as the complete and accurate integration of the terms of a contract, it must still be interpreted; and all those factors that are of assistance in this process may be proved by oral testimony.

"It is true that the language of some agreements has been believed to be so plain and clear that the court needs no assistance in interpreting. Even in these cases, however, it will be found that the court has had the aid of parol evidence of the surrounding circumstances. The meaning to be discovered and applied is that which each party had reason to know would be given to the words by the other party. Antecedent and surrounding factors that throw light upon this question may be proved by any kind of relevant evidence.

"... As long as the court is aware that there may be doubt and ambiguity and uncertainty in the meaning and application of agreed language, it will welcome testimony as to antecedent agreements, communications, and other factors that may help to decide the issue. Such testimony does not vary or contradict the written words; it determines that which cannot be varied or contradicted. Nor is it made inadmissible by the fact that it has the effect of fílling out the terms of a promise and of ²⁵⁵ determining the character and extent of the performance promised.” (Emphasis supplied.) See also Corbin, § 580; 4 Williston on Contracts, §§ 629, 630; Restatement of Contracts, § 242; Restatement of Contracts 2d, § 240 (Tent. 1973).

This is clearly the law in Maryland. See Lambdin v. Dantzebecker, 169 Md. 240 (1935); Applestein v. Royal Realty Corp., 181 Md. 171 (1942); Vary v. Parkwood Homes, Inc., 199 Md. 411 (1952); Eastover Stores, Inc. v. Minnix, 219 Md. 658 (1959). Stated most succinctly in Eastover Stores, Inc., supra, at 666: "It is, likewise, just as broadly and consistently held that parol evidence is inadmissible to vary, alter or contradict a writing which is complete and unambiguous, where no fraud, accident or mistake is claimed . . . ; but where doubt arises as to the true sense and meaning of the words themselves or difficulty as to their application under the surrounding circumstances, the sense and meaning of the language may be investigated and determined by evidence dehors the instrument.” (Citation omitted; emphasis supplied.) See also Burroughs Corp. v. Chesapeake Petroleum and Supply Co., Inc., 282 Md. 406, 411 (1978); Canaras v. Lift Truck Services, Inc., 272 Md. 337, 348 (1974). The simple fact, noted by Corbin, and by the Court of Appeals in Lambdin, supra, is that evidence offered to explain a term — the construction placed on it by reason of what was said, or implied, during the discussions and negotiations leading up to the contract — is not intended or effective to "vary, alter or contradict” the ultimate written agreement; and thus the parol evidence rule is simply not applicable to such evidence.

This is true notwithstanding the inclusion in the written agreement of an "integration” clause. Because "such a clause itself may embody a recital of fact which may be untrue,” it "is not invariably conclusive and its coverage is a matter of interpretation.” Rinaudo v. Bloom, 209 Md. 1, 9 (1956). ²⁵⁶ It is clear, therefore, that, in light of the issues presented for resolution by the court — whether the agreement was induced by fraud or mistake, and what the nature was of the covenant to enter into "good faith settlement negotiations” — parol evidence of the antecedent discussions and negotiations, to the extent relevant to those issues, was not rendered inadmissible by the parol evidence rule. There being no other objection to it urged upon us, we find no error in its admission and use by the court. Evidentiary Support For Factual Conclusions The evidence in support of plaintiffs’ version of what occurred on (and after) October 23 came primarily through the testimony of Messrs.

Freishtat, Sass, Pace, and Helferstay. Evidence on behalf of W&G came mostly from testimony by Messrs. Miller, Creamer, and Garfink, supplemented by testimony and written notes of Mr. Sundermeyer and Ms. McSherry, attorneys for W&G. Some of the evidence was in dispute; some of it was not. The question, at this point, of course, is whether, upon the evidence — both conflicting and consistent — the facts found by the court are clearly erroneous.

Maryland Rule 1086. In making that judgment, it is not our function to evaluate conflicts in the evidence or to adjudge the relative credibility of the various witnesses. That is the job of the trial judge, and we are not at liberty to second-guess him. We decide only whether there is any evidence legally sufficient to support the court’s findings; and in making that decision, we must assume the truth of all evidence (and all favorable inferences fairly deducible from it) tending to support those findings.

Carling Brewing Co. v. Belzner, 15 Md. App. 406 (1972). Mr. Freishtat stated that he made clear to W&G, throughout the meeting of October 23, three basic points: (1) the plaintiffs would not settle the case unless "made whole” after payment of attorneys’ fees, and would not withdraw the ²⁵⁷ fraud count, which was their "leverage,” unless given some assurance that settlement of the non-fraud counts could produce that result; (2) it would take a gross recovery of approximately $550,000 to compensate plaintiffs fully for their alleged losses — to make them "whole”; and (3) $275,000, the maximum recoverable on the non-fraud counts (considered on their merits), was absolutely unacceptable. In response to this, according to Freishtat, Brendan Sullivan, an attorney for W&G, said that, if the fraud count was dismissed, "they would be in the position to sit down and discuss this case on a business and economic basis.” Sullivan thereupon presented the five-part proposal, involving dismissal of the fraud count, dismissal of W&G’s counterclaim, W&G’s agreement not to sue for malicious prosecution, withdrawal of Williams & Connolly, Garfink, and Creamer from further negotiations, and W&G’s promise to enter into "good faith negotiations” to settle the non-fraud claims. After consultation with his clients, Freishtat initially rejected the proposal.

He told Sullivan that he placed no value whatever on withdrawal of the counterclaim, to which his clients had a good defense, or on a covenant to forebear suing for malicious prosecution, an action he believed to be groundless. Moreover, he saw no reason for Williams & Connolly to withdraw from the negotiations. As to the commitment to enter into "good faith negotiations,” Freishtat responded that it amounted to asking the plaintiffs to buy "a pig in a poke” — that "it was a