Deitz v. Palaigos

SALMON, Judge. This case originates from the mistakes made in the administration of the estate of August S. Deitz, Sr. (the “decedent”) by his son, August S. Deitz, Jr. (Deitz), the estate’s personal representative, and by Peter B. Turney (Turney), counsel for the personal representative. Deitz’s siblings, who were among the beneficiaries named in the decedent’s will, filed a petition in the Orphans’ Court for Baltimore County to compel the personal representative and Turney to close the estate and to reimburse them for their attorneys’ fees. The orphans’ court ruled against the personal representative and Turney, but the exact nature of its ruling is not shown by the record.

In any event, the matter was appealed to the circuit court where, in a de novo review, Deitz’s siblings received a judgment in their favor, in the amount of $15,439.90. The ensuing complex procedural history will be discussed below in detail, but to summarize briefly, as a result of the judgment, Deitz’s wages were garnished at $75.00 per week. When approximately $4,000 had been garnished, Deitz filed a tort action in the Circuit Court for Baltimore County against his siblings (and also against one sibling’s husband) and their attorneys, claiming that the defendants had tortiously represented to the circuit court in the garnishment proceeding that the judgment they sought to enforce was against “Deitz, individually,” when, according to Deitz, the judgment was ágainst “Deitz” in his representative capacity. John E. Harris, Sr. (Harris) represented Deitz in the tort action.

The circuit court (Hinkel, J.) dismissed Deitz’s complaint and granted sanctions against Harris for $12,325.18. Deitz and Harris noted timely appeals, which were docketed as one ³⁸⁵ action. Appellants present five questions for our review, which we have condensed and rephrased: 1. Did the trial judge err in not allowing Deitz to relitigate the issues of whether the judgments of the circuit court were against him, individually, and whether he, individually, was a party to the underlying suit filed in the orphans’ court? 2.

Did the trial judge err in dismissing Deitz’s complaint for failing to state a cause of action? 3. Did the trial judge err in awarding sanctions against Harris? I. FACTS A. Background The decedent’s will called for the personal representative to subdivide one of three parcels of real property in the estate. Deitz hired Turney to act as the attorney for the estate.

As a result of Deitz’s and Turney’s unsuccessful attempts at subdividing the parcel, the estate remained open more than five years after the decedent’s death. Deitz’s three siblings retained Anthony P. Palaigos and Thomas A. Bowden of Blum, Yumkas, Mailman, Gutman & Denick, P.A. (collectively, “Blum, Yumkas”) to represent their interests as beneficiaries of the estate. On March 2, 1992, the siblings filed a petition in the Orphans’ Court for Baltimore County to compel “the Personal Representative and his attorney” to close the estate and to reimburse them for their attorneys’ fees.

Deitz answered the petition as “August S. Deitz, Jr., Personal Representative, by Peter B. Turney, his attorney.” The orphans’ court granted relief to the siblings. Pursuant to Maryland Code (1974, 1989 RepLVol.), section 12-502(a) of the Courts & Judicial Proceedings Article, an appeal was filed in the Circuit Court for Baltimore County. The circuit court (Bollinger, J.) heard the matter de novo during a two-day trial and entered a judgment on April 22, ³⁸⁶ 1993, against the “Personal Representative” and Turney in the amount of $15,439.90. In the first paragraph of the Amended Opinion and Order, Judge Bollinger stated, “Petitioners aver that their brother, August S. Deitz, Jr., Personal Representative of their late father, in concert with the Personal Representative’s attorney, Peter B. Turney, Esquire, improperly administered the estate, causing unnecessary legal expenses and unnecessary use of estate funds.” The court later stated that it was “convinced that there [was] both a breach of the fiduciary responsibility of the Personal Representative of the estate and his attorney.” Judge Bollinger entered judgment against “the Personal Representative and his attorney jointly and severally” for $6,700.00, with interest from March 25, 1993, to reimburse the siblings for additional expenses incurred in attempts to subdivide the property.

The siblings had paid Deitz these funds to close the estate, but Deitz had used the $6,700 in order to make additional attempts to subdivide the property even though the orphans’ court previously had ordered him to make no further attempts at subdivision. The court also entered judgment against “the Personal Representative” and his attorney for $7,905.00 (with interest) to cover the siblings’ attorneys’ fees and for $834.90 (with interest) to reimburse the estate “for expenses incurred outside of the fiduciary activity of the Personal Representative and his attorney.” B. The. First Appeal and Its Immediate Aftermath Upon an appeal to the Court of Special Appeals, a panel of this Court on February 4, 1994, initially affirmed the judgment of the circuit court. Following a motion for reconsideration, however, the Court found, “Although the [lower] court clearly made a finding of both bad faith and a lack of substantial justification as to Mr. Turney, it made no such finding as to Mr. Deitz.” Deitz v. Edens, No. 918, slip op. at 1 (Md.Ct. Spec.App. May 2, 1994).

The Court noted, “This may have been an oversight, for the record indicates that it was Mr. Deitz who was the driving force behind the lack of settlement of the estate, but the omission exists nonetheless.” Id. It ³⁸⁷ also stated that the award of attorneys’ fees was incorrectly calculated and should have amounted to approximately $4,500. On May 2, 1994, the court vacated the award of $7,905 for attorneys’ fees, which the panel said was “[p]art of the judgment entered by the circuit court ... against August S. Deitz, Jr. and his attorney.” Id. at 2 (emphasis added). The Court of Appeals denied certiorari.

Deitz v. Edens, 336 Md. 224 , 647 A.2d 444 (1994). On remand to the circuit court, Judge Bollinger entered a judgment on February 15, 1995, against “the [defendant, August S. Deitz, Jr. and his attorney, Peter B. Turney, Esquire, jointly and severally,” for $4,500.00 in attorneys’ fees. (Emphasis added.) To summarize, the $4,500.00 judgment was entered against “Deitz and Turney” and the $7,534.90 judgment (comprised of the $6,700.00 and $834.90 judgments) remained entered against “the Personal Representative and his attorney.” C. The Second Appeal Deitz and Turney filed a second appeal to this Court, and, on April 2,1996, a panel of the Court affirmed the judgment of the circuit court. Deitz v. Edens, No. 810, slip op. at 7 (Md.Ct.Spec.App. Apr. 2, 1996).

The Court rejected appellants’ argument that the circuit court lacked subject matter jurisdiction to enter judgments against them. The panel emphasized that Maryland Code section 12-502(a) of the Courts & Judicial Proceedings Article commands that an appeal from an orphans’ court judgment is to be heard de novo and that the circuit court is required to “ ‘give judgment according to the equity of the matter.’ ” Deitz, No. 810, slip op. at 3-4 (quoting § 12-502(a)(l)). With respect to the $6,700.00, the Court stated that Deitz was liable in his individual capacity because Deitz breached his fiduciary duty. Id. at 5-6.

The panel opined that the “circuit court properly entered judgment against Deitz and Turney for failing to comply with the order of the orphans’ court [to forego the subdivision of the property and to close the estate].” Id. at 7 (emphasis added). Regarding the $834.90, the Court held that this cost ³⁸⁸ “assessed against Deitz and Turney w[as] entitled to be recovered by the prevailing party.” Id. (emphasis added). Finally, with respect to the $4,500.00, the Court stated that “[i]n view of Deitz’s and Turney’s conduct, the circuit court did not abuse its discretion in ordering them to reimburse appellees for attorney’s fees.” Id.

(emphasis added). Deitz also argued in the second appeal that the circuit court did not have personal jurisdiction over him because he was named in the petition to the orphans’ court only in his representative capacity. In rejecting this argument, the Court stated that, according to Maryland Rule 2-322(a)(l), the defense of lack of personal jurisdiction must be made before the answer, if an answer is required. Deitz, No. 810, slip op. at 8.

Because Deitz raised this defense only on the second appeal, the Court concluded it was not preserved for appellate review. Id. Subsequently, the Court of Appeals denied Deitz’s petition for certiorari. Deitz v. Edens, 343 Md. 564 , 683 A.2d 177 (1996).

D. The Bankruptcy Court Proceeding and Its Interplay With the Garnishment Proceeding Following the April 22, 1993, judgment in the circuit court against “the Personal Representative and his attorney,” the siblings filed, in the Circuit Court for Baltimore County, a request for a writ of garnishment against Deitz. The writ was issued on July 14, 1993, but it was revised on May 31,1995, to reflect the February 15, 1995, $4,500.00 circuit court judgment. Deitz filed a Chapter 7 bankruptcy petition on August 18, 1993, in the United States Bankruptcy Court for the District of Maryland, which resulted in a stay of the garnishment proceeding. By that point, $300 of Deitz’s wages had been garnished.

On October 21,1993, Deitz filed a complaint in the bankruptcy court to recover the wages that already had been garnished. The siblings filed a counterclaim to determine dischargeability of debt (“debt” referred to the three money judgments against “Deitz” for $6,700.00, $834.90, and ³⁸⁹ $7,905.00). The parties filed cross-motions for summary judgment in the bankruptcy court. Meanwhile, the stay of the garnishment action was annulled by a bankruptcy court order dated March 17, 1995.

Deitz moved to alter or amend this order, claiming that the pleadings in the state court that were referenced in the bankruptcy court’s order “contain[ed] no indication that relief was being sought against the debtor [Deitz] individually” and that the amended order of the circuit court entered judgment only against the “Personal Representative.” Deitz’s motion to amend the stay also alleged: 3. Notwithstanding the above, the order of the state court dated Feb. 15, 1995, purports to enter judgment against “the Defendant, August S. Deitz, Jr.” 4. Whether the action was against the debtor as personal representative, or as an individual, is an issue never raised in that state court action. The order of Feb. 15, 1995[,] was entered by the state court, sua sponte, without notice, hearing, or opportunity for argument. 5.

That same issue has been specifically raised in this court in the debtor’s motion for summary judgment, briefed on both sides, and scheduled for argument on May 8, 1995. The bankruptcy court (Derby, J.) denied Deitz’s motion regarding the stay order on April 18, 1995, saying that “it [is] the intent of this court that all issues of liability and extent be made by the State’s courts.” About three weeks later, on May 8, 1995, the bankruptcy court (Hill, J.) held a hearing on Deitz’s complaint, the siblings’ counterclaim, and the cross-motions for summary judgment. The bankruptcy court’s Final Judgment on All Claims, entered on May 15, 1995, denied Deitz’s motion for summary judgment, and in regard to the siblings’ motion, stated that the $6,700.00, $4,500.00, 1 and $836.90 circuit court judgments ³⁹⁰ against “August S. Deitz, Jr.,” were not discharged by Deitz’s filing for bankruptcy. In making this ruling, Judge Hill, at the hearing on May 8, noted that the state court found that the debtor breached his fiduciary duties, which made the debt nondischargeable under section 523(a)(4) of the United States Bankruptcy Code (defining exceptions to discharge of debts in bankruptcy).

Judge Hill’s order cited the judgments against Deitz in the amounts of $6,700.00 and $836.90 that were contained in the circuit court’s April 22, 1993, order and the judgment against Deitz in the amount of $4,500.00 that was contained in the February 15, 1995 order, and stated that, under the principles of collateral estoppel, the issue of whether there was a breach of fiduciary duty would not be relitigated. Judge Hill’s order also stated, “If the Courts of the state of Maryland modify these orders to vary the dollar amounts or damages awarded, then and to that extent, this judgment shall be modified correspondingly without further order of this Court.” (Emphasis added.) The bankruptcy court also dismissed Deitz’s complaint and allowed the siblings to “continue, enforce, and perfect the judgments of the state court in accordance with applicable nonbankruptcy state law.” On June 9,1995, Judge Hill denied Deitz’s motion to amend the final judgment in which Deitz asserted that “the final judgment is in error to the extent that it authorizes renewal of garnishment proceedings.” In so doing, the bankruptcy court’s order stated that “[ijnherent in a determination of nondischargeabilityt,] in the context of a Chapter 7 case, is the ability of the prevailing party to pursue the enforcement of that judgment to the extent provided by applicable nonbankruptcy state law.” Deitz then appealed to the United States District Court for the District of Maryland. In a memorandum opinion dated July 25, 1996, the federal district court (Legg, J.) noted that the state courts found that the debtor breached his fiduciary duties, and “as a result of the state court proceedings, judgments were entered against the Debtor and Turney totaling $12,034.90.” (Emphasis added.) Judge Legg affirmed the bankruptcy court’s decision that the principles of collateral ³⁹¹ estoppel applied and that the debts resulting from a breach of fiduciary responsibility were nondischargeable in bankruptcy. On appeal, the Fourth Circuit Court of Appeals, in an unpublished opinion dated June 11, 1997, affirmed the trial court’s decision.

E. Proceedings in the Subject Case Following the judgment rendered by this Court in Deitz’s second appeal, Deitz filed the complaint in the instant case in the Circuit Court for Baltimore County. The complaint was filed on July 10, 1996. At this time, Deitz’s motion to amend the final judgment of the bankruptcy court had already been denied, and approximately $4,000 of Deitz’s wages had been garnished. Deitz sued Blum, Yumkas and the siblings, including one sibling’s husband, 2 alleging abuse of process, libel, “wrongful attachment,” “fraud on the part of the creditors,” and malicious prosecution.

In an amended complaint filed November 27, 1996, Deitz limited his claim to three counts: abuse of process, “wrongful attachment,” and conversion. Deitz claimed that the defendants, in obtaining a writ of garnishment against his wages, misrepresented to the circuit court that he, Deitz, was the judgment debtor. Therefore, according to Deitz, the attachment of his wages was improper. The defendants moved to dismiss Deitz’s complaint or, in the alternative, to grant summary judgment in their favor because, among other reasons, (1) his claim was barred by the doctrines of res judicata, collateral estoppel, and collateral attack because the Court of Special Appeals, as well as the bankruptcy court, had already determined that the judgments were against Deitz individually, and (2) Deitz’s complaint did not state a cause of action.

Deitz opposed the defendants’ motion by asserting that (1) he was not a party to the siblings’ petition in the orphans’ ³⁹² court, and (2) the judgment below was against the personal representative. He acknowledged that “[i]f it is decided that the judgment was against [Deitz] as an individual, then he has no eause[s] of action” against any of the defendants in the tort suit. Following a hearing on December 23, 1996, the circuit court (Hinkel, J.) “dismissed” the complaint on January 3, 1997. Judge Hinkel opined that the “underlying issue of individual liability has already been decided adversely to the plaintiff by the Court of Special Appeals.” Deitz’s motion to alter or amend the judgment was denied on February 3, 1997.

Deitz noted a timely appeal. On January 29, 1997, Blum, Yumkas moved for sanctions against Deitz for filing and maintaining this action “without substantial justification and with bad faith.” 3 Blum, Yumkas claimed that Deitz sought to relitigate issues he consistently had lost in the prior case, and therefore, the suit was barred by res judicata, collateral estoppel, and collateral attack. Moreover, according to Blum, Yumkas, each of the individual counts failed to state a cause of action. Following a hearing on May 12, 1997, at which time the defendants argued for sanctions against both Deitz and Harris, Judge Hinkel granted sanctions in the amount of $12,325.18 against Harris.

He denied sanctions against Deitz. Although Judge Hinkel agreed with Deitz’s premise that he had been sued in his representative capacity and not individually, the judge noted that whether this argument was correct made no difference. Judge Hinkel held that the claim was brought without substantial justification because after this Court’s decision of April 2, 1996, there was “in place a judgment of the Circuit Court for Baltimore County against August Deitz and Peter Turney individually and jointly and severally. But individually.

That’s the law of that case. Cert[iorari ] was denied.” ³⁹³ Judge Hinkel continued, “Even if you believe that [Judge] Bollinger and the Court of Special Appeals [were] wrong and the Court of Appeals was wrong in denying cert[iorari], even if you believe all of that, there’s still a valid judgment upon which a judgment creditor can exercise his post judgment rights.” (Emphasis added.) According to the trial judge, Deitz’s attorney, Harris, knew these facts before he filed suit and therefore lacked substantial justification in bringing this action.

II

STANDARD OF REVIEW Maryland Rule 2-322(c) provides, in pertinent part: If, on a motion to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 2-501____ Notwithstanding the fact that the trial judge’s order granted a “motion to dismiss,” the trial judge looked outside the four corners of the complaint and relied upon the determinations made by this Court in the prior action. Therefore, we will treat the trial judge’s order as one granting summary judgment. See Pope v. Board of School Comm’rs, 106 Md.App. 578, 590 , 665 A.2d 713 (1995), cert. denied, 342 Md. 116 , 673 A.2d 707 (1996); Hrehorovich v. Harbor Hospital Ctr., Inc., 93 Md.App. 772, 782-83 , 614 A.2d 1021 (1992), cert. denied, 330 Md. 319 , 624 A.2d 490 (1993). Under Rule 2-501(e): The court shall enter judgment in