Dixon v. Process Corp.

Liss, J., delivered the opinion of the Court. "The scenario from which this appeal arises is intricate, ofttimes confusing and, yet, probably typical of many present-day land transactions.” So said Chief Judge Gilbert in an earlier appeal to this Court which involved the same parties. 1 Unfortunately, in the interim since the parties last appeared before us, the situation has become even more confusing. The appellee in the present case, The Process Corporation (TPC), was incorporated in April of 1972 for the purpose of engaging in land development. TPC was one of a number of independent subsidiaries of the parent corporation known as Process Incorporated of Maryland (PIM).

Thomas A. Garland was the president of the various corporations and chairman of the board of PIM. In the early part of 1972, a law partner of Garland’s, John Healey, contacted appellant William E. Dixon to solicit Dixon’s investment in a proposed development known as Clinton Woods which was located in Prince George’s County. Dixon declined to invest in the Clinton Woods project. Later that same year, Healey again communicated with Dixon and informed him that the development and acquisition of a ²⁰⁰ large tract of land consisting of five farms located in Charles County, called Maxwell Hall, was pending, but that $150,000 was needed by the end of 1972 to purchase one of the farms known as the Chaney farm.

Dixon expressed interest in the project and contacted appellant Ernest J. Litty who agreed to finance the venture. Dixon and Litty formed a partnership known as Benedict Associates. The transaction which would allow the Process organization to settle on the Chaney farm involved Dixon providing the settlement funds and Garland taking the title to the land in his name as trustee for Dixon. The arrangement was for Garland to hold the property for approximately one year and then have PIM repurchase the property at a profit to Dixon.

The settlement on the Chaney tract was consummated on December 27, 1972. PIM issued two confessed judgment notes in favor of the appellants for $35,000 and $25,0Q0, which Garland signed in his capacity as president of PIM. On December 14,1973, PIM exercised its option to purchase the Chaney tract; however, the repurchase was not consummated at that point because PIM did not have sufficient funds to do so. In consideration of a ninety day extension of the date of settlement, Garland executed a promissory note for $50,000 payable to Dixon and Litty.

The repurchase never occurred, no payments were ever made by Process on the notes, and confessed judgments were obtained in the Circuit Court for Charles County against PIM by the appellants according to the terms of each note on July 23, 1974. In August of 1974, Monumental Title Company sought to obtain exclusive rights to handle settlements for the Ryland Corporation in the State of Maryland. Monumental was largely owned and controlled by Dixon who was the chairman of the board of that company. Ryland is a home building company whose method of operation includes entering into an option agreement with the developer of a subdivision, and selling its homes by displaying models.

Once a home buyer signs a contract with Ryland, Ryland then exercises its option on the specific lot needed for building. The method contemplates one settlement when ²⁰¹ Ryland pays the developer and then a second settlement with the home buyer. Ryland was a purchaser of lots from TPC in the Clinton Woods development, and had scheduled the settlement of eight lots in that tract for January of 1975. Prior to the scheduled settlement date for the Ryland homes, Dixon realized that there were two "Process” corporations, and the property in Clinton Woods was held by the wholly owned subsidiary, TPC, rather than the parent corporation, PIM, against which Benedict Associates had judgments.

Dixon, at the time of the settlement instructed Monument’s settlement officer to put the settlement through on the Ryland lots, but to withhold any proceeds due TPC. The settlement sheet submitted to Garland on the day of settlement, unlike the one originally sent to Garland, indicated that the sum of $3,906.18 was to be paid to William E. Dixon on account of the judgments against PIM, and TPC was to be paid nothing. Garland then refused to proceed with the settlement. Garland testified that he "told Dixon that he knew full well he [Dixon] wasn’t entitled to any money.

He [Dixon] said he was claiming it because of his judgments against PIM....” Consistent with Garland’s testimony was that of Dixon: I went in and talked with Mr. Garland. I told him my position. I told him that I, where I stood, that — that before I took that position, and on a firm position, I called Charlie Atwater [an attorney] to determine if my thinking was proper and correct. If they could be declared by a court.

And he disagreed vehemently. And I suggested, alright, we’d put — we’d put the settlement through, let’s not hold up the settlement. And we’ll put the proceeds in escrow, and let’s file a bill of either declaratory decree or a quiet title to determine whether or not my position is right or wrong. Mr. Garland said, absolutely not, nobody was going to hold his proceeds.

He took the deed and left. Shortly after the aborted settlement, Dixon contacted a former employee of his at Monumental who he felt Garland ²⁰² would ask to handle the settlement. Dixon put his former employee on notice of his intention to file suit to enforce the judgments which Dixon held against PIM. Dixon also called Healey to apprise him of his intention to litigate the dispute.

The result was that neither Dixon’s former employee nor Healey would insure title to the lots. Garland then secured title insurance through another company and the settlement was completed on January-10, 1975, with $3,906.18 being paid to TPC. TPC continued to sell lots in Clinton Woods to Ryland. However, TPC encountered financial difficulties and eventually surrendered the last thirty-two lots in Clinton Woods to the Union Trust Company in 1977 in order to avoid any further liability.

On October 23, 1975, the appellants filed an unsuccessful suit in equity in Prince George’s County against PIM and TPC in an attempt to have the court declare the assets of TPC to be those of PIM and thus to declare their judgments against PIM to be liens against Clinton Woods. In that earlier case, the appellants also claimed fraud sufficient to pierce the corporate veil of PIM and TPC. The lower court in that case found insufficient evidence of fraud, and this Court upheld that ruling on appeal although "there was legally sufficient evidence to cast doubt as to the separate corporate identities of PIM and TPC. . . .” Dixon v. Process Corp., supra, at 654. The legal fees for defending the Prince George’s County suit are claimed as an element of compensatory damages in the present action.

TPC filed the present suit at law in August of 1975 in the Circuit Court for Anne Arundel County against appellants, William E. Dixon and Ernest J. Litty, individually, and trading as Benedict Associates, and Monumental Title Company, seeking compensatory and punitive damages for slander of title and interference with contractual relations. 2 ²⁰³ At trial, appellants defended by claiming a conditional privilege. The lower court found that the appellants acted without any conditional privilege, and judgment was entered against the appellants, jointly and severally. The appellee was awarded $18,600 in compensatory damages and $21,000 in punitive damages. It is from this judgment that the present appeal has been filed.

The issues to be decided as raised by the appellants are: I. Whether there was a conditional privilege to make statements regarding one’s own legal rights to parties who might conceivably be affected by those legal propositions?

II

Whether the trial court erred in awarding punitive damages?

III

Whether the trial court erred in permitting the plaintiff to recover attorney’s fees which were incurred in prior litigation with the defendants? I. Appellants urge that they had available to them the defense of a conditional privilege in this suit for injurious falsehood amounting to a defamation of appellee’s title to the land here involved. The Restatement (Second) of Torts Sec. 594 (1977) deals with the conditional privilege to make statements in the furtherance of one’s own self interest: An occasion makes a publication conditionally privileged if the circumstances induce a correct or reasonable belief that ²⁰⁴ (a) there is information that affects a sufficiently important interest of the publisher, and (b) the recipient’s knowledge of the defamatory matter will be of service in the lawful protection of the interest. Comment c of Sec. 594 emphasizes that the privilege depends on whether the publisher believes an interest of his is affected even if that belief is erroneous as a matter of fact: If there is information which affects a sufficiently important interest, as stated in Clause (a) and if the publication is made to a proper recipient, as stated in Clause (b), the privilege applies.

If the interest is not in fact affected or if the recipient of the publication is not a proper person to receive the information, the privilege nevertheless applies if the publisher reasonably believes that this is the case. To the same effect is Comment h which states: For the conditional privilege to arise under the rule stated in this Section [594], it is not necessary that the publisher’s interest be actually in danger. It is enough that the circumstances are such as to lead a reasonable man to believe that the interest is in danger and that the defamatory publication is reasonably necessary for its protection. With respect to slander of title referred to as "injurious falsehood,” there is stated in Sec. 647 of the Restatement (Second) a special conditional privilege analogous to the defamation privilege encompassed by Sec. 594.

This privilege is defined as follows: A rival claimant is conditionally privileged to disparage another’s property in land, chattels or intangible things by an assertion of an inconsistent legally protected interest in himself. ²⁰⁵ Comment b of Sec. 647 explains: This Section states an added conditional privilege, applicable only to the publication of injurious falsehood and not to defamation. It differs from the conditional privilege stated in Sec. 594 in that it goes further and permits the publisher to assert a claim to a legally protected interest of his own provided that the assertion is honest and in good faith, even though his belief is neither correct nor reasonable. Comment d of Sec. 647 points out it is only necessary that there be some chance of the asserted claim being sustained. That Comment states: One may disparage another’s property in land, chattels or intangible things by asserting a legally protected interest in one’s self that is inconsistent with the other’s property in the land or other things in question.

Under the rule stated in this Section a rival claimant is privileged to assert the inconsistent interest unless a trier of fact is persuaded that he did not believe in the possible validity of his claim. It is not necessary that the person asserting the claim should believe in its certain or even probable validity. It is enough if he believes in good faith that there is a substantial chance of its being sustained. Bad faith is treated as an abuse of the privilege stated in this Section.

The reason for the extremely broad privilege stated in Sec. 647 is explained in Comment f as follows: The privilege stated in this Section is necessary to enable the claimant to preserve the enforceability of his claim. If, knowing that another is offering or about to offer land or other things for sale as his own, he fails to take advantage of a readily available opportunity to inform the intending purchaser or those likely to become purchasers, as ²⁰⁶ when the sale is by auction, of his claim to the thing, he may preclude himself from afterwards asserting it against the purchaser. Therefore, he must be permitted without fear of liability to protect the enforceability of his claim by asserting it before the purchase is made. The question of whether a defense of conditional privilege is available in a suit for injurious falsehood is initially a matter of law for the trial court.

We said in Horning v. Hardy, 36 Md. App. 419 , 373 A.2d 1273 (1977), quoting from W. Prosser, Torts Sec. 129 (4th Ed. 1971), that in a suit for injurious falsehood the defense of a conditional privilege is available under the following circumstances: If [the defendant] has a present, existing economic interest to protect, such as the ownership or condition of property ... he is privileged to prevent performance of the contract of another which threatens it; and for obvious reasons of policy he is likewise privileged to assert an honest claim, or bring or threaten a suit in good faith, to exercise the right of petition to public authorities or to settle his own case out of court. [ 36 Md. App. at 429 .] However, Prosser, Sec. 129 at 945, goes on to say that "where [the] interest [of the defendant] is merely one of prospective advantage, not yet realized, he has no such privilege.” Appellants argue that Dixon honestly believed that Benedict Associates, the partnership operated by the appellants,