Fairfax Savings, F.S.B. v. Weinberg & Green

⁵⁹³ SALMON, Judge. On October 20, 1992, appellant Fairfax Savings, F.S.B. (“Fairfax”), filed a complaint against appellee Weinberg and Green (“the firm”) in the Circuit Court for Montgomery County, alleging legal malpractice in the firm’s drafting of loan documents and breach of fiduciary duty in the firm’s representation of Fairfax during litigation resulting from a default on the loan. Fairfax filed a second amended complaint on June 20, 1994, adding claims arising out of the firm’s fraudulent overbilling of Fairfax.

The case was tried before Judge Ann S. Harrington beginning April 10, 1995. At the close of Fairfax’s case, Judge Harrington granted the firm’s motion for judgment on several counts, including indemnification and malpractice based on violation of the advocate/witness rule. 1 In this appeal, Fairfax does not take issue with the court’s partial grant of the firm’s motion for judgment. After Weinberg and Green presented its case, Judge Harrington held the case sub curia and, on August 30, 1995, filed a well-reasoned seventy-four page opinion in which she found that the firm had breached the applicable standard of care in its representation of Fairfax in the loan transaction and had engaged in systematic overbilling of Fair-fax. Despite these findings, however, Judge Harrington entered final judgment in favor of Weinberg and Green on all remaining counts.

She determined that the breach of the applicable standard of care did not proximately cause Fairfax injury and, in any event, all claims were barred either by the ⁵⁹⁴ statute of limitations or by Fairfax’s unclean hands, or had been released or waived by Fairfax. Fairfax noted this timely appeal in which it raises ten issues, which, in large measure, can be answered by responding to five questions: 1. Did the trial court err in finding that Fairfax’s claim for transactional malpractice was barred by the three-year statute of limitations? 2. Did the trial court err in holding that Fairfax’s claim for fraud or constructive fraud growing out of the firm’s overbilling was barred by the statute of limitations? 3.

Did the trial judge err in finding that the firm had made full disclosure of the billing fraud? 4. Did the trial judge commit reversible error by requiring that Fairfax prove the inadequacies of the firm’s disclosure of its billing fraud? 5. Was the trial judge correct in ruling that the conflict created by Weinberg and Green’s continued representation of Fairfax in light of the overbilling was waivable and that it had been waived by Fairfax? I. STANDARD OF REVIEW When an action has been tried without a jury, this Court will not set aside the trial court’s judgment “on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Md. Rule 8-131(c).

A finding of a trial court is not clearly erroneous if there is competent, material evidence in the record to support the court’s conclusion. Maxima Corp. v. Cystic Fibrosis Found., 81 Md.App. 602, 610 , 568 A.2d 1170 , cert. denied sub nom., 6933 Arlington Dev. v. Maxima Corp., 319 Md. 582 , 573 A.2d 1337 (1990). In reviewing the record, we consider all evidence produced at trial in the light most favorable to the party prevailing below. Maryland Metals, Inc. v. Metzner, 282 Md. 31, 41 , 382 A.2d 564 (1978); L & P Converters, Inc. v. Ailing & Cory Co., 100 Md.App. 563 , ⁵⁹⁵ 569, 642 A.2d 264 (1994).

A trial judge’s decision “founded upon sound legal principles and based upon factual findings that are not clearly erroneous will not be disturbed in the absence of a showing of a clear abuse of discretion.” Domingues v. Johnson, 323 Md. 486 , 492 n. 2, 593 A.2d 1133 (1991).

II

THE RECORD EXTRACT The facts relevant to this case are complicated and were developed in a trial that lasted thirty days. The record is voluminous, yet the joint record extract prepared by the parties is relatively sparse. Primarily, both parties present the facts of the case by quoting or paraphrasing the trial court’s opinion rather than by making reference to documents or testimony presented to the trial court. We view this as an implicit concession by the parties that as to many of the factual issues in the case the trial judge was justified in her factual conclusions.

Therefore, in this opinion we have assumed that the trial judge’s factual findings were justified, unless the appellant 1) challenged a factual finding of the trial judge and 2) supported the challenge by a reference to evidence set forth in either the record or the record extract. 2 ⁵⁹⁶ III. BACKGROUND FACTS The genesis of this appeal came well before Fairfax filed suit against Weinberg and Green in 1992. It began with a loan guarantied by Charles Ellerin, among others, negotiated by the firm for Fairfax in 1982 (hereinafter referred to as either “the Ellerin loan” or “the Ellerin transaction”). Fairfax alleges the firm committed malpractice in preparing the loan documents for the Ellerin transaction.

Further, Fairfax alleges, and Weinberg and Green admits, that the firm fraudulently overbilled Fairfax from 1983 to 1987. Finally, Fairfax contends that an unwaivable conflict of interest existed as a result of Weinberg and Green’s representation of it during the Ellerin litigation in light of the overbilling, and as a consequence, the firm must disgorge all fees it earned in that litigation and reimburse Fairfax for all losses incurred as a result of an adverse Ellerin verdict. A. The Ellerin Loan and the Resulting Ellerin Litigation In 1982, Charles Ellerin and Louis Seidel, the General Partners of Sherwood Square Associates (“Sherwood”), sought financing for a real estate development project in Westminster, Maryland. Fairfax agreed to lend Sherwood a total of $5,700,000, divided into three separate loans.

One was a conventional loan of $850,000, which was paid back prior to the onset of any litigation. The other two loans were evidenced by Industrial Revenue Bonds (“IRB’s”), acquired through the City of Westminster, in amounts of $3,050,000 and $1,800,000. Weinberg and Green represented Fairfax in the loan transactions and prepared all documents relating to the loans. A senior partner in the firm’s real estate department supervised the preparation of documents with the assistance of David M. Blum and various other Weinberg and Green attorneys.

Fairfax insisted on personal guaranties from the investors in order to protect its investment because the buildings were ⁵⁹⁷ little more than empty shells when the loans were made. Fairfax, of course, took back a mortgage on the property but also insisted on a guaranty from Ellerin and Seidel (“the General Partners”). Moreover, it required that completion guaranties be signed. These completion guaranties imposed personal liability on Charles Ellerin and his wife, Naoma, on Louis Seidel and his wife, Gloria, and on the Tri-Ess Corporation (hereinafter, “the guarantors”).

The General Partners and the guarantors were represented in all phases of the loan transaction by R. Bruce Alderman, a Maryland attorney. The obligations of the guarantors under the completion guaranties (as originally drafted by Weinberg and Green) were to complete the building according to the specifications and to secure additional financing to finish the project if necessary. The liability of the General Partners was set out in two loan agreements, one for each IRB. Fairfax submitted drafts of the loan documents to Alderman on December 22.

As originally drafted, neither the General Partners nor the guarantors had any liability after the buildings were completed. Both the Completion Guaranty and the loan agreement were changed by Weinberg and Green prior to their execution. How, why, and under what circumstances these documents were changed was the subject of the litigation that ensued when Sherwood defaulted on the loan. That litigation will be hereafter referred to as the “Ellerin litigation” or the “Ellerin case.” 3 ⁵⁹⁸ The documents prepared by Weinberg and Green and executed at the settlement on December 29 and 30, 1982, provided that neither Sherwood nor the General Partners would be liable for the loans if default occurred “at any time after the termination of the Completion Guaranty (pursuant to Section 8.1 thereof).” Section 8.1 of the new completion guaranties provided that the guarantors’ obligations “shall cease and be extinguished ... when the acquisition of the Facility has been completed and when [Sherwood] has fully complied with and satisfied the Rent Roll Requirement.” The Rent Roll Requirement, a new addition to the completion guaranties, was defined as the leasing of seventy percent of the finished buildings. 4 Section 3.1 of the completion guaranties imposed post-completion liability on the guarantors in the event that Sherwood “has not fully complied with and satisfied the Rent Roll Requirement,” to an aggregate liability of $1,150,000 on each IRB (a total of $2,300,000).

In short, under the terms of the new loan documents, the guarantors continued to have possible personal liability as guarantors (up to a maximum of 2.3 million dollars) beyond the date the project was physically completed until such time as the property was seventy percent leased. The General Partners, under the revised loan docu ⁵⁹⁹ ments, had potential post-completion liability up to the full amount of the loans. Blum, who in 1982 was a partner at Weinberg and Green, testified at the trial sub judice that he was working on the loan documents on the evening of December 27, 1982, when Jack Stollof, the senior vice president of Fairfax, telephoned and asked what the loan documents provided with respect to the personal liability of the guarantors. When Blum replied that the documents contained no post-completion personal guaranties, Stollof became upset and insisted that this should be changed.

Stollof demanded that Blum call Ellerin and Alderman to resolve the “problem” immediately. According to Blum, he quickly managed to get himself and Stollof and others in telephone contact with Alderman. In a conference call, Stollof informed Alderman that the loans would not go through unless the guarantors agreed to post-completion guaranties. 5 Blum testified that by the end of this conference call, the parties had agreed that the guarantors would have post-completion exposure for $1,150,000 on each IRB loan, subject to the seventy percent Rent Roll Requirement. In the days between the conference call and closing, Blum and other firm attorneys worked on making the changes in the completion guaranty that were agreed to during the conference call.

Blum also made a change to the loan agreement in an effort to “achieve greater clarity.” He inserted language into Paragraph 4.1 of the loan agreement that the General Partners’ liability would end “after the termination of the completion guaranty.” As previously noted, this language extended the General Partners’ liability for the entire loan beyond the physical completion of the project through the lease-up period. ⁶⁰⁰ This additional language was not agreed to by the parties. According to Blum’s testimony, he never intended the language to expand the liability of the General Partners; he intended to expand only the potential liability of the guarantors. On the day of closing, Blum gave Alderman the opportunity to review the loan documents. Blum testified that he specifically pointed out the changes he had made to the completion guaranty.

Thus, according to Blum, Alderman knew that the potential post-completion liability of the guarantors had been increased to 2.1 million dollars. Blum acknowledged, however, that he did not point out the changes he had made in the loan agreement. Thus, according to Blum, the possible post-completion exposure of the General Partners had been increased from zero to well over four million dollars (until seventy percent of the building was leased); yet neither Blum nor Alderman realized this at the time of closing. In regard to the change in the documents that increased the liability of the General Partners, Judge Harrington commented: All experts who testified in this case regarding the standard of care required in communicating changes in transactional documents to the borrowers agreed that [the firm] was required to communicate to the borrowers and their counsel any material changes that were reflected in new drafts of the loan documents____ * * * It is undisputed that Blum did not communicate the material change to Section 4.1 of the Loan Agreement to the borrowers or their counsel.

This Court therefore finds this failure breached the standard of care [the firm] owed to Fairfax in handling this loan transaction. Sherwood defaulted on the loans in 1985, after the buildings were completed but before the Rent Roll Requirement was satisfied. Fairfax retained Weinberg and Green to file suit against the General Partners and the guarantors for their ⁶⁰¹ liability for the debt under the loan documents. Judgments by confession were entered against both the guarantors and the General Partners, but they successfully moved to vacate the confessed judgments on the ground that Fairfax had committed fraud by slipping guaranties into the final loan documents without their knowledge.

The guarantors and the General Partners next filed counterclaims against Fairfax alleging, inter alia, fraud and seeking punitive damages. The ensuing Ellerin litigation generated three trials and three reported decisions by Maryland appellate courts. Weinberg and Green represented Fairfax in all three of the trials and in the first of two appeals. The first trial began on September 2, 1987 and ended one month later.

Counsel for the General Partners and the guarantors argued that a “double-fraud” had been committed by Fairfax in drafting the loan documents. The first (alleged) fraud was the imposition of liability on the guarantors under Section 3.1 of the completion guaranties; the second fraud was Weinberg and Green’s failure to disclose the extension of the General Partners’ liability under Paragraph 4.1 of the loan agreement. The jury at the first Ellerin trial found that Fairfax had fraudulently changed the loan documents but also found that the guarantors had ratified the fraud. The jury awarded Fairfax damages of $2,303,984.61 against the guarantors.

The trial court granted Fairfax’s summary judgment motion in the cases filed against the General Partners and entered judgment (jointly and severally) for $5,263,688.75 against them. These judgments were reversed due to erroneous jury instructions on ratification, and the entire matter was remanded for a new trial. Ellerin v. Fairfax Sav. Ass’n, 78 Md.App. 92 , 552 A.2d 918 , cert. denied, 316 Md. 210 , 557 A.2d 1336 (1989).

The second Ellerin trial, which began in September 1990, ended with a hung jury. The third trial began April 10, 1991. The jury found that neither the guarantors nor the General Partners nor their attorney were aware of the altered provisions in the loan documents. The court directed a verdict in favor of Fairfax ⁶⁰² and awarded it $4,371,401.96 in damages against the General Partners (the amount owing on the loans) and $2,984,033.20 against the guarantors.

On the fraud counterclaims, the jury returned verdicts against Fairfax of $2,650,695 in compensatory damages for emotional distress and pre-judgment interest, $7,355,435.16 for the damages resulting from Fairfax’s judgment against the General Partners and guarantors, and $6,000,000 in punitive damages. This Court upheld the award of compensatory damages but, based on an erroneous jury instruction, vacated the punitive damages award. Fairfax Sav., F.S.B. v. Ellerin, 94 Md.App. 685 , 619 A.2d 141 (1993). The Court of Appeals granted a petition for certiorari filed by the guarantors and the General Partners.

It ultimately agreed, however, that the punitive damages award should be vacated, and remanded for a new trial on the issue of punitive damages only. 6 Ellerin v. Fairfax Savings, F.S.B., 337 Md. 216, 243 , 652 A.2d 1117 (1995). Over a year after the May 1991 jury verdict in the third Ellerin trial, Fairfax filed the case sub judice against Weinberg and Green. Despite Judge Harrington’s holding that the firm was required to communicate to the borrowers any material changes in the new drafts and that the firm had breached the standard of care it owed to Fairfax in handling the loan transaction, Judge Harrington concluded that Fairfax had failed to prove how this breach caused its damages. She explained: It is undisputed by witnesses in this case that Alderman was told orally about material changes to the loan documents, yet he testified [in the final Ellerin case] to the contrary, and the jury believed him.

There is no evidence in the record of this case from which the Court can conclude that had Alderman been orally informed of an additional change in the Loan Agreement, he would have testified differently, or the jury would have disbelieved him. The evidence is ⁶⁰³ that Blum did point out the changes in the Completion Guaranty to Alderman, yet Alderman denied it in his Ellerin testimony. Assuming Blum [had been] able to testify that he also reviewed changes in the Loan Agreements with Alderman, it would have made no difference. As noted earlier, Judge Harrington also found (in the alternative) that Fairfax’s claims based on the alleged malpractice in drafting and documenting the loan transaction were barred by the statute of limitations.

B. The Overbilling Scheme Stanford Hess (Hess) joined Weinberg and Green in 1974, became a partner in 1977, and served as a member of the firm’s executive committee beginning in 1987. Hess was a close friend of Malcolm Berman (Berman), Fairfax’s majority stockholder. In the early 1980’s, Hess was the firm’s highest biller, with Fairfax and other Berman-related entities making up over half of his billings. Hess, however, grew tired of Berman’s practice of delaying fee payment and of negotiating fee reductions before finally paying his bills.

In 1983, Hess sporadically began to inflate billable hours on legal work done for Fairfax and numerous other Berman-related entities. Hess, in early 1986, offered a fifteen percent discount to Fairfax and other Berman-related entities on their legal fees; in return, the clients were to make prompt payments of their bills. Berman accepted this offer, and thereafter the bills reflected a fifteen percent discount. The discount was illusory, however, because the firm’s bookkeeping staff, at Hess’s direction, wrote two computer programs that inflated billable hours by fifteen percent.

One program changed the hours only on the billing statement; the other changed the hours on both the pre-bills and the billing statements. This organized, systematic billing fraud practiced against Fairfax and other Berman-related accounts was put in place in February or March 1986 and continued up until May 1987. Members of the firm’s administrative staff, computer division, and billing department learned of Hess’s fraud. The chair of the firm’s finance committee knew of the fraud as early as March 1987, ⁶⁰⁴ and the executive committee discussed the problem of Hess’s overbilling scheme for several months prior to September 1987.

Despite this knowledge, Berman was initially not told of the fraud. The Ellerin litigation was instrumental in finally bringing the fraud to Berman’s attention. Fairfax claimed in the Ellerin litigation that the defendants were not only responsible for repaying the loan but were also responsible for all legal fees connected with collecting the debt. 7 On September 1, 1987, Judith O’Neill, Weinberg and Green’s lead trial attorney in the first Ellerin trial, realizing that the fees had been inflated, reported to James Carbine, the head of Weinberg and Green’s litigation department, that the firm had fraudulently overbilled Fairfax in the Ellerin litigation and in another Berman-related account. The first Ellerin trial began on September 2, 1987, which was the same day that Carbine went to Ronald Creamer, managing partner of Weinberg and Green, and told him of the billing fraud. 8 A fee petition prepared by O’Neill and a fee exhibit summarizing the fees charged by the firm to Fairfax in the Ellerin litigation were introduced at trial on September 4, 1987.

Carbine met with Hess on September 8, 1987, and told him that Berman must be notified of the fraud and repaid. Hess initially refused, stating that if Berman were notified it would ruin him (Hess) and the firm. Mr. Carbine was not persuaded to drop the matter. He met with the firm’s executive committee on September 8, 1987, and they authorized Carbine to begin an investigation in order to identify the total amount of ⁶⁰⁵ overbilling to Fairfax and other Berman-related entities so that the clients could be fully reimbursed.

On Sunday, September 13, 1987, a delegation of attorneys from the firm, including Hess but not Carbine, met with Berman at his home to reveal the overbilling. Because defense counsel had subpoenaed the back-up billing documents for their fee petition, Weinberg and Green feared that the defendants in the Ellerin case would discover the overbilling. Therefore, it was necessary to tell Berman of the immediate need to withdraw the fee petition in the Ellerin case. This began a long process of research on Weinberg and Green’s part as to the amount that the client had overpaid, disclosures by the firm, execution of releases by Berman, and repayment by the firm.

The fee petition in the Ellerin litigation was withdrawn on September 14, 1987, with Berman’s consent. Berman met with firm attorneys at some point prior to December 31, 1987 (the trial court was unable to determine the exact date) and was presented with disclosure documents regarding the firm’s systematic overbilling scheme. Weinberg and Green had concluded at this point, following an investigation by Carbine, that Fairfax and other Berman-related entities were due a refund of $110,599 for overbilling on accounts other than Ellerin for the period between October 1983 9 and August 1987. 10 The firm also concluded that Fairfax was due a payment of $275,-000 for the withdrawn fee petition in Ellerin, based on what the firm estimated would have been recovered at trial (from the General Partners and the guarantors) if the fee petition had not been withdrawn. Finally, the firm proposed a $90,000 payment for 'withdrawal of a fee petition in the “Zurich” ⁶⁰⁶ litigation.

That litigation involved a suit by a Berman-related entity (not Fairfax) against the Zurich insurance company. Oddly, Berman was delighted by the discovery of the over-billing scheme, at least according to Arnold Weiner, a Maryland attorney who represented Fairfax in other matters. A few weeks after September 13, 1987, Berman told Weiner about the firm’s scheme and viewed the situation as humorous. Berman was pleased the firm had overbilled him because it created an opportunity for him to recover a substantial amount of money 11 and proved that the firm had “outsmarted” itself.

Showing himself as a person who would not hold a grudge, at least as long as the firm obtained good results, Berman continued to use the firm in over one hundred other cases after the overbilling fraud was disclosed. Berman also continued his friendship with Hess and even asked the firm not to impose in-house sanctions on Hess for his part in the fraud. 12 In December 1987, the firm proposed that Fairfax sign a release of the firm’s liability caused by the withdrawal of the fee petition in the Ellerin trial. With regard to the signing of the release, Berman was advised repeatedly that he had the right to consult with independent counsel, and he was encouraged to do so. This advice was communicated orally.

The firm did not, however, advise Berman in writing to seek independent counsel regarding the releases. 13 ⁶⁰⁷ Drafts of the proposed release went back and forth between the parties. Ultimately, the firm presented two releases to Berman in January 1988. The first released the firm from all claims that Fairfax may have had against it as a result of the withdrawn fee petition in the Ellerin litigation. 14 As consideration, the firm paid Fairfax $265,000. 15 The second released the firm from all claims that Fairfax may have had against it for any negligence in connection with its work on the Ellerin loans. The firm paid Fairfax $10,000 for the second release. 16 Berman agreed to sign both releases, but he wanted the ⁶⁰⁸ $10,000 release to specify that the firm would continue to represent Fairfax in the Ellerin litigation, including any retrial if one were ordered.

Thus, an early draft of this release included this promise. This promise was later deleted from the release, but it was reiterated in a separate letter (dated January 1988) in which the firm stated it would continue to represent Fairfax provided that (1) any necessary waiver-of-conflict letter and/or release is executed on behalf of Fairfax Savings; (2) neither Weinberg and Green nor any of its partners or employees are made parties in [the Ellerin case]; and (8) Weinberg and Green is not otherwise disqualified from representation. This letter also stated that Berman had been advised that the firm’s continued representation of Fairfax “may not be in Fairfax Savings’ best interests.” Both releases were signed on January 25, 1988. Thus, the parties contemplated the possibility of continued litigation even though the releases were signed approximately one year before the judgment in the first Ellerin trial was reversed by this Court.

About the time the releases were signed, the firm paid Fairfax $110,599 in compensation for the firm’s overcharging of Fairfax and numerous other Berman-related accounts. No release was signed in exchange for the $110,599, but as the trial court found, Berman was satisfied with the amount and was pleased that the matter had been resolved. C. Malcolm C. Berman Berman, at all times here relevant, was the Chief Executive Officer and Chairman of the Board of Fairfax. He also owned seventy percent of Fairfax’s stock.

In Judge Harrington’s words, Berman is “the physical embodiment of Fairfax,” an enterprise with assets of $440,000,000 and 225 employees. In order to decide many of the issues presented in this case, it was necessary for the trial judge to make an assessment of Berman’s credibility. When the assessment was completed, Berman fared badly. ⁶⁰⁹ Berman testified that: 1) his higher education amounted to less than six months of accounting classes; 2) he had little contact with lawyers outside of Weinberg and Green during the period when the firm represented him; 3) he had a reading disability and, therefore, did not understand many documents that he signed; 4) he did not personally understand the consequences of his signing releases in this case; instead, he relied on the deceitful explanations of Hess; 5) he needed help in writing letters; 6) when he accepted the $110,599 from the firm, he understood that Weinberg and Green was giving him a “gift” of the money; and 7) he played no active role in the Ellerin litigation. In general, Berman attempted to convince Judge Harrington that his decisions relevant to his dealing with Weinberg and Green were uninformed, were the subject of undue influence by Hess, or were flawed because of his legal naivete and reading problems.

A very different picture of Berman emerged from evidence produced by the firm, viz: 1) Berman had testified in another case that his education included “several years of accounting” classes; 2) Berman, as a “savvy” businessman, had hired “legions” of lawyers both before and during the period when he employed Weinberg and Green; 3) he had reviewed and understood many complicated legal documents in the past, often making changes before signing them; 4) he frequently wrote letters on his own and revised those written by others; 5) he referred to himself as the best lawyer he knew; 6) he understood that a $110,599 payment from the firm was in settlement of the claim for the overbilling fraud; 7) he was present for opening statements and other parts of the first Ellerin trial, met repeatedly with Weinberg and Green attorneys to go over Ellerin trial strategy, and checked in with firm attorneys every day during the second Ellerin trial; and 8) he “micro-managed” litigation in which he was involved. Attorneys testified that working for Berman was like working with a supervisory attorney. Moreover, Weinberg and Green proved that in an unrelated arbitration proceeding Berman demonstrated his familiarity with legal proceedings by passing notes to his attorney and suggesting cross-examination ques ⁶¹⁰ tions. Further, Berman had no problem in reading the English language as demonstrated by the fact that he had taken and passed written examinations to obtain pilot’s, insurance, and real estate broker’s licenses.

Judge Harrington believed that Berman was a “highly successful, clever and tenacious” businessman with an admitted net worth of at least sixty million dollars. In addition to running Fairfax, Berman oversaw the operation of numerous other successful businesses, including the Princess Royale hotel in Ocean City, Maryland, which “was built by Berman at the cost of $38 million. Berman acted as general contractor, negotiating every contract and personally supervising all details of the construction.” The court concluded that Berman “attempted to paint an untrue picture of his background and education, sophistication, knowledge of legal claims and procedures, ability to negotiate or revise contracts and his care with significant documents.” Berman attempted to make himself look like an unsophisticated victim of Weinberg and Green instead of the legally savvy businessman that he truly was. Judge Harrington found that Berman intentionally testified falsely about many issues in the case.

As a consequence, she gave his testimony no discemable weight. Appellant does not challenge any of these credibility findings. D. Fairfax’s Original and Amended Complaints Fairfax alleged in its original complaint that: 1) it was entitled to indemnification for the judgment entered against it in the third Ellerin trial; 2) the firm had committed malpractice in writing the loan documents and in its representation of Fairfax during the three Ellerin trials; and 3) the firm had breached its fiduciary duty to Fairfax. The original complaint does not mention the overbilling or any conflicts connected to it.

On June 20, 1994, which was more than three years after the verdict in the third Ellerin trial, Fairfax filed its second ⁶¹¹ amended complaint. It added a fraud count based on the firm’s overbilling, which stated: 111. Over a period of years, W & G submitted bills for professional services to Fairfax which W & G knew purposely and systematically overstated the amounts due to W & G for its professional services. 112. W & G knew that the bills were false when they were submitted to Fairfax for payment.

W & G submitted the false bills to Fairfax for the purpose of defrauding Fairfax. 113. Fairfax justifiably relied upon the accuracy of the false bills, and suffered actual damages as a direct result of its justifiable reliance. 114. W & G’s Billing Fraud Scheme and its fabrication of false self-serving evidence to justify its actions constituted gross fraud, was perpetrated with malice and willfulness, and was a gross breach of W & G’s fiduciary duties to Fairfax. The count alleging malpractice based on conflicts of interest stated that the firm’s representation of Fairfax during the Ellerin trials was materially limited and adversely affected by the firm’s interest in protecting itself from, or minimizing the consequences of, having to disclose to independent counsel for Fairfax W & G’s Billing Fraud Scheme [and the firm’s] interest in protecting itself from, or minimizing the consequences of, having to disclose to the Attorney Grievance Commission of Maryland, and the public at large, its Billing Fraud Scheme[.] Another count contained an allegation that proceeding to represent Fairfax in light of the firm’s conflicts of interests was a breach of the firm’s fiduciary duties.

E. The Court’s Rulings as to the Statute of Limitations Judge Harrington found that prior to December 31,1987; 1) the firm had fully and fairly disclosed to Fairfax the details of the overbilling scheme by December 31, 1987; 2) Berman ⁶¹² received documents setting forth the firm’s estimated overbilling; 3) Berman met with firm attorneys to discuss the over-billing and its implications; 4) Berman was advised that the firm had used a systematic, computerized scheme to accomplish the overbilling; and 5) Berman knew how long the scheme had lasted and which accounts had been overbilled. The court also found that Berman was told to seek the advice of independent counsel before agreeing to settle his claim for overbilling and that Berman signed a release for the withdrawn Ellerin fee petition at a point when he was fully apprised of all the information he needed regarding the over-billing. Lastly, Judge Harrington found that Fairfax’s delay of more than six years after receiving full disclosure of the billing fraud barred any cause of action based on that fraud. Likewise, the statute of limitations barred Fairfax’s cause of action for transactional malpractice (Count II) and for an accounting (Count IX).

Additional facts will be set forth as necessary to address the issues presented.

IV

ANALYSIS Issue 1. Did the statute of limitations bar Fairfax’s claim for transactional malpractice? Ordinarily, a cause of action must be filed within three years from the date it accrues. Md.Code Ann., Cts. & Jud.Proc. § 5-101 (1974,1975 Repl.Vol.). 17 “[T]he purposes of statutes of limitation are to provide adequate time for a diligent plaintiff to bring suit as well as to ensure fairness to defendants by encouraging prompt filing of claims.” Hecht v. Resolution Trust Corp., 333 Md. 324, 338 , 635 A.2d 394 (1994).

In actions involving malpractice, where a wrong is often not discoverable until long after it is committed, “the cause of action accrues when the wrong is discovered or when with due ⁶¹³ diligence it should have been discovered.” Leonhart v. Atkinson, 265 Md. 219 , 289 A.2d 1 (1972). See also Mumford v. Staton, Whaley & Price, 254 Md. 697 , 255 A.2d 359 (1969); Hahn v. Claybrook, 130 Md. 179 , 100 A. 83 (1917). [T]he discovery rule contemplates actual knowledge — that is express cognition, or awareness implied from knowledge of circumstances which ought to have put a person of ordinary prudence on inquiry [thus, charging the individual] with notice of all facts which such an investigation would in all probability have disclosed if it had been properly pursued.... In other words, a [person] cannot fail to investigate when the propriety of the investigation is naturally suggested by circumstances known to him; and if he neglects to make such inquiry, he ... must suffer from his neglect. Poffenberger v. Risser, 290 Md. 631, 637 , 431 A.2d 677 (1981) (quoting Blondell v. Turover, 195 Md. 251, 257 , 72 A.2d 697 (1950)).

A cause of action does not accrue, however, until all elements are present, including damages. Baker, Watts & Co. v. Miles & Stockbridge, 95 Md.App. 145, 187 , 620 A.2d 356 (1993). Accrual occurs when some evidence of legal harm has been shown, even if the precise amount of damages is not known, American Home Assurance v. Osbourn, 47 Md.App. 73, 86 , 422 A.2d 8 (1980), cert. denied, 289 Md. 739 (1981), and even if plaintiff has suffered only “trivial injuries.” Mattingly v. Hopkins, 254 Md. 88, 95 , 253 A.2d 904 (1969). See also Feldman v. Granger, 255 Md. 288, 296 , 257 A.2d 421 (1969) (ignorance as to the exact amount of damages sustained at discovery of wrong “is not a sufficiently sound reason to postpone the accrual of the action or toll the running of limitations”).

The dispositive issue in determining when limitations begin to run is when the plaintiff was put on notice that he may have been injured. Russo v. Ascher, 76 Md.App. 465, 470 , 545 A.2d 714 (1988). The parties and the trial judge refer to the negligence of the firm in preparing the Sherwood loan documents and in ⁶¹⁴ failing to notify the attorney for the General Partners of changes that were made in the documents as “transactional” malpractice. The court found that- Fairfax learned of its potential transactional malpractice claim in September 1987 and that the firm thereafter “engaged in [no] conduct that would toll the statute of limitations.” Fairfax does not challenge these findings.

Instead, it contends that its cause of action for transactional malpractice did not accrue until it suffered damages and that it suffered no damages until May 1991 when the jury in the third Ellerin trial returned its verdict. On January 2, 1987, the Circuit Court for Baltimore County set aside the confessed judgments previously entered against the General Partners and guarantors. The sole basis for setting aside the confessed judgments was because Weinberg and Green had (allegedly) altered the loan document and increased the potential exposure of the defendants without notifying them. Setting aside the confessed judgment changed a routine collection case into one in which Fairfax was forced to defend against a counter-claim alleging fraud; this, in turn, caused Fairfax to incur huge additional attorneys’ fees. 18 A portion of those additional fees was incurred by the ⁶¹⁵ end of the first Ellerin trial in November of 1987.

Appellant waited more than three years after incurring additional attorneys’ fees before filing suit for the transactional malpractice. Ordinarily, incurring the expense of hiring counsel is not enough to constitute “legal harm” for purposes of the discovery rule. American Home Assurance, supra, 47 Md. App. at 87 , 422 A.2d 8 . There is, however, an exception to that rule, i.e., if the cost of defending a suit is the direct result of a lawyer’s malpractice, the legal harm element is satisfied once such legal costs are incurred.

The appellee in the American Home case was Robert Osbourn, a tow-truck operator. He was asked by the police to tow eight cars from a parking lot. The owners of the eight towed vehicles sued Osbourn for trespass and conversion (the “Colby suit”). Osbourn, who was insured by American Home, asked his insurer to defend him.

The insurer refused because of an “intentional acts” exclusion in the policy. Id. at 76 , 422 A.2d 8 . Osbourn hired his own lawyer and ultimately settled the Colby suit. More than three years after he was advised that his insurer refused to provide a defense, Osbourn brought two lawsuits.

The first was a declaratory judgment action against his insurer seeking, inter alia, a declaration that the insurer should have defended the Colby suit; a second action was brought against Osbourn’s insurance broker (Hay Brothers), in which Osbourn alleged negligence and breach of warranty due to the broker’s failure to procure adequate insurance coverage for Osbourn. Id. The two cases were consolidated for trial, but prior to trial the court granted the broker’s motion for summary judgment based on the statute of limitations. The trial judge ruled against American Home, however, and held that the insurer did have a duty to defend.

A judgment was entered in favor of Osbourn against the insurer for, inter alia, the costs of defending the Colby suit. Id. at 77 , 422 A.2d 8 . After reversing the judgment entered against the insurer, we turned our attention to the issue of whether the trial judge ⁶¹⁶ erred when he granted summary judgment in favor of the broker and resolved that issue as follows: The critical question, then, is the date when Osbourn knew or should have known that his insurance broker sold him an insurance policy which was inadequate because it afforded incomplete coverage. Under the discovery rule, plaintiff would have three years from that time in which to file suit.

Here, the appellant would have us rule that no damages were incurred in the defense of the Colby suit until the case was settled in December 1977 and, therefore, his cause of action did not “accrue” at least until that time. Osbourn also argues that the pendency of the declaratory judgment action against American Home postponed the running of the statute because he could not know whether his policy provided coverage in the Colby suit until the declaratory judgment case was decided. The appellee, on the other hand, argues that the cause of action accrued on September 11, 1974, the date of American Home’s letter to Osbourn stating there was no coverage and declining to provide a defense. Contrary to appellant’s contention, a showing of the precise amount of damages at the time of discovery of the wrong is not required although, of course, there must be some evidence of legal harm.

In Feldman v. Granger, 255 Md. 288 , 257 A.2d 421 (1969), Judge Finan stated for the Court of Appeals: “[A]s in the Mattingly case, and as in other tort cases, the exact amount of damages sustained may not be known at the time of the discovery of the wrong. However, in our opinion this is not a sufficiently sound reason to postpone the accrual of the action or toll the running of limitations when other reasons grounded in public policy are considered.” Id. at 296, 422 A.2d 8 . See Mattingly v. Hopkins, supra. In our view, the statute of limitations in this case began to run on September 11, 1974 — the day Osbourn discovered that American Home would not defend.

Osbourn knew then that he had to engage his own counsel in the Colby ⁶¹⁷ suit. We recognize that incurring the expense of counsel fees does not ordinarily constitute sufficient legal harm, in and of itself, to satisfy the “damage” requirement of the discovery rule. In the instant case, however, the cost of defending the Colby suit was a direct result of Hay Brothers’ alleged malpractice in failing to procure adequate insurance coverage, one benefit of which would have been complete legal representation of Osbourn. The effect of the declaratory judgment action on the application of the discovery rule need not detain us.

Suffice to say, appellant could have filed his action against Hay Brothers within the requisite three year time period and the action could have been stayed pending the outcome of the declaratory judgment suit. See Feldman v. Granger, supra, 255 Md. at 294-95 , 257 A.2d 421 . (Emphasis added.) The exception to the rule as set forth in American Home, supra, is here applicable. The cost of defending against the Ellerin fraud claim was directly attributable to the firm’s transactional malpractice.

Therefore, the cause of action for that malpractice accrued in 1987 when Fairfax first gained knowledge of its claim and first incurred legal fees caused by the malpractice. The trial judge was correct in holding that the statute of limitations barred Fairfax’s transactional malpractice claim. 19 Issue 2. Did the trial court err in holding that Fairfax’s claim for fraud or constructive fraud 20 grow ⁶¹⁸ ing out of the firm’s overbilling was barred by the statute of limitations? Section 5-101 provides: Three-year limitation in general.

A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced. Section 5-203 states: Ignorance of cause of action induced by fraud. If the knowledge of a cause of action is kept from a party by the fraud of an adverse party, the cause of action shall be deemed to accrue at the time when the party discovered, or by the exercise of ordinary diligence should have discovered. Mr. Berman testified in the lower court that at the time he signed the two releases (January 25, 1989) he knew Fairfax had been fraudulently overbilled by Weinberg and Green in the amount of $20,000.

He further testified that when he signed the release of all claims for transactional malpractice for a total of $10,000, he thought he was signing a release for Fairfax’s $20,000 overbilhng claim and that the check Fairfax received for $110,599 was a favor or gift from the firm. Not surprisingly, the trial judge did not believe Berman’s testimony. The trial judge believed that, due to the overbilling fraud, Fairfax made three payments to Fairfax and/or other Berman-related entities. In December 1987, $90,000 was paid to Berman and Richard Singer, who was Berman’s partner in an entity known as Ocean Plaza Joint Venture. 21 This money was paid to the two general partners in the joint venture because the firm had overbilled the joint venture for handling a case against the Zurich Insurance Company (“the Zurich litigation”), and as a consequence, a fee petition in that case had to be withdrawn.

Whether the firm ⁶¹⁹ made full disclosure to the joint venture is irrelevant here because the joint venture in the Zurich litigation was not a plaintiff in the case sub judice. In January 1987, $265,000 was paid to Fairfax for withdrawal of the fee petition in the Ellerin case, and $110,599 was paid to Fairfax for overbilling in nineteen Berman-related accounts, including the Fairfax account. The trial court found that the $110,599 sum paid to Fairfax more than fully compensated it for the losses Fairfax had suffered. In regard to this last finding, the court, in part, relied on the opinion of an expert.

The court stated: Herbert Walter (“Walter”), a partner in the Dispute Analysis and Corporate Recovery Services Group of the firm Price Waterhouse, testified for Defendant. Walter, a certified fraud examiner, conducted an audit of the bills and prebills using 98% of the pertinent documentation. He testified that in his expert opinion Fairfax was more than fully compensated by the payment of $110,599 on the general accounts for several reasons 1. The payment included approximately $7,000 more than Walter’s audit showed was due Fairfax under a 15% discount methodology; 2.

Fairfax received the entire amount, even though nonFairfax Berman-related entities were included in the calculation; 3. Calculating the reimbursement globally worked to Fairfax’s advantage; 4. He found no evidence that expenses or costs billed by W & G to Fairfax were increased; 5. The methodology used by the defendant was reasonable.

Walter’s testimony was not challenged by any opposing expert and is persuasive on this issue. Fairfax could not plausibly maintain the court was clearly erroneous in finding that by December 31, 1987, Fairfax had discovered the billing fraud or that Fairfax knew in 1987 that the firm paid it $110,599 for the overbilling. Instead, Fairfax contends that the firm withheld from it knowledge of the full ⁶²⁰ magnitude of the overbilling fraud until Oetober 1993, when Berman received in discovery plaintiffs Exhibit 131, which was a document that Fairfax reads as showing that it had been overbilled by $270,451, not $110,599. Although Fairfax’s brief is in no way clear on this, it apparently claims that it had a cause of action for billing fraud for the difference between what was disclosed and what was not, i.e., a claim for ($270,451, less $110,599) $169,852.

In regard to plaintiffs Exhibit 131, the trial court found: According to Plaintiff, Exhibit 131 shows overbilling on nineteen separate files over a four-year span and can be read to show an amount overbilled in cases other than Ellerin exceeding $270,000. Since Miller had these documents prior to his November 23,1987 meeting with Berman, and did not show them or provide a copy, Plaintiff contends that Plaintiff’s Exhibit 131 is proof that full, material disclosure of fraud was not made. The [c]ourt has considered [pjlaintiffs argument but rejects the premise that this specific information had to be provided for there to be full material disclosure. Furthermore, the Exhibit does not prove overbilling in the amount suggested by [pjlaintiff.

(Emphasis added.) This last sentence, which we have emphasized, was supported by substantial evidence. It is true that on plaintiffs Exhibit 131 there is a column with the heading “Write Ups” under which there are a series of figures that total $270,451. For the most part, 22 the term “write ups” can be interpreted as a synonym for “fraudulent overbilling” but many of the write ups concerned bills to entities other than Fairfax and include overbilling in both the Zurich and Ellerin cases — for which Fairfax was reimbursed separately. 23 More important, Fairfax and the other Berman-related entities had a claim against Weinberg and Green only for monies that it had ⁶²¹ overpaid, not what was overbilled. Plaintiffs Exhibit 131 shows that substantial amounts of monies billed to Fairfax and other Berman-related accounts were never paid.

This was also plainly shown on documents that Berman received before Fairfax accepted the $110,599 settlement check. According to the expert testimony of Herbert Walter, for every one hundred dollars the firm billed Fairfax and other Berman-related entities, it collected only $89.28 (89.28 percent). Because the firm’s realization rate was 89.28 percent, Fairfax had, in effect, given itself a discount. Under the agreement between Hess and Fairfax, the firm should have had an eighty-five percent realization rate.

Hence, according to the uncontradicted testimony of Walter, Fairfax was due back 4.2 percent of the bill, not fifteen percent. Walter used this 4.2 percent formula on all of the firm’s bills to Fairfax or other Berman-related entities between October 1983 and August 1988, with the exception of bills for the Ellerin and Zurich litigation. Mr. Carbine explained to the trial court the distinction between overbilling and overpayment. He also explained his methodology in arriving at the $110,599 figure.

Judge Harrington summarized Carbine’s testimony: Once into the project, Carbine realized from the number of accounts and voluminous records involved that it was impossible to differentiate legitimate adjustments to the prebills from illegitimate adjustments. Consequently, the amount of overbilling could not be determined to the penny. Carbine devised a methodology he believed would overcompensate Fairfax by moving an across-the-board discount to the earliest relevant point in time in accounts other than Ellerin and Zurich, thereby capturing everything and more that Berman would be entitled to. Although the overbilling ended in May, 1987, Carbine continued his calculations through August for audit purposes.

All files for nineteen Berman-related accounts, including Fairfax, were examined from the date that the files were opened. Recognizing that the formula wouldn’t replicate events that occurred, Carbine’s intent was to accomplish payback ⁶²² on a logical, reasonable basis. His formula analyzed nineteen Berman-related entities, setting as a baseline the fees charged at standard rate. The total amount was compared to the fees actually paid by the nineteen entities.

A percentage realization [24] rate was then compared to the total Defendant would have received had a fifteen percent discount been in place. The difference between the two amounts was refunded to Fairfax [i.e., $110,599]. Judge Harrington