Falls Garden Condominium Ass'n v. Falls Homeowners Ass'n

MOYLAN, J. From 1985 through 2008, the appellant, Falls Garden Condominium Association, Inc. (“Falls Garden”), believed, erroneously, that it held title to sixty-five parking spaces adjacent to one of the buildings in its complex on Clearwind Court in the Summit Ridge area of Baltimore County. Falls Garden used and maintained thirty-nine of those parking spaces exclusively for that period. The parking spaces were actually owned by a neighboring residential community, the appellee, The Falls Homeowners Association, Inc. (“The Falls”). After The Falls asserted its ownership rights over the parking spaces in 2009 by installing signs threatening to tow unauthorized users and by painting curb markers, Falls Garden filed a declaratory judgment action in the Circuit Court for Baltimore County on December 9, 2010, claiming it had obtained ownership of the parking spaces by adverse possession or, alternatively, that it had obtained an easement over the parking spaces by prescription or by necessity.

The Falls filed a counterclaim for trespass. As the trial date approached, the parties attempted to negotiate a settlement. On August 17, 2011, attorneys for both parties executed a letter of intent that stated it was “meant to memorialize certain aspects of a formal Settlement Agreement and separate Lease to be entered into between [Falls Garden] and [The Falls].” The Falls drafted a proposed lease but Falls Garden refused to execute it. On December 20, 2011, The Falls filed a motion to enforce the terms of the letter of intent as a settlement agreement.

Falls Garden opposed the motion. On April 18, 2012, Judge Mickey J. Norman held a hearing and granted The Falls’s motion. Falls Garden has appealed Judge Norman’s order. Falls Garden contends that Judge Norman erred in interpreting the letter of intent as a binding settlement agreement and in failing to hold a full evidentiary hearing before granting The Falls’s motion.

We find no error and we shall affirm Judge Norman’s decision. ¹¹⁹ Facts and Proceedings The factual dispute giving rise to this litigation is not material to the issues presented on appeal. Instead, we are concerned with the litigation itself. As we have noted, Falls Garden filed its complaint seeking a declaratory judgment on December 9, 2010. The Falls filed an answer and counterclaim on February 14, 2011.

The original trial date was May 27, 2011. At a settlement conference on May 12, 2011, the parties made progress toward a settlement but attorneys for The Falls did not have the requisite authority to settle the case on that day. The parties filed a joint motion for a continuance, which was granted. Trial was rescheduled for August 17, 2011.

The parties made further progress at a second settlement conference on August 11, 2011. On August 15, 2011, the parties filed a second joint motion for a continuance, noting that they had reached an agreement in principle but needed “more time to memorialize the terms of the agreement which includes the preparation of a lease for a term of 99 years.” The motion also predicted that such agreement would be drafted and executed within ninety days, at which point the parties would file a motion to dismiss the complaint and counterclaim with prejudice. Between August 11 and August 18, 2011, attorneys for both parties continued to negotiate via e-mail. These negotiations resulted in a “Letter of Intent” dated August 17, 2011. 1 We reproduce here the text of the Letter of Intent, in full: This Letter of Intent dated this 17th day of August, 2011, is meant to memorialize certain aspects of a formal Settlement Agreement and separate Lease to be entered into between Falls Garden Condominium, Inc. (“Falls Garden”) and The Falls Homeowners Association, Inc. (“The Falls”).

The proposed Lease will contain the following provisions: ¹²⁰ 1. The term of the Lease will be 99 years, with The Falls as Lessor and Falls Garden as Lessee; 2. The property to be leased will be 24 parking spaces on the east side of Clearwind Court; 3. The 24 parking spaces will start at the island closest to Falls Garden Condominium Building # 1 (6927-6933 Clearwind Court) on the northerly end of Clear-wind Court and run continuously southerly toward Ten Timbers Lane; 4.

The rent will be $20.00 per month per parking space; 5. The parking spaces shall be maintained, repaired and replaced by Falls Garden; 6. Falls Garden shall be responsible for any real estate taxes assessed against the 24 parking spaces; 7. Falls Garden shall carry insurance in amounts reasonably requested by The Falls for liability and property damage; 8.

Falls Garden shall indemnify The Falls with respect to any claims occurring on the 24 parking spaces; 9. The Lease shall contain the usual and customary provisions regarding dates and methods of payment, provisions for default and breach, severability, signs, quiet enjoyment, waiver, and the like. The proposed Settlement Agreement will contain the following provisions: 1. The case filed by Falls Garden Condominium, Inc. against The Falls Homeowners Association, Inc., and the counterclaim filed by The Falls, in the Circuit Court for Baltimore County, Civil Case No. 03-C-10-013994, will be dismissed with prejudice; 2.

Falls Garden will release The Falls from any claim of ownership of the 39 parking spaces on the east side of Clearwind Court running from Falls Garden Condominium Building # 1 (6927-6933 Clearwind Court) southerly to Ten Timbers Lane; ¹²¹ 3. On and after the date of the Lease and for the entire term of the Lease between the parties, Falls Garden may, but is not obligated to place signs on its property or on the 24 leased parking spaces indicating that they are exclusively for the use of the Unit Owners in Falls Garden and that Falls Garden shall have the right to tow any unauthorized vehicles from those parking spaces; 4. Neither party will take any action to disturb the status quo of head-in parking along Clearwind Court. However, if Baltimore County alters the current manner of head-in parking, the Lease will continue to encompass the land area that currently composes the 24 parking spaces that are the subject of the Lease. 5.

The Falls shall prepare the Lease and submit the same to Falls Garden for review, comment and execution; 6. All costs attendant to the recording of the lease shall be paid by Falls Garden, in advance of recording among the Land Records of Baltimore County by The Falls; 7. The Settlement Agreement shall contain the usual and customary provisions found in settlement agreements regarding claims to property and the like. This Letter of Intent and the undertakings of The Falls as to the Settlement Agreement and the Lease are contingent and conditioned upon the Board of Directors of The Falls obtaining the affirmative vote of two thirds (2/3) of the members of the Homeowners Association to Lease the property described above.

Signed and dated the date first written above by the respective attorneys for Falls Garden Condominium, Inc. and The Falls Homeowners Association, Inc. The document was signed by P. Michael Nagle, as attorney for Falls Garden, and Michael H. Mannes, as attorney for The Falls. ¹²² The Falls obtained the approval of two thirds of its membership to lease the parking spaces. Counsel for The Falls drafted a proposed lease and submitted it to counsel for Falls Garden on November 3, 2011 “for review and approval.” According to The Falls, Falls Garden then ceased communication. On November 21, 2011, The Falls learned that Falls Garden had obtained new counsel. On November 22, 2011, The Falls contacted Falls Garden’s new counsel, who inquired about “returning to pre-litigation status.” On December 20, 2011, The Falls moved to enforce the August 17 Letter of Intent as a settlement agreement.

Falls Garden opposed the motion, arguing that the parties did not intend to be bound until a lease and settlement agreement had been drafted and executed, and stating that Falls Garden objected to numerous terms in the proposed lease. Judge Norman held a hearing on The Falls’s motion on April 18, 2012. After hearing argument of counsel and reviewing the documents the parties had submitted, Judge Norman made the following oral findings: [T]he Court finds that the parties had negotiated or attempted to negotiate a final resolution to this matter and the question then becomes whether or not the letter of intent constitutes a contract and, as both counsel knows, letters of intent can constitute a contract and in one of the cases that [counsel for Falls Garden] cited, there’s actually a discussion concerning how letters of intent are generally looked at in four broad areas and they talk about various extremes and one extreme is the party may say specifically that they intend not to be bound until a formal writing is executed. There’s, there’s no specific language that this Court can find, either in the letter of intent or in the negotiations back and forth to [create] the letter of intent, that that is specifically contemplated.

At the other end of the extreme is the, the review of the letter of intent to determine whether the intent of the parties was to be bound by what was contained in the letter of intent that was ultimately simply, and I say simply, to be reduced to writing. Based on what this Court has reviewed in terms of ¹²³ the negotiations, the letter of intent. The letter of intent could have been simply signed by both parties and constituted, in this Court’s judgment, constituted the agreement that the parties have reached. The Court finds, as a matter of law and fact, that the parties did enter into an agreement that was memorialized in the letter of intent, therefore, the request to enforce the agreement will be granted.

Judge Norman issued a written order on April 26, 2012. This order directed The Falls to prepare a settlement agreement and release of all claims, consistent with the Letter of Intent, and directed Falls Garden to execute the settlement agreement and the lease that had already been drafted within five days of receipt. The order also provided that the complaint and counter-complaint would be dismissed with prejudice within ten days of the lease and settlement agreement being executed. By order of July 24, 2012, the matter was stayed pending the resolution of this appeal.

Discussion Falls Garden contends that the August 17, 2011 Letter of Intent was not a valid and enforceable settlement agreement because it did not represent the parties’ final agreement. Falls Garden argues that the Letter of Intent was a “framework” that set forth only some material terms on which the parties agreed. Falls Garden maintains that the parties intended not to be bound until a subsequent writing was executed, specifically the lease and settlement agreement mentioned in the Letter of Intent. To show this intent not to be bound, Falls Garden relies on the fact that the parties had said in their August 15, 2011 joint motion for a continuance that they needed more time to memorialize the terms of their agreement and a motion to dismiss would be filed “once the agreement is properly executed,” but neither party sought to dismiss the case after the Letter of Intent was executed on August 17.

Falls Garden also reiterates its objection to numerous terms of the proposed lease, including: forfeiture of the lease upon the occurrence of certain events; limitation of The Falls’s tort ¹²⁴ liability; Falls Garden’s responsibility for taxes other than real estate taxes; Falls Garden’s responsibility for maintenance other than surface repairs; The Falls’s demand that Falls Garden procure $1 million in insurance coverage, which could be increased; waiver of the right to bring counterclaims; waiver of the right to a jury trial; a fee-shifting provision; and the omission of other terms which Falls Garden would have liked to have been a part of the lease, such as a provision regarding the responsibility for towing unauthorized vehicles. The Falls contends that Judge Norman properly enforced the Letter of Intent as an executory accord. In The Falls’s view, the Letter of Intent was itself the parties’ agreement to conclude the litigation, and the lease and settlement agreement referenced in the Letter of Intent were merely ancillary documents that were necessary to carry out that agreement. The Falls argues that the fact that the memorialized agreement was styled a “letter of intent” is not controlling, and points out that the document does not state that the parties intended not to be bound by it.

The Falls maintains that, in the Letter of Intent, the parties formed an enforceable agreement by exchanging mutual promises for consideration. Specifically, The Falls agreed to lease twenty-four parking spaces to Falls Garden in exchange for $20.00 per space per month for a term of ninety-nine years. Upon performance of that agreement — i.e., execution of the lease — the parties would dismiss the action and release all claims against each other. According to The Falls, it performed its obligations by obtaining the approval of two thirds of its membership, drafting a lease, and submitting it to Falls Garden.

In asking Judge Norman to specifically enforce the Letter of Intent, The Falls was merely seeking the benefit of its bargain. Our resolution of this appeal turns on whether the August 17 Letter of Intent is an enforceable agreement. It is an accepted principle that settlement agreements are treated no differently than other contracts. Settlement agreements are enforceable as independent contracts, subject to the same general rules of construction ¹²⁵ that apply to other contracts.

As long as the basic requirements to form a contract are present, there is no reason to treat such a settlement agreement differently than other contracts which are binding. [WJhere the contract is fair, reasonable and certain, a court of equity can decree specific performance. The interpretation of a contract, including the determination of whether a contract is ambiguous, is a question of law, subject to de novo review by an appellate court. Erie Ins. Exchange v. Estate of Reeside, 200 Md.App. 453, 460-61 , 28 A.3d 54, 58 (2011) (citations and quotations omitted).

Thus, settlement agreements are subject to the familiar requirements of contract formation. As the Court of Appeals explained in Cochran v. Norkunas: It is universally accepted that a manifestation of mutual assent is an essential prerequisite to the creation or formation of a contract. Manifestation of mutual assent includes two issues: (1) intent to be bound, and (2) definiteness of terms. Failure of parties to agree on an essential term of a contract may indicate that the mutual assent required to make a contract is lacking.

If the parties do not intend to be bound until a final agreement is executed, there is no contract. 398 Md. 1, 14 , 919 A.2d 700, 708 (2007) (citations omitted). Maryland courts adhere to the objective theory of contract interpretation. A court construing an agreement under [the objective theory] must first determine from