Federal Land Bank of Baltimore, Inc. v. Esham

Moore, J., delivered the opinion of the Court. This complex appeal and cross-appeal have their origins in the decline, fall, and dismemberment by foreclosure sale of the Esham chicken enterprises on the Eastern Shore of Maryland. Originally, there were three separate actions — two in Baltimore City and one in Wicomico County — which ⁴⁴⁸ were consolidated for trial in the Circuit Court for Wicomico County. The trial court refused to grant either side the complete relief which was sought, and both sides then appealed to this Court.

The mortgagees, Federal Land Bank of Baltimore, Inc. and Marva Production Credit Association [hereinafter Banks], as appellants, principally complain of an alleged computational error by the lower court in its attempt to sort out the accounting muddle remaining in the wake of the mortgagors’ default and the foreclosure of the various mortgages. The mortgagors, Otis G. Esham, members of his family, and family-owned corporations [hereinafter Eshams], as cross-appellants, object to the following aspects of the foreclosure proceedings: (1) the Banks’ attempted foreclosure on individually owned property in contravention of an agreement between the parties; (2) the payment to the Trustee in Bankruptcy of $275,000 from the proceeds of a foreclosure sale pursuant to a settlement agreement between the Banks and the Trustee; (3) the inadequacy of the price for property purchased by the Banks at foreclosure; (4) the sale at foreclosure of Worcester County property in Wicomico County; and (5) the lack of notice provided to the Eshams in advance of the sale of chattels at foreclosure. I Appellant Banks are federally-chartered 1 institutions designed to provide financial assistance to farmers. The Federal Land Bank supplies long-term loans while the Production Credit Association furnishes loans of short duration.

Between 1970 and 1974, the Banks made seven loans, secured by mortgages or deeds of trust, to the Eshams to finance their chicken processing business. Otis G. Esham was the controlling force behind the Esham integrated poultry business which consisted of several corporate entities, the chief of which was Maryland Chicken Processors, Inc. Although Mr. Esham was the dominant figure in the business, his wife, and their sons and their wives ⁴⁴⁹ were all involved in some facet of the operations, particularly as signatories on the notes evidencing the debts owed to the Banks. The notes, mortgages, and deeds of trust executed by the Eshams were signed in both corporate and individual capacities and encumbered both corporate and individual property. In early 1974, the Eshams began to experience severe financial problems.

Later that same year, the Banks, in an attempt to forestall financial disaster, agreed to finance a “grow-out” operation at the Esham hatcheries. This permitted the production of all chicks that had already been hatched for the current market season. 2 All proceeds from the “grow-out” were to be applied to the Eshams’ debt of $3,007,935.73. Unfortunately, however, this arrangement did not produce funds sufficient to satisfy the outstanding debts. As a consequence, in July 1974, Maryland Chicken Processors, Inc. was forced into bankruptcy, and John A. Payne of Snow Hill was appointed the Trustee.

Under federal bankruptcy law, an automatic stay prohibited the sale of corporate property, by foreclosure or otherwise. Since the Trustee opposed the lifting of the stay, the Banks, in December 1974, filed a complaint in the bankruptcy proceeding to have it removed. In an effort to resolve the controversy, the Banks and the Trustee participated in several hearings before the bankruptcy court in early 1975. By October 1975, however, the stay was still in effect.

While awaiting a decision on the Banks’ complaint, the Trustee and the Banks were able to reach a settlement agreement whereby the Trustee would consent to the foreclosure sales in exchange for the sale proceeds from the foreclosure on six corporate farms. 3 The Eshams were not ⁴⁵⁰ parties to the agreement, which was approved by the bankruptcy court on October 23, 1975. When the foreclosure sale was advertised, the Eshams obtained a temporary injunction enjoining it; but they ultimately stipulated to an order of sale, and the injunction was lifted. On December 5,1975 the sale took place. Pursuant to the settlement agreement, the Banks paid the Trustee $275,000, representing his share of the proceeds.

In accounting for this payment on their own books, the Banks listed it as an expense of the sale, thereby charging $275,000 to the Esham account. At the foreclosure sale the Banks themselves purchased three corporate properties — processing plants at Nanticoke and Snow Hill and a hatchery at Parsonsburg — for $330,000. They subsequently entered into a contract for the sale of the foreclosed properties along with the Laurel, Delaware feed mill (which was not subject to immediate foreclosure) to a third party, Champion Chicken Products Corporation. The Eshams and the Banks had stipulated that $500,000 of the $1,500,000 contract price would be allocated to the Delaware feed mill, giving the Eshams a credit of $500,000 towards their debt.

There remained the sum of $1,000,000 which was allocated to the three farms that had been purchased by the Banks for $330,000. In order to avoid showing a “profit" of $670,000 ($1,000,000 minus $330,000) and acting upon the advice of tax counsel, the Banks — on their own books — credited the Esham account with the “profit,” thereby showing no gain for tax purposes on the resale of the farm property to Champion Chicken Products Corporation. The Eshams, however, were not given notice of the $670,000 credit, and apparently, the Banks never intended that the Eshams would actually receive the credit. A Statement of Account prepared by the Banks for trial did not include the $670,000 credit in computing the total amount of the Esham indebtedness. 4 Not content with the conduct and outcome of the foreclosure sale, the Eshams filed numerous exceptions ⁴⁵¹ thereto on January 5, 1976.

Sixteen days later, the circuit court ratified the foreclosure sale of all properties except the St. Martins Farm which was individually owned by Otis and Elizabeth Esham; the court deferred a decision on the issue of the Eshams’ personal liability. The parties subsequently entered into a stipulation on March 5, 1976 whereby the Eshams would permit ratification of the sale of the St. Martins Farm in exchange for the Banks’ promise not to sell at foreclosure any of the remaining Esham properties until a final resolution had been reached on the Eshams’ exceptions to the foreclosure. The Eshams did, however, waive their objection to the place of sale of the St. Martins Farm. Based upon this stipulation, the Circuit Court for Wicomico County (Pollitt, J.) ratified the St. Martins Farm sale, but reserved for future hearing the issues raised in the exceptions “insofar as they relate to the personal obligations of the Eshams or the responsibility of any property owned by the Eshams individually for any part of this mortgage indebtedness, except that those exceptions related to the jurisdiction of sale and the County in which said sales took place are overruled and not preserved for further hearing.” (Emphasis added.) On October 12,1976, prior to the settlement of the case with the secured creditors or the final determination of the reserved exceptions, and notwithstanding the above stipulation, the Banks advertised a foreclosure sale of the Eshams’ Home Farm. 5 When reminded of the stipulation, however, the Banks discontinued all attempts to sell the property.

As a result of the foregoing events, the Eshams instituted three actions — two in equity and one at law — against the Banks. As previously noted, exceptions to the foreclosure sale of December 5, 1975 were filed on January 5, 1976 in the Circuit Court for Wicomico County. Thereafter, on January 20, 1976, an action in equity was filed in the Circuit Court of ⁴⁵² Baltimore City asking for injunctive and declaratory relief and ancillary damages with respect to activities surrounding the December 5, 1975 foreclosure sale. Finally, on July 7, 1977, the Eshams filed a suit at law in the Superior Court of Baltimore City claiming damages in connection with the attempted foreclosure sale of the Home Farm in October 1976.

The Declaration was in two counts: Count I alleged a breach of contract stemming from a claimed violation of the March 1976 stipulation barring further foreclosures, and Count II, premised upon the identical facts, alleged slander of title. These actions were consolidated for trial in the Circuit Court for Wicomico County. All parties agreed that if a breach of contract or slander of title was found to have occurred, then the law action would be returned to the Superior Court of Baltimore City for a jury trial on the issue of damages. In July 1978, trial was held before Judge James A. Perrott, Associate Judge of the Supreme Bench of Baltimore City, and Judge Richard M. Pollitt, Associate Judge of the Circuit Court for Wicomico County.

At the close of the week-long trial, the consolidated cases were held sub curia to allow the filing of post-trial memoranda of law, and to give the court an opportunity to digest the massive amount of conflicting financial and accounting testimony that had been presented. After further oral argument, Judge Pollitt, speaking for himself and Judge Perrott, rendered an oral opinion. The court’s findings consisted of the following: 1) The Eshams were co-makers — not guarantors or sureties — of the notes securing the mortgages; 2) As to the notice given to the Eshams of the foreclosure sale of the corporate chattels, “Otis Esham was aware of the sale and participated we believe in the arrangements for it. There is no evidence that any specific notice of that sale was given to any of the individual Eshams or that any of them other than Mr. Otis Esham had actual notice of it”; 3) Certain delays in conducting the foreclosure ⁴⁵³ sale of the real property were “excusable” and the sale was “well-conducted”; 4) The price of $330,000 paid by the Banks for three processing plants was not such as to shock the conscience of the court; 5) The sale in Wicomico County of the St, Martins (Dr. Warren) Farm and the Snow Hill Processing Plant, both situated in Worcester County, was proper; and 6) The attempted sale of the Eshams’ Home Farm was an understandable mistake and did not constitute a breach of contract; it was not maliciously motivated, and no damages were suffered as a result of the attempt.

The court eschewed the use of precise accounting methods in resolving the case because of the irreconcilability of the figures received in evidence. It did, however, make certain computations in reaching its decision. First, the court accepted as a starting point the Banks’ most recent Statement of Account showing a balance due on the Eshams’ account of $1,086,703.24. (The Statement of Account is reproduced in the Appendix.) From this figure the court deducted: 1) $275,000 representing the proceeds from the sale of the six corporate farms paid over to the Trustee in Bankruptcy; 2) $670,000 previously credited to the Esham account on the Banks ledgers representing the profit from the resale of the three foreclosed plants; and 3) $141,703.24 representing interest at 9% on $945,000 ($275,000 plus $670,000) for “the period of time between which those credits were made and subsequently withdrawn.” The total deductions then equalled the amount due; and the court therefore concluded that the mortgages had been satisfied and were no longer liens upon the Eshams’ remaining property.

After evaluating all of the evidence, the court overruled the ⁴⁵⁴ Eshams’ exceptions to the foreclosure sale, entered judgment for the Banks on the Eshams’ claims for damages stemming from the sale and from the alleged breach of contract and slander of title, and ordered that the mortgages held by the Banks be discharged and that releases be executed. The essence of the court’s ruling was contained in Judge Pollitt’s final words from the bench: “The best we can make out of this whole mess is a Mexican standoff, and nobody owes nobody nothing.” Three days later, on September 11, 1978, the court filed a written Order setting out, in substance, the terms of its oral opinion. On September 14,1978, the Banks filed a Petition for Rehearing premised upon an alleged mathematical error in the court’s calculations. The petition was denied.

The Banks noted an appeal to this Court, and the Eshams cross-appealed. II We are met at the outset with a significant procedural issue raised by counsel for the Eshams at oral argument in an oral motion to strike the Banks’ reply brief. Leave to file a written motion was granted by the Panel, and a “Motion to Strike Reply Brief and Argument Thereon and for Additional Relief” was promptly filed. The Banks interposed a written opposition to the motion.

In their motion to strike, the Eshams claim that the Banks’ reply brief improperly challenged, for the first time on appeal, the $670,000 credit allowed to the Eshams by the trial court. 6 ⁴⁵⁵ It is their position that the Banks not only failed to contest the $670,000 credit in their original brief, but also that they expressly conceded the issue. The Banks, in opposition to the motion to strike, contend that they have always questioned the propriety of the $670,000 credit and that their reply brief was filed to “clarify the confusion created by the Eshamsf] appellees’ brief.” They deny that the issue is newly raised in the reply brief. We have difficulty in accepting the Banks’ position. In the first place, the Banks’ original brief presented one and only one issue under “Questions Presented”: “The Trial Court erred in analyzing certain financial data and testimony presented at trial, specifically by crediting to the Esham account one amount twice, thereby miscalculating, that, as of the date of trial nothing was due and owing from the Eshams on any of their loans to the FLB/PCA, where in fact approximately $300,000.00 was still due.” (Emphasis added.) It is clear from this statement, that the Banks were claiming only $300,000, which represents the $275,000 credit plus miscellaneous costs.

Other portions of the Banks’ original brief unequivocally indicated the essence of their claim on appeal. At one point, they stated: “The lower Court in its analysis of the computations presented by the Appellant FLB/PCA, misconstrued or overlooked one important figure, thereby erroneously crediting to the Eshams one figure twice. IT IS FROM THIS MATHEMATICAL ACCOUNTING ERROR THAT THE APPELLANT FLB/PCA APPEALS.” (Emphasis added.) Indeed, the very introduction to the argument presented in the Banks’ original brief narrowly confined the issue presented: “The Appellant’s [sic] basis for appeal is relatively simple and straightforward. For purposes of our ⁴⁵⁶ argument, we will concede every single factual finding made by the lower Court including, but not limited to, every single finding of fact as it relates to the debt, the credits to the debt, the expenses of the sale, and the accounting practices of the Appellant.

Giving benefit to all of the above, THE LOWER COURT GAVE A DOUBLE CREDIT TO THE DEBT WHEN IT DID NOT INTEND TO DO SO.” (Emphasis in the original.) The Banks’ original brief mentioned the $670,000 credit in setting out the lower court’s calculations; it nowhere challenged the credit’s legal basis. In their reply brief the Banks claimed that the Eshams’ appellees’ brief discussed “several questions not raised by the FLB/PCAs which require a response____” Argument was then exclusively addressed to a two-pronged challenge to the $670,000 credit given to the Eshams by the trial court. 7 The Banks gave no indication of the manner in which the Eshams raised the issue in their appellees’ brief. 8 Although the Banks’ original brief claimed that the trial court erred by roughly $300,000, the reply brief claimed error of approximately $970,000. The reply brief stated: ⁴⁵⁷ “For the foregoing reasons, the FLB/PCAs contend that the Lower Court was clearly erroneous in applying the sum of $670,000.00 to the Esham debt when in fact said sum was never received by the FLB/PCAs. Therefore, the aforesaid sum should be reapplied against the Eshams together with the sums the FLB/PCAs argued were mistakingly double-credited in their prior briefs herein.” (Emphasis added.) The Eshams maintain that the $670,000 item first appeared on appeal in the reply brief, and they contend that the Banks must be confined to the issue presented in their original brief.

The Rules guiding appeals in this Court provide that the appellant’s brief “shall contain” six separate sections, among which are: “A brief statement of the case together with a succinct statement of the questions presented separately numbered. The statement of the questions presented shall indicate the legal propositions involved and the questions of fact at issue expressed in the terms and circumstances of the case without unnecessary detail. Argument in support of the position of the appellant.” (Emphasis added.) Md. Rule 1031 (c) (2) & (5). These provisions are mandatory and, therefore, it is necessary for the appellant to present and argue all points of appeal in his initial brief.

As we have indicated in the past, our function is not to scour the record for error once a party notes an appeal and files a brief, von Lusch v. State, 31 Md. App. 271, 281-282 , 356 A.2d 277, 284-285 (1976), rev’d on other grounds, 279 Md. 255 , 368 A.2d 468 (1977); State Roads Commission v. Halle, 228 Md. 24, 32 , 178 A.2d 319, 325 (1972) (it is not incumbent upon the court to scan the record for error at the mere suggestion of a party). In prior cases where a party initially raised an issue but then failed to provide supporting argument, this Court has ⁴⁵⁸ declined to consider the merits of the question so presented but not argued. Kimbrough v. Giant Foods, Inc., 26 Md. App. 640, 654 , 339 A.2d 688, 696-697 (1975); GAI Audio of New York, Inc. v. Columbia Broadcasting System, Inc., 27 Md. App. 172, 182-183 , 340 A.2d 736, 743-744 (1975); Van Meter v. State, 30 Md. App. 406, 407-408 , 352 A.2d 850, 851-852 (1976); see also Harmon v. State Roads Commission, 242 Md. 24 , 217 A.2d 513 (1965); Ricker v. Abrams, 263 Md. 509 , 283 A.2d 583 (1971). The Banks, in the instant case, not only omitted supporting argument on the issue of the $670,000 credit; but they failed even to raise the issue in their questions presented.

This double omission is serious and constitutes a clear violation of the Rules. 9 It is the appellants’ primary obligation under Rule 1031 to pinpoint the errors raised on appeal and to support their contentions with well-reasoned legal argument. Maryland Rule 1030 (a) (3) permits an appellant to file a reply brief. The Rules do not prescribe the content of such a brief, nor are there any cases in this State which expand upon the Rule. 10 We have previously held that, while reply briefs are permitted under the Rules, there is no provision which permits the filing of supplemental, additional, or ⁴⁵⁹ amended briefs. Boone v. State, 3 Md. App. 11 , 257 A.2d 787 , cert. denied, 393 U.S. 872 (1968).

The function of a reply brief is limited. The appellant has the opportunity and duty to use the opening salvo of his original brief to state and argue clearly each point of his appeal. We think that the reply brief must be limited to responding to the points and issues raised in the appellee’s brief. This is the uniform view of other courts which have considered the issue.

See, e.g., Molnar v. City of Aurora, 38 Ill. App. 3d 580 , 348 N.E.2d 262, 264 (1968) (“The reply brief, if any, shall be strictly confined to reply to arguments presented in the brief of appellee....”). See also St. Regis Paper Co. v. Hill, 198 So. 2d 365 (Fla. Dist.

Ct. App. 1967); Wolfswinkel v. Gesink, 180 N.W.2d 452 (Iowa 1970); Horicon v. Langlois’ Estate, 115 Vt. 470 , 66 A.2d 16 (1949); Mead School Dist. No. 354 v. Mead Educ. Ass’n, 85 Wash. 2d 278 , 534 P.2d 561 (en banc 1975). To allow new issues or claims to be injected into the appeal by a reply brief would work a fundamental injustice upon the appellee, who would then have no opportunity to respond in writing to the new questions raised by the appellant.

Due process requires that all parties have an opportunity to reply to new issues asserted against them, as the California Supreme Court has recognized in a similar context: “Obvious reasons of fairness militate against consideration of an issue raised initially in the reply brief of an appellant.” Varjabedian v. City of Madera, 20 Cal. 3d 285, 295, n. 11 , 142 Cal. Rptr. 429, 436, n. 11 , 572 P.2d 43, 50, n. 11 (1977). See also Ryall v. Waterworks Improvement Dist. No. 3, 247 Ark. 739 , 447 S.W.2d 341 (1969).

The reply brief must do what it purports to do: it must respond to the points raised in the appellee’s brief which, in turn, are addressed to the issues originally raised by the appellant. A fair reading of the briefs submitted by the Banks leads us to the inescapable conclusion that the “Reply Brief” was a reply brief in style only. Although it made a pretense of “replying” to issues raised by the Eshams’ appellees’ brief, the reply was illusory. The Eshams did no more in their brief than respond to the Banks’ original argument concerning the double crediting of the $275,000. ⁴⁶⁰ We note that the Banks have made an effort to justify their reply brief by reference to a point that was raised in oral argument.

Their opposition to the motion to strike contains this statement: “This Court clearly stated the FLB/PCA[’]s position as explained in their briefs, both appellant and reply, when it stated that it was one member’s opinion that the FLB/PCAs were seeking alternative forms of relief. This brief synopsis of the FLB/PCA’s position is one which they adopt and accept vehemently and one which has never changed from the outset in these proceedings.” 11 (Emphasis added.) If, by this statement, the Banks are suggesting that they are entitled to either the $670,000 or the $275,000, but not both, they are in conflict with their reply brief, where they clearly ask for both, not either. 12 At all events in their original brief, for reasons known only to the Banks, they were content to raise only the $275,000 ⁴⁶¹ credit as a point of appeal. They expressly, intentionally, and specifically decided to “concede every single factual finding” and to appeal only from an alleged, solitary mathematical error, involving only the $275,000. The Rules guiding appeals in this Court are clear.

An appellant’s brief must contain not only “Questions Presented,” but must provide “[argument in support of the position of the appellant.” Md. Rule 1031 (c) (2) & (5). The Banks did not raise, nor argue, the $670,000 credit in their original brief; their failure to do so is fatal. We shall therefore grant the Eshams’ Motion to Strike the Reply Brief and Argument Thereon. The reply brief will not be considered and the Banks shall be confined in their appeal to the issue raised in their original brief, which includes only the challenge to the $275,000 credit. 13 Ill We now turn to the issue presented by appellants’ brief, wherein they state: “The Trial Court, in an attempt to account for every credit to which the Eshams were entitled, ... applied one credit twice, thereby giving the Eshams an extra $275,000.00 reduction of their debt.” The $275,000 credit represented the amount paid by the Banks to the Trustee for the six farm properties sold at foreclosure pursuant to their agreement and charged as an expense of sale to the Eshams.

The court, in giving the credit stated: “The Court also believes that the credit of $275,000.00 which was paid by the banks to the trustee without the consent of the Eshams, though not amounting to a release as such, was under the circumstances — and to this point at least the trustee agrees with the Eshams — and there again the bank at one time did credit it on their books, that the Eshams are also entitled to that credit of $275,000.00. ⁴⁶² [W]e do not believe this $275,000.00 can be considered as an expense of sale, that that is not the kind of payment that is ordinarily contemplated by the expenses of sale.” At trial, Donna Core, one of appellants’ accountants,