First National Bank v. Shpritz

BISHOP, Judge. Appellee, cross-appellant, Manuel Shpritz, (hereinafter “Shpritz”) sued appellants and cross-appellees, First National Bank of Maryland and Gilbert South, individually and in ⁶³⁰ their capacities as personal representatives of the Estate of Billy F. Rankin, (hereinafter “the Personal Representatives” or “appellants”) in the Circuit Court for Montgomery County. The suit alleged breach of fiduciary duty, fraud and conversion and sought compensatory and punitive damages. From summary judgments entered in favor of Shpritz against the personal representatives both in their representative capacities and individually, for damages in the amount of $230,730.62, the personal representatives appeal and Shpritz cross-appeals the entry of summary judgment in favor of the personal representatives on his claim for punitive damages.

FACTS In 1960, Billy F. Rankin, a pharmacist, and Manuel Shpritz, an optometrist, collaborated in the development of “Clens,” “Soa-Clens” and “Soothe”, chemical solutions associated with the care of hard contact lenses. In 1961, and again in 1968, Shpritz, Rankin and Burton Parsons Chemical, Co., Inc. entered into a contract whereby the company would market and sell the products and pay a percentage of sales receipts in royalties to Rankin, who, in turn would pay a percentage of his royalties to Shpritz. 1 Specifically, the contract provided: 1. The Company shall pay to Rankin a royalty equivalent to 5% of net sales of a contact lens cleansing agent known as “Clens”, ... [sold] in the United States ... [and] a royalty equivalent to 2% of net sales of Clens ... sold in foreign countries. 2. The Company shall pay to Rankin a royalty equivalent to 4% of the net sales of a contact lens soaking and wetting agent known as “Soa-Cléns” ... [sold] in the ⁶³¹ United States ... [and] a royalty equivalent to 2% of net sales of Soa-Clens ... sold in foreign countries. 3.

The Company shall pay to Rankin a royalty equivalent to 2% of net sales of an eye lotion known as “Soothe” ____ [sold] in the United States, Canada and foreign countries____ 4. Rankin shall pay to Shpritz 40% of all amounts payable to him by way of royalties on Clens, 40% of all amounts payable to him by way of royalties on Soa-Clens and 25% of all amounts payable to him by way of royalties on Soothe. To facilitate such payment the Company is authorized to deduct the amounts due Shpritz from the amounts otherwise payable to Rankin and to make payments direct to Shpritz as herein provided. Shpritz’s assertion in his affidavit that throughout the performance of the contract, Burton Parsons paid Shpritz directly went uncontradicted; however, it is also undisputed that only Rankin, and not Burton Parsons, had a contractual obligation to pay Shpritz. 1a On January 7, 1981, the day before his death, Rankin filed suit against Burton Parsons, 2 alleging their breach of several separate royalty contracts covering products other than Clens, Soa-Clens and Soothe.

On February 10, 1981, appellants were appointed personal representatives of Rankin’s estate. In accordance with Md. Est. & Trust Code Ann. § 7-103 (1974), appellants published notice that “[a]ll persons having claims against the decedent must present their claims to the [personal representatives] or file them with the Register of Wills on or before six months from the date of appointment____ Any claim not filed on or before that date ... is unenforceable thereafter.” ⁶³² The personal representatives continued Rankin’s suit against Burton Parsons. In late 1981, Shpritz learned of the lawsuit for the first time. In February 1982, in what would be the first of three meetings, Shpritz met with the attorneys for the estate. 3 The attorneys informed Shpritz that during pre-trial discovery they learned that Burton Parsons made unauthorized deductions from gross sales receipts and had therefore failed to make proper royalty payments, not only under Rankin’s separate contracts, but also under the contracts covering Clens, Soa-Clens and Soothe, in which Shpritz had an interest.

The attorneys requested that Shpritz testify with regard to the Clens, Soa-Clens and Soothe contracts and informed him that, after the trial was over, the information that they had against Burton Parsons would be turned over to Shpritz so that he could bring a separate suit against the Company. The attorneys made it clear that they were representing the estate only and that if Shpritz wished to recover any unpaid royalties owed to him, he would have to file suit himself. Shpritz agreed to testify and did not file suit against Burton Parsons. Shpritz’s counsel attended each day of trial.

On November 9, 1982, contrary to Shpritz’s expectations, in its final argument to the jury the estate requested and obtained a judgment in the amount of $750,000 4 which included the full amount of unpaid royalties on Clens, Soa-Clens and Soothe due to Rankin, including those to which Shpritz would have been entitled. Appellants stipulated below that “the evidence introduced by the estate [in the suit against Burton Parsons] showed unpaid royalties on Clens, Soa-Clens and Soothe [in the] amount of $570,698 ... [and] that the royalties set forth in the above included ⁶³³ the total royalties payable by [the Company] under the contract of ... 1968.” On December 27, 1982, Shpritz filed a claim with the estate for $230,000, an amount reflecting forty percent of the $570,695 portion of the judgment, plus interest. The personal representatives rejected the claim on the ground that it was not filed within six months of the date of their appointment and was barred under Estates and Trusts § 8-103(a). In accordance with Estates and Trusts § 8-107(b) the personal representatives notified Shpritz that his claim would be “forever barred ... unless he file[d] a petition for allowance or commence[d] an action against the personal representative ... within 60 days after the mailing of notice of [disallowance]____” (Emphasis added).

On February 3, 1983, Shpritz brought the present suit against the personal representatives who persisted in their argument that the claim was barred as a matter of law. The trial court found otherwise and entered summary judgment in favor of Shpritz. In their appeal the personal representatives do not dispute the merits of Shpritz’s claim of entitlement to the $230,000. Instead, they raise the following questions: I. Did the court err in concluding that Shpritz’s claim was not barred under Est. & Trusts § 8-103(a)?

II

Were the personal representatives entitled to a set off in an amount equal to Shpritz’s proportionate share of the legal fees and costs incurred in the suit against Burton Parsons?

III

Was it error to enter judgment against the personal representatives as individuals? I. We agree with the circuit court’s conclusion that Shpritz’s claim was not barred as a matter of law. Est. & Trust § 8-103(a), upon which appellants rely, provides: ⁶³⁴ all claims against an estate of a decedent, whether due or to become due, absolute or contingent, liquidated or unliquidated, founded on contract, tort, or other legal basis, are forever barred against the estate, the personal representative, and the heirs and legatees, unless presented within six months after the first appointment of a personal representative. Appellants contend that Shpritz’s claim for royalties was “contingent upon receipt by Rankin’s estate of additional royalties under the 1968 agreement.” They argue that it is immaterial that Shpritz was in fact unaware he was entitled to additional royalties.

Since he failed to file a “contingent” claim 5 with the estate by August 10, 1981, six months after appellants were appointed, his claim is forever barred. Shpritz contended below, maintains on appeal, and we agree that his claim is governed not by § 8-103(a) but by § 8-103(c), which states: (c) Conduct of Personal Representative. — A claim against the estate based on the conduct of or a contract with a personal representative is barred unless an action is commenced against the estate within six months of the date the claim arose. [6] Section 8-103(a) corrects the injustices caused by the common law rule of abatement of actions by death while preserving the executor’s interest in the prompt settlement of the decedent’s estate. See generally, Burket v. Aldridge, 241 Md. 423, 427-29 , 216 A.2d 910 (1966); Bertonazzi v. Hillman, 241 Md. 361, 366-67 , 216 A.2d 723 (1966). ⁶³⁵ Section 8-103(c) addresses claims against an estate which arise out of the conduct of a personal representative, e.g. Bastian v. Laffin, 54 Md.App. 703 , 460 A.2d 623 (1983) (Personal Representative’s negligent failure to turn personalty of decedent over to heirs), as opposed to conduct of the decedent during his lifetime.

E.g., Yingling v. Smith, 259 Md. 260 , 269 A.2d 612 (1970) (Breach of contract to make reciprocal wills); Burket; Bertonazzi; Cornett v. Sandbower, 235 Md. 339 , 201 A.2d 678 (1964) (Automobile accident causing personal injury); Campbell v. Welsh, 54 Md. App. 614 , 460 A.2d 76 , cert. denied, 297 Md. 338 (1983) (Breach of oral contract to convey land by will). Accordingly, § 8-103(c) provides a statute of limitations for claims that arise after death. The Commission felt that in order to insure the prompt administration and settlement of estates, a six month statute of limitations would be reasonable. Comment to § 8-103 (formerly Art. 93 § 8-103) (Emphasis added).

Thus, whatever the meaning of “contingent” claim, as that term is used in § 8-103(a), it clearly does not encompass a claim arising after death which, although seeking assets held by an estate, is founded upon the wrongful acts of the personal representatives. 7 A contrary interpretation would render § 8-103(c) meaningless, and we will not presume that, in enacting subsection (c), the legislature intended to create an ineffective or invalid law. Swarthmore Co. v. Kaestner, 258 Md. 517, 527 , 266 A.2d 341 (1970). Shpritz’s claim against the estate was unrelated to any conduct of Billy Rankin but rather arose out of the personal representatives’ tortious acquisition and retention of Shpritz’s royalties and, therefore, was not barred by § 8-103(a). ⁶³⁶ The issue remains whether Shpritz’s claim was timely filed under § 8-103(c). While under § 8-103(a), an action against an estate is deemed to “accrue” upon the date of the appointment of a personal representative, the six month period of limitations under § 8-103(c) begins to run from “the date the claim arose.” Although it is not totally clear from the record, relying on Poffenberger v. Risser, 290 Md. 631, 636 , 431 A.2d 677 (1981), the circuit court determined that Shpritz’s claim arose on November 9, 1982, when he reasonably should have discovered, and in fact did discover, that contrary to the representations of their agents, the personal representatives were in fact seeking the full amount of unpaid royalties under the 1968 contract, including Shpritz’s forty percent share. 8 We find no error in this ruling. 9 Shpritz filed his declaration against appellants on February 2, 1983, less than three months after November 9, 1982, and therefore well within the six ⁶³⁷ month period mandated by § 8-103(c).

The trial court correctly concluded that the complaint was timely. Appellants maintain that the court erred by interpreting the Poffenberger decision to override the expressly limiting language of § 8-103(a). As we stated previously, the Poffenberger discovery rule would be applicable to § 8-103(c) but not to § 8-103(a). See note 7, supra.

Whether the judge applied Poffenberger to § 8-103(a) or § 8-103(c) is unclear. To the extent that the reasoning underlying his correct conclusion was erroneous, [w]e [may] nevertheless affirm as it is well established that if a decision of the lower court is correct for a correct reason properly before us, but not for the reason on which the lower court based its decision, [the] Court will affirm the decision of the lower court. Aubinoe v. Lewis, 250 Md. 645, 649 , 244 A.2d 879 (1968). See also Diener Enterprises, Inc. v. Miller, 35 Md.App. 410 , 412 n. 2, 371 A.2d 439 , cert. denied, 280 Md. 729 (1977).

II

Attorneys’ Fees Appellants next contend that they are entitled to a set-off against Shpritz’s judgment in an amount equal to his proportionate share of the attorneys’ fees and costs associated with the estate’s litigation against Burton Parsons. 10 The circuit court denied the request on the ground that appellants failed to produce sufficient evidence in support of the asserted fees and costs. We affirm the court’s denial ⁶³⁸ although on a different ground than that relied on below. 11 Aubinoe, 250 Md. at 649 , 244 A.2d 879 . Although appellants characterize their claim as one for set-off, their effort to reduce Shpritz’s judgment is more accurately described as a claim for recoupment. A claim for “set-off” seeks an affirmative judgment for damages, often in excess of those claimed by the plaintiff and is based on a transaction independent of that upon which the plaintiff’s claim is based.

See e.g. Holloway v. Chrysler Credit Corp., 251 Md. 65, 66-69 , 246 A.2d 265 (1968) (Defendant’s claim under separate oral contracts with Plaintiff); Molesworth v. Schmidt, 196 Md. 15, 19 , 75 A.2d 100 (1950). See generally 2 Poe Pleading & Practice, § 615 (6th ed. 1970). Set-off must be pleaded specially by way of counterclaim.

E.J. Smith Constr. Co. v. Burton, 262 Md. 62, 67-70 , 277 A.2d 84 (1971). Rule 2-331. Where, as here, the defendant seeks compensation from the plaintiff for damages resulting from the same transaction upon which the plaintiff’s claim is based, his claim is one for recoupment and may be proved under a general issue plea.

See e.g. Harford Sod Co. v. Randall Development Corp., 264 Md. 214, 218-19 , 285 A.2d 656 ⁶³⁹ (1972); Eisenberg, Admin. v. Air Cond., Inc., 225 Md. 324, 337-8 , 170 A.2d 743 (1961). Whether termed set-off or recoupment, appellants’ claim must fail. First, appellants’ attorneys were authorized to represent only the estate and, theoretically, the estate was obliged to pay its attorneys only for those fees and costs associated with the recovery due to the estate.

Apparently recognizing that there was no contract between appellants and Shpritz to share the cost of legal fees, appellants base their claim for reimbursement upon a theory of unjust enrichment. They argue that Shpritz should not be able to share in the judgment without sharing in the fees and other costs which produced the judgment. After all, as appellants put it, “[t]he additional royalties ... did not fall from the sky.” Indeed, Shpritz’s royalties did not “fall from the sky.” The court, by granting a general judgment to appellee based on a declaration that alleged fraudulent procurement, conversion and violation of a fiduciary duty, found at least implicitly that appellants procured and retained the additional royalties as alleged in that declaration. The court found “that the total intention of the personal representatives in