Goldstein & Baron Chartered v. Chesley

WILNER, J. The dispute that spawned this litigation arose from the sale of a parcel of land by the Estate of Dr. Erwin Rose to William Chesley. That sale produced a claim by a broker, Coldwell Banker, for a commission on the sale, an agreement by Chesley to indemnify the Estate against any liability for such a commission, and a further agreement by Chesley to alow the attorneys for the Estate, Goldstein & Baron, Chartered (G & B), to defend the claim by Coldwell Banker arid to pay the fees of G & B incurred in that defense. The claim for a commission was litigated and eventually settled. What linger with us are some procedural issues arising from separate litigation between Chesley and G & B over the indemnity agreement.

BACKGROUND Prior to his death in July, 1987, Dr. Rose had listed the property with Coldwell Banker, agreeing to pay a 10% commission on any sale, but that agreement lapsed in March, 1987. During the period of the listing, Coldwell Banker ²⁴⁷ distributed literature about the property to a number of people, one of whom was Chesley. Upon Dr. Rose’s death, his sister, Rosalind Marsh, was appointed as personal representative of the Estate. Although she did not renew the listing with Coldwell Banker, that firm continued to market the property to prospective buyers in the belief that the listing remained effective.

Two offers were sent to Ms. Marsh, but she did not respond to them. At some point, Ms. Marsh retained G & B as attorneys for the Estate. In the course of that representation, Leonard Goldstein, a principal of G & B, began negotiating with Chesley and, on April 11, 1988, they concluded a written agreement for the sale of the property for $1,000,000. Although he did not believe that any commission was due to Coldwell Banker, Goldstein was aware that it might make a claim for one.

To protect the Estate against such a claim, he inserted into the contract of sale the following provision: “Seller and Purchaser hereby acknowledge and agree that no real estate commission shall be paid by Seller, and that any brokerage fee or commission resulting from this transaction shall be the sole responsibility of the Purchaser. If any claim or action is brought by any agent or broker for a commission with respect to this transaction, the Purchaser shall pay and hold harmless, defend and indemnify the Seller against all claims, costs, expenses, liability, damage or actions, including Seller’s attorneys’ fees, in connection with such claim or action.” Goldstein promptly informed Coldwell Banker that the property had been sold. The sale was ratified by the Orphans’ Court, and closing occurred on July 8, 1988. On September 1, Coldwell Banker filed suit in the Circuit Court for Prince George’s County for a commission on the sale.

The complaint was partially based on an allegation that, before he died, Dr. Rose had extended the listing agreement to May 30, 1988, and that the listing was therefore in existence when the property was sold. Goldstein notified Chesley of the lawsuit, reminded him of his obligation under the indemnity clause, and offered him the choice of obtaining his own attorney or ²⁴⁸ allowing G & B to conduct the defense. Chesley agreed to allow G & B to defend the action. The case proceeded to trial in October, 1991.

At the end of the plaintiffs case, the court entered judgment in favor of the Estate. Evidence had been presented that the extension agreement relied upon by Coldwell Banker was, in fact, a forgery. Aggrieved, Coldwell Banker appealed. In October, 1992, the Court of Special Appeals, in an unreported Opinion, reversed, concluding that there were certain triable issues for the jury to determine.

Before the commencement of a second trial, Chesley entered into negotiations with Coldwell Banker and settled the case. In June, 1989, while the case against Coldwell Banker was first pending in the Circuit Court, Ms. Marsh and G & B petitioned the Orphans’ Court for allowance of a fee in the amount of $175,252 for the legal services G & B had rendered. They noted that the maximum fee permitted under Maryland Code, Estates and Trust Article, § 7-601 was $125,353, based on a 10% commission on the real estate sold ($100,000 for the property sold to Chesley and $8,750 for the sale of other real estate), 10% of the first $20,000 of personalty, and 4% of the remaining personalty ($14,603), but they sought an additional $49,899 for extra and special services that G & B had rendered. In July, 1989, the court allowed the entire requested fee.

G & B began billing Chesley for its services in connection with the Coldwell Banker litigation in December, 1989. By April, 1994, G & B had billed a total of $65,811, of which Chesley paid $23,381. In August, 1995, after it became clear that Chesley did not intend to pay anything more, G & B filed suit in the Circuit Court for Prince George’s County, seeking a total of $52,675, including pre-judgment interest. G & B did not ask for a jury trial.

On November 2, Chesley filed an answer to the complaint, in which he raised a number of defenses, including an allegation that he was induced to enter into the indemnity agreement by fraudulent or negligent misrepresentations on Gold- ²⁴⁹ stein’s part. Chesley claimed that Goldstein had not only misrepresented Coldwell Banker’s participation in the sale but had also stated that no real estate commission would be paid by the Estate on the sale of the property, a statement that, in light of G & B’s acceptance of what Chesley regarded as a 10% commission on the sale, was false. Chesley did not pray a jury trial in his answer. A month later, however, on December 5, 1995, Chesley filed a counterclaim against G & B and a third party claim against Goldstein, based on the same allegation that Goldstein had fraudulently or negligently misrepresented that no commission would be paid by the Estate.

Because Goldstein and G & B stand essentially in the same position, we shall, for convenience, refer to that pleading as a counterclaim against G & B. Chesley charged G & B with fraud, negligent misrepresentation, and legal malpractice and sought compensatory damages of $150,000, principally to cover the costs incurred in defending claims by the Estate and G & B. Attached to the counterclaim was a demand for jury trial — “Defendant, Counter Plaintiff and Third Party Plaintiff, William Chesley, [by counsel], hereby demands a trial by jury.” In September, 1996, the court determined that Chesley’s counterclaim was barred by limitations and granted summary judgment to G & B on that claim. The basis for the court’s ruling was that Chesley became aware of the facts underlying the claim, which was filed in December, 1995, when the Court of Special Appeals filed its opinion in the Coldwell Banker appeal in October, 1992. Although it does not appear that the court ever formally struck Chesley’s demand for a jury trial, when the G & B claim was called for trial and Chesley asserted a right to a jury, the court determined that the jury trial demand, having been made more than 15 days after the answer was filed, was untimely. The court relied on Maryland Rule 2-325(b), which is part of the Rule on electing a jury trial in civil cases, and provides that “[t]he failure of a party to file the demand [for jury trial] within 15 days after service of the last pleading filed by any party directed to the issue constitutes a waiver of trial by jury.” ²⁵⁰ The court then tried the G & B action non-jury and, at the close of evidence, found that there was no fraud in the inducement of the indemnity agreement and that the amounts billed by G & B were fair and reasonable.

After giving Chesley credit for the amounts he had paid, the court entered judgment for G & B in the amount of $41,731 plus $15,023 in pre-judgment interest. Chesley appealed, complaining both about the judgment for the attorneys’ fees and the summary judgment entered on his counterclaim. With respect to the fees, Chesley argued that G & B had acted as attorneys for both him and the Estate, that the firm was in a conflict situation, and that Goldstein had failed in his duty of loyalty to him to disclose certain important information, such as his receipt of a commission on the sale of the property. As to the counterclaim, he averred that, although he had received a copy of the Court of Special Appeals Opinion in the Coldwell Banker case, he did not immediately understand the significance of it and did not become aware of the relevant facts until March, 1993, in the course of negotiating the settlement with Coldwell Banker.

The Court of Special Appeals found no merit in Chesley’s complaint about the fees and affirmed that part of the judgment. In an unreported Opinion, it concluded that, although G & B did represent Chesley in the Coldwell Banker litigation, there was no conflict of interest between Chesley and the Estate with respect to that litigation, that G & B had made adequate disclosure to Chesley, and that it had not defrauded him. In that regard, the court determined that Goldstein had not received a commission on the sale of the property but rather a fee for legal services rendered to the Estate, part of which was merely stated as a commission, and that, even if the fee could be regarded as including a commission, there was still no error, as the Estate had never claimed reimbursement from Chesley for that expense. The appellate court reversed the summary judgment entered on the counterclaim, however, concluding that, on the facts presented, the question of whether a reasonable person in Chesley’s position would have ²⁵¹ realized that he had a cause of action based on the Opinion filed in the Coldwell Banker case was for a jury to determine.

Having resolved the merits of the appeal, the Court of Special Appeals, in response to a motion for reconsideration filed by Chesley, addressed one additional matter — the jury trial issue. There were two prongs to that issue. Chesley had asserted in his brief that, in the event of a reversal of the summary judgment entered on the counterclaim, he would be entitled to a jury trial on that claim, and, in its revised Opinion, filed in response to the motion for reconsideration, the appellate court agreed with him. Citing Hawes v. Liberty Homes, 100 Md.App. 222 , 640 A.2d 743 (1994), cert. denied, 336 Md. 300 , 648 A.2d 203 (1994), the court noted that, under Maryland Rule 2-325(e), when a trial by jury has been elected by any party, “the action, including all claims whether asserted by way of counterclaim, cross-claim or third-party claim, as to all parties, and as to all issues triable of right by a jury, shall be designated upon the docket as a jury trial.” On that premise, the court concluded that, with the reversal of the summary judgment on the counterclaim, Chesley was entitled, on remand, to a jury trial on all issues triable by a jury.

The court also noted that, in his motion for reconsideration, Chesley had sought reversal of the judgment entered for the attorneys’ fees because of the denial of his request for a jury trial. Inconsistently with its ruling on the first prong of the argument, the court declined to address that point because it was not raised in Chesley’s brief and was presented for the first time in his motion for reconsideration. The court expressed no opinion as to any preclusive effect the judgment entered for attorneys’ fees, affirmed by the appellate court, might have on the counterclaim. The court’s disinclination to address either of those issues effectively generated the current dispute now before us.

On remand, G & B again moved for summary judgment on the counterclaim, this time on the twin grounds of res judicata— that the counterclaim was based on the same allegations that were adjudicated in the G & B claim for attorneys’ fees — and ²⁵² “law of the case.” The court granted that motion and entered judgment for G & B. It concluded that the issues presented in the counterclaim were the same as those raised in defense of the G & B action — whether G & B had a conflict of interest with respect to the Coldwell Banker litigation and whether adequate disclosure had been made to Chesley before he agreed to the indemnity provision — that they were expressly decided in that action, and that the bar of both issue preclusion (collateral estoppel) and claim preclusion (res judicata) thus applied. Chesley again appealed. The Court of Special Appeals held that, because the counterclaim was filed in the same action as G & B’s claim, neither issue preclusion nor claim preclusion applied. Chesley v. Goldstein, 145 Md.App. 605 , 806 A.2d 296 (2002).

The court noted that claim preclusion (res judicata) applies “when the parties to a subsequent suit are the same or in privity with the parties to a prior suit; the first and second suits present the same claim or cause of action; and there was a final judgment rendered on the merits in the first suit, by a court of competent jurisdiction” (id. at 622, 806 A.2d at 306 ) and that, under issue preclusion (collateral estoppel), “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties.” Id. at 623 , 806 A.2d at 306 (quoting prior Court of Appeals cases). Both doctrines, the court observed, require sequential litigation and do not apply to a decision on one claim in a single multi-claim action. Recognizing that a reversal and remand on the counterclaim • alone raised the prospect of a verdict on the counterclaim that might be inconsistent with the decision reached on the G & B claim, the court examined further the relationship between the two actions in light of its previous affirmance of the decision entered on the G & B claim. Citing one of its earlier decisions, the court concluded that a remand for a partial new trial was not appropriate unless the issue to be retried “is so distinct and separable from the others that a trial of it alone may be had without injustice.” Chesley, supra, 145 Md.App. ²⁵³ at 628, 806 A.2d at 310 (quoting Stickley v. Chisholm, 136 Md.App. 305, 315 , 765 A.2d 662, 668 (2001), quoting, in turn, Gasoline Products Co. v. Champlin Refining Co., 283 U.S. 494, 500 , 51 S.Ct. 513, 515 , 75 L.Ed. 1188, 1191 (1931)).

It was apparent to the court that the relevant operative facts underlying the G & B claim were so interwoven with those on which the counterclaim was based that they could not be determined independently. Accordingly, the court concluded that “Chesley’s right to have a jury determine the issues triable of right by jury in this case cannot be enforced in the absence of a retrial on all of the claims.” Chesley, supra, 145 Md.App. at 629 , 806 A.2d at 310 . That conclusion, of course, raised the question of how to treat the court’s earlier affirmance of the judgment entered on the G & B claim for attorneys’ fees: did the “law of the case” doctrine preclude the court from vacating a judgment that, in a previous appeal, it had affirmed? In responding negatively, the court relied on Hawes v. Liberty Homes, supra, 100 Md.App. 222 , 640 A.2d 743 , which explained that the “law of the case” doctrine is one of appellate procedure and convenience rather than an inflexible rule of law, such as claim or issue preclusion, and that, although an appellate decision certainly binds lower courts, the appellate court that rendered the decision is not precluded from reconsidering an issue it previously decided, even in the same case, when exceptional circumstances so warrant.

The thrust of Hawes was that decisions rendered by a prior appellate panel of the Court of Special Appeals will generally govern in a second appeal “unless (1) the previous decision is patently inconsistent with controlling principles announced by a higher court and is therefore clearly incorrect, and (2) following the previous decision would create manifest injustice.” Hawes, supra, 100 Md.App. at 231 , 640 A.2d at 747 . The court found both of those criteria to be met. It held that, under Maryland Rule 2-325(e), Chesley, having demanded a