Helferstay v. Creamer

LISS, Judge. This case represents an appeal by Charles Helferstay, et al., appellants (hereinafter the Investors), from a denial by the Superior Court (now Circuit Court) for Baltimore City, of their motion for equitable relief and replication on equitable grounds. The appeal is taken from a November 8, 1982 oral ruling by Judge David Ross in favor of the appellees, Ronald E. Creamer, individually, and t/a the law firm of Weinberg and Green (hereinafter W & G). The underlying litigation in this case began on July 9, 1976, when the Investors brought suit against W & G and against individual members of the firm.

In Creamer v. Helferstay, 294 Md. 107 , 448 A.2d 332 (1982), the Court of Appeals summarized the facts upon which this continuing dispute is based: 1 Several limited partners of a real estate partnership which had invested in a land venture known as the Route ²⁶⁶ 29 — Lewis Property Partnership, brought suit in the Superior Court of Baltimore City against the Baltimore law firm of Weinberg & Green and several of its partners individually, alleging negligent breach of fiduciary duties, breach of contract and fraud. These allegations arose out of the law firm’s concurrent representation of the real estate limited partnership and of the general partner thereof (who is not a party to this case). In essence, the limited partners claimed that Weinberg & Green’s representation of the general partner personally, and its relationships with him in business dealings, had created a conflict of interest and had resulted in financial loss to the limited partners. The limited partners alleged that Weinberg & Green had had a duty to disclose the full extent of its relations with the general partner and that, had it made this disclosure, the limited partners would not have invested in the partnership.

The limited partners sought compensatory damages and, under the fraud count, punitive damages. Weinberg & Green counterclaimed for damages, alleging that, to the extent that the law firm caused the limited partnership to have lost money, the loss was due to the failure of certain of the limited partners to have disclosed information to the law firm which would have enabled the venture to have been profitable. Responding to the suggestion of the trial judge presiding in the case, the parties negotiated a partial settlement agreement which was signed on October 24, 1979. The limited partners agreed to dismiss with prejudice the fraud count and to release Weinberg & Green from all other claims of fraud or conspiracy relating to the real estate partnership.

Weinberg & Green agreed to dismiss its counterclaim, and “to enter into good faith settlement negotiations” on the negligence and breach of contract counts. The following provision was also included in the written agreement: “This agreement . . . constitute^] the entire agreement of the parties. There are no additional promises made ²⁶⁷ by the parties except those expressly set forth in this agreement.” Pursuant to the settlement agreement, the fraud count and the counterclaim were dismissed. Thereafter, the parties met three times to negotiate on the remaining counts, and at the third meeting Weinberg & Green offered $80,000 in settlement.

The limited partners rejected this offer, and, as found by the trial court, their counsel “immediately announced his intention to seek rescission [of the settlement agreement] and acted upon that intention the following day by filing the motion for appropriate relief.” The limited partners argued that the settlement agreement should be rescinded and the fraud count reinstated because, they alleged, Weinberg & Green had intentionally made “false representations” during the negotiations which had induced the limited partners to enter into the settlement agreement. Specifically, the limited partners alleged that during negotiations they had repeatedly stated that any settlement would have to be in the range of $275,000 to $550,000. Weinberg & Green, however, refused during those negotiations to agree expressly in writing or orally to a specific settlement range. Nevertheless, the limited partners claimed that, by certain statements, the law firm had caused them to understand that, even though the settlement agreement provided only for “good faith settlement negotiations,” in reality the agreement was different.

According to the limited partners, the law firm represented that, as soon as the fraud count was dropped, the law firm would offer to settle for between $275,000 and $550,000. In an opinion, the trial court found that there was “no evidence of intentional misrepresentation” by Weinberg & Green. However, the court did find that Weinberg & Green had made an “honest misrepresentation” which had induced in the respondents the belief that Weinberg & Green intended to negotiate a settlement in the $275,000-$550,000 range. The court further found that the limited ²⁶⁸ partners had entered into the settlement agreement in reliance upon this misrepresentation.

The trial court entered an order rescinding the settlement agreement and reinstating the counterclaim and the fraud counts. The trial court based his order of rescission on the alternative grounds of misrepresentation and unilateral mistake. Weinberg & Green appealed to the Court of Special Appeals which affirmed on the ground of unilateral mistake. Creamer v. Helferstay, 47 Md.App. 243 , 422 A.2d 395 (1980).

The law firm then filed a petition for a writ of certiorari, arguing that neither misrepresentation nor unilateral mistake furnished grounds for rescission of the settlement agreement under the circumstances of this case. [Footnotes omitted]. [ 294 Md. at 109-12 , 448 A.2d 332 ]. The Court of Appeals vacated this Court’s judgment and remanded with instructions to vacate the judgment of the Superior Court and remand for further proceedings not inconsistent with that opinion. The Court noted “[t]he Superior Court of Balitmore City was clearly without the power to order rescission of the settlement agreement in this case . . .. ” As a result, the dismissed claims in the underlying (1976) litigation, including Investors’ fraud-conspiracy count, remained dismissed with prejudice pursuant to the dismissals filed in connection with the partial settlement agreement. The Court of Appeals advised, however, that upon remand the Investors “may be able to invoke Rule 342 d. 1 and make the argument or file a replication that grounds exist upon which a court of equity would rescind the settlement agreement.” 294 Md. at 115-16 , 448 A.2d 332 .

Because the Court of Appeals envisioned the possibility of further proceedings upon remand, the Court furnished guidance on the two legal issues raised by W & G in its certiorari petition and then in its brief, specifically instructing the trial court to permit appellants to present additional evidence and raise issues in addition to misrepresentation and unilateral mistake “such as the meaning of the term ‘good faith settlement negotiations’ and whether the law ²⁶⁹ firm breached their contractual promise, thereby relieving the limited partners from their obligations under the settlement agreement.” Id.t at 132-33, 448 A.2d 332 . Appellants subsequently filed a replication on equitable grounds, alleging intentional misrepresentation, negligent misrepresentation, breach of contract, fraud, estoppel and mutual mistake. On November 8, 1982, the trial court ruled against the appellants on each ground alleged. Judge Ross reiterated his 1979 ruling that the Investors were not induced to enter the partial settlement agreement through fraud, nor was the agreement induced by mutual mistake. 2 The Investors’ estoppel argument was rejected on the ground that the conduct by W & G about which the Investors complained preceded the partial settlement agreement, but under the opinion of the Court of Appeals, the contract controlled. 3 Judge Ross concluded that negligent misrepresentation was the tort side of innocent misrepresentation, and ruled that negligent misrepresentation was therefore not a viable ground for equitable relief under the opinion of the Court of Appeals in this case.

Judge Ross then stated, “That brings us down, as I read it, as I analyze it, to the final and only viable remaining basis for relief for the plaintiffs, and that is the question of breach of contract. There are two parts of that issue. (1) What does the contract mean; and (2) taking that meaning, was the contract breached.” Judge Ross held that “good faith negotiations” was an unambiguous term and that it was therefore to be accorded its objective meaning. He then defined its objective meaning, and found as a fact that W & G negotiator Howard Miller negotiated in good faith.

Finally, Judge Ross addressed Investors’ contention that W & G improperly invoked attorney-client privilege to fore ²⁷⁰ close inquiry into conversations that W & G negotiator Howard Miller had with W & G attorneys in the course of educating himself about the underlying 1976 litigation against W & G. Judge Ross ruled that the assertion of privilege was proper, and that, even if he were to draw an adverse inference from the assertion of privilege, such adverse inference would not change the result. The docket entries indicate that at the conclusion of Judge Ross’s oral opinion an order was entered denying the Investors’ motion for appropriate relief. The Investors have appealed from that order pursuant to the “collateral order” doctrine 4 and have raised the following issues: (1) Whether the Superior Court’s determination that the Court of Appeals in its 1982 opinion in this case (Creamer v. Helferstay, 294 Md. 107 , 448 A.2d 332 ) foreclosed negligent misrepresentation as a ground for rescinding the 1979 partial settlement agreement was proper? 2. Whether the Superior Court correctly ruled that “good faith settlement negotiations” is a straightforward term which is not ambiguous and, therefore, capable of a single definition? 3.

Whether the trial court’s conclusion that settlement negotiations were conducted in good faith as required by agreement of the parties was clearly erroneous? 4. Whether appellees’ assertion of attorney/client privilege precludes proof of their claim of having negotiated in “good faith”? 1. Appellants contend initially that since the partial settlement agreement with the appellees was the product of negligent misrepresentation, the trial court could have and should have refused to enforce the settlement agreement ²⁷¹ and should have treated it as invalid. The trial judge, however, ruled that parol evidence was inadmissible in a factual context where the parol evidence would explain or contradict the terms of an integrated written contract.

Appellants acknowledge that parol evidence is not admissible to alter, vary or contradict the terms of an integrated writing. They urge, however, that parol evidence is admissible to prove that the contract was obtained by means of untrue statements or by negligent misrepresentations. 3 Corbin Contracts, Sec. 573 n. 3 (1982 Supp.); Restatement (Second) of Agency Sec. 257, n (c) (1958). Appellants have furnished the Court with a well prepared and well reasoned discussion of the parol evidence rule as it applies to the tort of negligent misrepresentation. They seek to find a basis for the rescissions of the partial settlement agreement in the refusal of the trial court to permit them to introduce parol evidence to establish the negligent misrepresentation which they contend was proof of the failure of the appellees to engage in “good faith settlement negotiations.” We do not agree.

In its opinion, the Court of Appeals advised that the “honest misrepresentation” found by Judge Ross was not actionable because it conflicted with the express language in the integration clause. Creamer v. Helferstay, 294 Md., supra, at 120-21, 448 A.2d 332 . The trial court rejected appellants’ effort to reclassify the misrepresentation from an honest misrepresentation to a negligent misrepresentation when it said: I indicated previously, and I have not been persuaded to the contrary, negligent misrepresentation is what we were talking about in 1979. As far as I can ascertain, or understand, the innocent misrepresentation, nonfraudulent, conduct which induced the error of the plaintiffs is the contract side of the tort of negligent misrepresentation.

However, I am satisfied from reading the opinion of the Court of Appeals that they are not suggesting to us that because they have not decided expressly in a tort case that the parol evidence rule is applicable, that it is inapplicable in a factual context such as that presented in this ²⁷² case. They did not mean to say that we should come back and see if there was somehow negligence in the conduct of the defendants here which would make it a slightly different factual situation than that which prompted the first decision, and then say that the parol evidence rule doesn’t apply this time, and send it back down. I just don’t read that as being a viable alternative in this case under the opinion of the Court of Appeals. Appellants rely heavily on the case of Martens Chevrolet; Inc. v. Seney, 292 Md. 328 , 439 A.2d 534 (1982) in which they contend the Maryland Court of Appeals embraced the theory that negligent misrepresentation may be shown by parol evidence even if the misrepresentation contradicts an integrated written contract.

It must be noted that Creamer v. Helferstay, 294 Md. 107 , 448 A.2d 332 , supra, was decided after Martens and that the Court of Appeals unequivocally stated that the misrepresentation found by Judge Ross in the trial below was not actionable because it was in conflict with two provisions (“good faith settlement negotiations” and the integration clause) of the partial settlement agreement. W & G deny they made any misrepresentation during the negotiations which preceded the partial settlement agreement. Their position seems to have been sustained by Judge Ross when he stated: All of the statements and conduct, including silence of' the defendant, and their representatives, at the October 23 meeting, are consistent with the terms of the proposal which they were making. One has to realize that both sides entered that meeting, that is October 23, 1979, with firm positions which they had resolved to maintain, and that this was the first negotiating meeting between the parties.

In this context, one expects to hear from the other side demands or offers stated in absolute terms which are viewed as just that, demands or offers. The defendants had firmly resolved not to discuss dollars, and they meant it. The only way the defendants were willing to discuss ²⁷³ dollars or money or amounts or figures was without the existence of the fraud count. The proposal was that