Homa v. Friendly Mobile Manor, Inc.

BISHOP, Judge. This case presents two appeals, which we shall address separately. The first appeal is taken by Leonard S. Homa (“Homa”) from a judgment entered by the Circuit Court for St. Mary’s County (Marvin S. Kaminetz, J.) in favor of Appellee Friendly Mobile Manor, Inc. (“Friendly”) for $191,-368.16 in compensatory and punitive damages. The award was based upon the finding in a bifurcated bench trial that Homa was liable for fraud, breach of legal services contract, breach of real estate purchase contract, and breach of fiduciary duty.

The second appeal, taken by Friendly is from a decision by the same court granting summary judgment in favor of Levan, Schimel, Richman and Belman, P.A. (“LSRB”), the law firm with which Homa was allegedly associated. Issues Presented Homa raises the following questions: I. Did the Circuit Court err in finding Homa liable on Friendly’s claim of fraud where there was insufficient evidence to establish the legal elements of such a claim?

II

Did the Circuit Court err in finding Homa liable on Friendly’s claim of legal malpractice where Friendly failed to present expert testimony to support its claims and where the alleged legal malpractice was based on a claim of breach of fiduciary duty?

III

Did the Circuit Court err in finding Homa liable to Friendly for individual breach of contract as the contract purchaser where Homa’s deposit was returned and where there was no settlement between Friendly and Homa and where a novation occurred? ³⁴³ IV. Did the Circuit Court err in awarding punitive damages to Friendly under an implied malice standard? Statement of Facts John S. Weiner (“Weiner”), a practicing real estate attorney in St. Mary’s County, and Kenneth Rossignol (“Rossignol”), a real estate broker, were the principal stockholders and owners of Friendly, which owned two mobile home parks. Friendly and Homa entered into a written agreement, prepared by Homa on LSRB law firm letterhead, whereby Homa agreed to perform services “as counsel/manufactured housing consultant ... on behalf of Friendly ... in connection with the sale of the [mobile parks]____” The agreement listed specifically the following “professional legal and consulting services.” [O]btain and produce a bona fide qualified purchaser at the listing price and on the terms as shall be accepted by the Seller [Friendly] or agreed upon in writing between the Seller and Consultant [Homa]; prepare appropriate contract of sale, negotiate the terms of sale with prospective purchaser; attend the settlement of the sale on behalf of the Seller; perform all customary legal services related to the sale, ... and work in cooperation with the Seller’s accountant and tax adviser in order to effect the most favorable tax treatment for the Seller.

(Emphasis added.) The agreement provided that Homa was entitled to receive a procuring fee from the purchaser, and, in addition, a fee from Friendly equal to five percent of the sale price. After Weiner and Rossignol sold one of the parks without the aid of Homa and received an offer on the second park (“Friendly Manor”), Homa offered to purchase Friendly Manor. A hand written agreement between the parties provided that Homa was entitled to a commission whether he bought the park or whether an assignee purchased it, in which case the commission was to be paid by the assignee. Homa presented, and Friendly and Homa executed, an Agreement of Sale, dated October 18, 1986, that provided, ³⁴⁴ inter alia, that the purchaser was obligated at closing to assume responsibility for payment of installment loans on specified financed mobile homes (“Agreement”).

Homa contacted several groups of investors, including William T. Poole, a stockholder in Pascal Turner, Ltd. Poole agreed to take an assignment of the Agreement and to purchase Friendly Manor if the Agreement were modified so that the assignment excluded “contracts or agreements affecting the park for any matter for which the Purchaser will be required to assume or will become obligated.” Poole testified that this modification was meant to exclude the installment loans. Weiner testified that Homa explained to him that this modification was intended to exclude assignment of maintenance or service agreements, such as agreements with the garbage collector, etc., and that Homa never indicated that the purchaser would not assume the installment loans. Friendly accepted the modifications proposed by Poole, and Poole gave Homa a check for a new contract deposit of $3,000, which Homa forwarded to Friendly. In November 1986, Poole, Homa, and Weiner met to discuss settlement terms and modifications to the terms of the Agreement.

On December 2, 1986, Homa executed an Assignment of the Agreement giving Poole’s company, P/T Ltd. II (“P/T”) a then unformed corporation, Homa’s “right, title and interest in” the October 1986 Agreement of Sale between Friendly and Homa. On December 3, 1986, Poole, Homa, Rossignol, and Weiner attended settlement. Weiner testified that after disagreement arose between the parties over the language in the bill of sale concerning the assumption of the loans, Poole left the room, and Homa, in response to a question from Weiner and Rossignol, opined that “he didn’t think it really made any difference whether Mr. Poole signed the bill of sale with that assumption language in it, ... that Mr. Poole had taken the assignment of the contract, and that Mr. Poole, at that time known as P/T, P/T was responsible under the contract of sale to assume those loans.” The language of the bill of sale was modified by deleting any reference to P/T assuming the principal bal ³⁴⁵ anees on the loan; the sellers affirmed the principal balances given on a prior page were correct; and the parties settled. Poole and Homa testified that even though Poole was not going to assume the loans, he agreed to take the homes subject to the existing loans and would make payments on the installment loans out of rents and payments he received from the renters.

Prior to settlement, Poole and Homa discussed the possibility of Homa’s investing in P/T. On December 2, the day before settlement, Homa attended a meeting of the investors. P/T was incorporated in January 1987. Homa testified that he decided to do consulting work for P/T in early January 1987, and first became a shareholder in the corporation in February 1987. At the time of settlement, Homa’s son was employed by Poole.

In a declaratory judgment action brought by P/T, this Court held, on appeal, that P/T was not obligated to assume the installment loans. P/T Ltd. II v. Friendly Mobile Manor, 79 Md.App. 227 , 556 A.2d 694 (1989). Because Homa was not a party to the action, however, we would not express an opinion as to whether Homa could be required to perform his contractual duties. Subsequently, Friendly brought suit against Homa.

Separate trials were held on the issues of liability and damages. The trial court, sitting without a jury, found Homa liable for fraud and also found that, because he breached his fiduciary duties as Friendly’s attorney, he breached his legal services contract. It found further that Homa breached the provision in the October 1986 purchase contract to assume the installment obligations on the financed mobile homes. The court entered judgment for $159,948.16 in compensatory damages and $31,440.00 in punitive damages.

Homa appeals from that judgment. Discussion I. Homa contends that there was insufficient evidence to establish fraud and, therefore, the trial court erred in ³⁴⁶ finding him liable for fraud. We disagree. The record supports the trial court's conclusions.

This Court will not set aside the judgment of the trial court on the evidence unless it is clearly erroneous. Md. Rule 8-131(c); In re Trevor A., 55 Md.App. 491, 501 , 462 A.2d 1245 cert. granted, 297 Md. 419 , 466 A.2d 1291 (1983), cert. dismissed, 299 Md. 428 , 474 A.2d 207 (1984). In reviewing a non-jury case we do not weigh conflicting evidence or the credibility of witnesses but, rather, we assume the truth of all evidence and inferences fairly deducible therefrom that support the factual conclusions of the trial court, and we simply inquire whether there is any evidence legally sufficient to support those findings. Pahanish v. Western Trails, Inc., 69 Md.App. 342, 354 , 517 A.2d 1122 (1986).

To prove fraud the following elements must be established. (i) Homa made a false representation of a present or past material fact; (ii) Homa knew of its falsity or made the representation with such reckless indifference to the truth that it would be reasonable to 7 charge Homa with knowledge of its falsity; / (iii) Homa made the representation intending that Friendly would act in reliance on it; (iv) Friendly relied on the representation; (v) Friendly’s reliance was justified; and (vi) Friendly suffered damages as a result of its reliance on the representation. Martens Chevrolet, Inc. v. Seney, 292 Md. 328, 333 , 439 A.2d 534 (1982) (citing Gittings v. Von Dorn, 136 Md. 10, 15-16 , 109 A. 553 (1920). It is well established law in Maryland that the non-disclosure of a material fact can also constitute fraud where a duty of disclosure exists.

Impala Platinum v. Impala Sales, 283 Md. 296, 323 , 389 A.2d 887 (1978). Where there is a fiduciary relationship, a duty of disclosure is imposed. A fiduciary relationship exists be ³⁴⁷ tween an attorney and the client and “ ‘carries with it the requirement of utmost good faith and loyalty and the obligation of [the fiduciary] to make full disclosure of all known information that is significant and material to the affairs ... of [the fiduciary relationship.]’ ” Id. at 324 , 389 A.2d 887 (quoting Herring v. Offutt, 266 Md. 593, 597 , 295 A.2d 876 (1972)). In the case sub judice, the written agreement dated October 7, 1986 between Homa and Friendly was sufficient to establish an attorney-client relationship.

As Judge Kaminetz noted in his opinion, once an attorney-client relationship exists the attorney owes the client certain fiduciary duties including the duty to disclose any conflicts of interest. Crest Inv. Trust v. Comstock, 23 Md.App. 280, 301-304 , 327 A.2d 891 (1974), cert. denied, 274 Md. 726 (1975). We noted in Crest, 23 Md.App. at 302 , 327 A.2d 891 (quoting In re Kamp, 40 N.J. 588 , 194 A.2d 236 (1963)), that “[a] conflict of interest is inherent in the relationship of buyer and seller____” As a result, full disclosure requires the attorney not only to inform the prospective client of the attorney’s relationship to the seller, but also to explain in detail the pitfalls that may arise in the course of the transaction which would make it desirable that the buyer have independent counsel.

The full significance of the representation of conflicting interests should be disclosed to the client so that he may make an intelligent decision before giving his consent. If the attorney cannot properly represent the buyer in all aspects of the transaction because of his relationship to the seller, full disclosure requires that he inform the buyer of the limited scope of his intended representation of the buyer’s interests and point out the advantages of the buyer’s retaining independent counsel. (Emphasis added.) Id. 23 Md.App. at 303 , 327 A.2d 891 . Likewise, if an attorney’s relationship with the buyer interferes with his ³⁴⁸ ability to represent the seller, the attorney must inform the seller.

In this case, Homa agreed to act as the seller’s attorney. Homa prepared the agreement on law firm stationary on which his name appeared “Of Counsel.” Homa agreed to act “as counsel ... on behalf of Friendly” and provide “professional legal ... services.” In particular, Homa agreed to “negotiate the terms of sale with prospective purchaser, attend the settlement of the sale on behalf of the Seller; perform all customary legal services related to the sale,____” The evidence included testimony by Poole that, prior to settlement, he discussed with Homa the possibility of Homa being an investor in and consultant to P/T. Homa actually became an investor in this group and attended a meeting for P/T investors. In addition, Homa’s son was an employee of Poole. Clearly, Homa’s position vis-a-vis Poole and P/T was material and in direct conflict with the pecuniary and negotiating interests of his client, Friendly.

Even though P/T was not actually incorporated (unknown to Poole), and even if, as Homa testified, he did not actually invest or become a stockholder in P/T until after settlement, a conflict of interest existed giving rise to a duty on the part of Homa to inform Weiner and Rossignol of the conflict. Economic advantages to Poole or P/T, negotiated prior to or during settlement, could result only at the expense of Friendly. Moreover, Homa could expect at the time of the negotiations to benefit from those advantages that would accrue to him at the time he became a stockholder in and/or consultant for P/T. Homa’s relationship to Poole and P/T was material because a reasonable person would attach importance to it in determining his/her choice of action in the transaction. Brodsky v. Hull, 196 Md. 509, 515-16 , 77 A.2d 156 (1950).

Weiner testified that his decisions in the transactions would have been altered if he had known of Homa’s dealings with Poole and P/T. ³⁴⁹ There is sufficient evidence to support the court’s finding that assumption of the loans, which amounted collectively to a liability of approximately $350,000, was material to the sale of the park. Both Weiner and Rossignol testified that assumption of these loans by the buyers was “crucial” to the sale, and “as important as the purchase Price.” There was sufficient evidence to support the court’s finding that Homa failed to inform Friendly that neither Poole nor P/T had any intention of assuming liability for the loans, even though that fact was well known to him. Poole agreed to take an assignment of the Agreement and to purchase Friendly Manor subject to the exclusion of the assumption of the loans from the Agreement. Homa prepared a letter to Weiner, dated October 30,1986, supposedly containing language that excluded assumption of the loans.

The pertinent paragraph reads: “Seller agrees at the time of settlement to acknowledge that, there are no contracts or agreement affecting the park for any matter for which the Purchaser will be required to assume or will become obligated.” Testimony by Poole and Weiner made it clear that, although Homa indicated to Poole that Weiner accepted the modification, Homa explained to Weiner that the modification was meant to exclude maintenance or service agreements, such as an agreement with the garbage collector. Weiner testified that, at the time of settlement, Homa advised Weiner and Rossignol that since Poole had taken the assignment of the contract, he was responsible under the contract to assume the loans even if the bill of sale did not include assumption language. In reliance upon this advice, the language of the bill of sale was changed, and settlement resulted. There was documentary evidence, which included letters written by Homa, on behalf of P/T, to First National Bank of St. Mary’s, after settlement, stating that, at the time of settlement, P/T did not assume the installment loans as evidenced by the language in the bill of sale.

Because Homa agreed to serve as counsel, was present at settlement on behalf of Friendly, provided advice when ³⁵⁰ asked by Weiner and Rossignol, and never informed Weiner and Rossignol of his interest in P/T, the court did not err in finding that Homa intended Weiner and Rossignol to rely upon the advice he provided. Because Homa knew Poole did not intend to assume the loans, and he believed that P/T did not in fact assume the loans, the court did not err in finding that Homa knew the falsity of his advice or, at a minimum, gave it with such reckless indifference to be charged with knowledge of its falsity. Weiner and Rossignol sought and reasonably relied upon Homa’s advice. They knew nothing of his financial interests in P/T. Weiner testified that, as a result of the sale without the assumption of the loans, he and Rossignol were forced to make payments on eight homes that were repossessed by the bank.

We hold that the evidence was sufficient to support the trial court’s conclusion that Homa was liable under the fraud count.

II

Homa contends that the circuit court erred in finding him liable under the legal malpractice count because Friendly did not present any expert testimony to support its claim. He argues that a breach of a fiduciary duty should not serve as a basis for an action for legal malpractice, which predicates liability on a negligent breach of duty. The trial court did not find negligence or legal malpractice on the part of Homa. It found that Homa intentionally violated the duties he owed to Friendly, and as a result, Homa breached his contract with Friendly.

The court did not err in finding, without the assistance of expert testimony, that Homa breached his fiduciary duty. Although expert testimony may be required in some cases to determine whether an attorney’s conduct violated the standard of reasonable care or diligence in the performance of legal duties, Central Cab Co., Inc. v. Clarke, 259 Md. 542, 551 , 270 A.2d 662 (1970), expert testimony is not ³⁵¹ required “where the common knowledge or experience of laymen is extensive enough to recognize or infer negligence from the facts.” Fishow v. Simpson, 55 Md.App. 312, 319 , 462 A.2d 540 (1983). Likewise, where the common knowledge and experience of a layperson is enough to recognize or infer an intentional violation from the facts, expert testimony is not required. As the Court noted in Central Cab, if the violation of a duty is obvious, the trial court should find as a matter of law that the attorney has breached a duty. 259 Md. at 551-52 , 270 A.2d 662 .

Homa argues that expert testimony was required because this is not a case where an attorney failed to make a disclosure; rather, he argues, the issue is whether the disclosure he did make was adequate. Homa does not specify what disclosure he made and cites no evidence to support his claim that he disclosed to Friendly any of his current or potential interest in P/T. As found by the trial judge and confirmed by our review of the record, Homa did not provide Weiner or Rossignol with even an inkling that he had an interest in P/T. Homa’s failure to inform Friendly of his impending financial interest in P/T was a clear violation of his fiduciary duty as Friendly’s attorney, was easily recognizable as such by a layperson, and most certainly was recognizable by a judge acting in the capacity of factfinder. Under these circumstances, expert testimony was not necessary and the trial court did not err in ruling that Homa violated his fiduciary duty to Friendly as a matter of law. Central Cab, 259 Md. at 551 , 270 A.2d 662 .

Homa contends that the court’s award of damages in the amount of $38,000 for breach of his fiduciary duty is in error because the remedy for breach of fiduciary duty or fraud in the context of an attorney-client relationship is to void the transaction, which Friendly does not want to do, and because a broker is entitled to commission if he is employed by the owner and procures the sale. We disagree. ³⁵² Although voiding a transaction is one remedy available for breach of contract or for fraud, it is not the only available remedy. In Sellner v. Moore, 251 Md. 391, 398-99 , 247 A.2d 523 (1968), the Court noted that an agent hired to sell property on behalf of a principal owes a fiduciary duty to the principal and that when the agent breaches that duty, the agent may forfeit his right to compensation. As a fiduciary, the agent “is bound to act in good faith and to make disclosures of matters that are material and might affect the action of his employer in the premises.” Coppage v. Howard, 127 Md. 512 , 96 A. 642 (1916) (Emphasis added.) It has been said that the seller “in the employment of an agent to sell his property bargains for the disinterested skill, diligence and zeal of the agent for his own exclusive benefit.” Raisin v. Clark, 41 Md. 158, 159 (1874).

In Raisin the Court, speaking through Judge Miller, said also: “It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interest of the principal as far as he lawfully may.” The seller of an estate is presumed to be desirous of selling it at as high a price as can fairly be obtained for it, and the purchaser is equally presumed to desire to purchase it for as low a price as he may. The interests of the two are in conflict____” Id. In the case sub judice, Homa’s fiduciary duty to Friendly arose out of two separate commitments made by him: to serve as Friendly’s attorney and to serve as Friendly’s agent in the sale of the mobile parks. Both relationships give rise to fiduciary duties.

Homa’s breach of those duties resulted in a forfeiture of his right to the compensation he received from Friendly in the transaction. The circuit court did not err in awarding damages that included the compensation paid to Homa by Friendly.

III

Homa contends that the circuit court erred in finding him liable to Friendly for breach of contract since Homa’s ³⁵³ deposit was returned, there was no settlement between Friendly and Homa, and a novation occurred. “Under the common law there is no implied assumption by an assignee of his assignor’s obligations under the original contract merely by virtue of the assignment.” P/T Ltd. v. Friendly Mobile Manor, Inc., 79 Md.App. 227, 234 , 556 A.2d 694 (1989). To be liable for duties under contract, the assignee must have assumed liability expressly. Id.; Pumphrey v. Kehoe, 261 Md. 496, 506 , 276 A.2d 194 (1971). An assignor is not relieved of his obligations or liabilities under the original contract merely by assigning its benefits to a third party.

The Ruberoid Co. v. Glassman Const. Co., Inc., 248 Md. 97, 104 , 234 A.2d 875 (1967). Even when a third party assignee assumes the duties of the assignor who is the original party to the contract, the assignor remains liable under the contract and answerable in damages if the assignee’s performance is not in strict fulfillment of the