Howard Chertkof & Co. v. Gimbel

BARBERA, J. This appeal involves a real estate broker’s entitlement to a commission in connection with a commercial lease. In decid ¹²¹ ing the case, we have the opportunity to discuss the procedures set forth in Maryland Code (1974, 1996 Repl.Vol.), § 14-301 et seq. of the Real Property Article (“RP”), which prescribe both how a broker establishes a lien and, more particular to this case, how the owner responds to that effort. All of the individuals involved in the controversy are the grandchildren and great-grandchildren of the late David W. and Annie Chertkof. As a result of the dispute, appellant, Howard L. Chertkof & Co., Inc., filed in the Circuit Court for Baltimore County a petition to establish a broker’s lien (“the petition”), pursuant to RP § 14-304.

Howard Chertkof was the president and principal of appellant. 1 Appellant lodged the petition against Howard Chertkofs cousins, Joseph Gimbel, Helene Miller, Stephanie Prince, Jeffrey Clayten, Donald Brown, and Martha Lee Fendler, appellees. The petition related to the property located at 439-51 Eastern Avenue in Essex (“the Property”), which is now leased to the State of Maryland. Initially, appellant sought a lien of $54,862.50, but later amended the claim to $67,237.50. Appellant’s claim is predicated largely on a Management Agreement executed in April 1988.

Following the sale of the Property to appellees, appellant filed a petition for a broker’s lien. The circuit court issued an order directing appellees to show cause why the lien should not issue. Appellees duly responded. The court, finding probable cause to believe that appellant was entitled to a lien, by memorandum and order established an interlocutory lien and identified four issues to be decided at trial.

Following a bench trial, another member of the court ruled in a written opinion that appellant was not entitled to a broker’s lien and entered judgment terminating the interlocutory lien. Appellant presents the following questions on appeal: ¹²² I. Did the trial court err in denying the petition for broker’s lien: (a) based on issues that were not alleged by appellees in their response to the petition; (b) in the face of statute and case law providing that any matters not so raised were waived; (c) on issues which were not identified as issues for trial in the July 3, 2000, order imposing an interlocutory lien; (d) on ' issues on which appellees had the burden of pleading and proof, and (e) on issues which appellant had no notice were to be considered by the trial court?

II

Did the trial court err in ruling that appellees were bona fide purchasers for value of the Property, where appellees were owners of the Property before and after the lease with the State was signed, were fully aware of appellant’s claim, and where appellees contractually agreed to pay the lease commission under the Management Agreement with appellant?

III

Did the court below err in ruling that appellant was not entitled to a broker’s lien based upon ¶ 15.2 of the Management Agreement, in the absence of any evidence related to that provision, and where that provision addresses the internal allocation of certain expenses, as between and among the owners, and does not address the commissions for new leases owed to third parties such as appellant? For the reasons that follow, we vacate the judgment of the circuit court and remand for further proceedings consistent with this opinion. FACTS AND LEGAL PROCEEDINGS The relevant underlying facts are contained in the unpublished opinion of this Court authored by the Honorable Ellen L. Hollander, Howard L. Chertkof & Co., Inc. v. Joseph Gimbel, et al., No. 969, September Term, 2001 (filed June 25, 2002) (“Chertkof I ”). We repeat that factual summary here: On or about February 9,1968, the late David W. Chertkof and his wife, Annie, executed a Revocable Trust Agreement, ¹²³ by which they created the “DWC Trust.” Its assets consisted of approximately twenty commercial properties, including the Property that is at the center of this controversy.

The DWC Trust created a life interest in its assets for the benefit of the Chertkofs’ four children: Jack Chertkof (who died in 1982), Ethel Posnick (who died in January 1995), Ben Clayten (who died in October 1995), and Helen Gimbel (who died in 1997). After the DWC Trust was created, it was divided into four separate “family branch trusts,” one for each of the Chertkofs’ four children. 1 Upon the death of the last of the Chertkofs’ four children, the trust assets were to be distributed. The DWC Trust Holding Company (the “Holding Company”), a Maryland corporation, was created after the death of Jack Chertkof in 1982. As a nominee corporation, it held bare legal title to the trust properties, for the benefit of the heirs under the DWC Trust. 2 The individuals involved in this case had remainder or beneficial interests in the DWC Trust assets.

Following the death of Jack Chertkof, both Helen Gimbel and Ethel Posnick, the sisters of Jack Chertkof, became trustees of the DWC Trust. They entered into a management agreement (the “Agreement”) with appellant, dated April 28, 1988, as to the trust properties. Ms. Posnick signed the Agreement on behalf of the trustees. According to appellant, even after the deaths of Posnick and Gimbel, and continuing until September 22, 1999, appellant provided all of the services required under the Agreement to the eleven “tenants-in-common,” including appellees.

Paragraph 13 of the Agreement provides: “All covenants and agreements herein contained shall bind and inure ¹²⁴ to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns----” Under the Agreement, appellant became the “sole and exclusive” management agent for the rental properties that were in the trust, and the “sole and exclusive agent for lease of any of the Properties.... ” Under ¶ 6 of the Agreement, appellant had “the right and the duty to conduct lease negotiations” for the various properties. Further, the manner in which lease commissions for new leases were to be calculated is set forth in ¶ 14.1.1 of the Agreement. With respect to appellant’s eligibility for a lease commission, the Agreement states in ¶ 14.1.2: 14.1.2 It is understood and agreed that Agent shall be the sole and exclusive agent for lease of the Properties and shall be entitled to a commission for lease of any of the Properties for which it (alone or working with another agent or broker) procures a tenant, as provided above---- The term of the Agreement was for one year, commencing on May 1, 1988, after which it was to continue on a month-to-month basis. The Agreement was to terminate 60 days after service of a written notice to that effect by either party.

See ¶ 2. Paragraph 14.4 of the Agreement is relevant. It provides: 14.4 Upon expiration of this Agreement, Agent shall furnish Owners with a list of prospects who have inspected or made inquiries respecting any of the Properties and if within six months after the termination of this Agreement, any of the Properties is sold or leased to any prospect on such list, Agent shall be entitled to receive from Owners an amount equal to the commission provided for above, as if the transaction had occurred prior to the expiration of the terms of this Agreement. However, Agent shall not be entitled to any commission if any of the Properties is sold or leased to any other person at any time after termination of this Agreement or to any pros ¹²⁵ pect more, than six months after the termination of this Agreement (Emphasis added.) Paragraph 15.2 of the Agreement is also noteworthy.

It states: 15.2 If during the term of this Agreement, Owners sell a Property (or more than one Property) that is subject to management hereunder, that Property shall be withdrawn from the legal operation and affect [sic] of this Agreement from and after closing for the sale of that Property, and Agent shall no longer be entitled to management fees for any such Property after such closing, but Agent shall be entitled to any Lease Commission for such Property to which agent may be entitled under section Fourteen above for the remainder of the then current term of the Lease for such Property.... This provision shall include and apply to a sale or transfer to another person (or persons) and/or entity (or entities) who may already be one of the Owners hereunder, so that such person (or persons) and/or entity (or entities) shall then hold full title to the Property so sold or transferred and the other then Owners of such Property hereunder shall divest themselves entirely of any title or interest in such Property. (Emphasis added.) Helen Gimbel, the last surviving child of David and Annie Chertkof, died in 1997. According to appellant, upon the death of Ms. Gimbel, the beneficial or remainder interests in the remaining trust properties passed to the eleven grandchildren or great-grandchildren of David and Annie Chertkof, as tenants in common. 3 They are: Howard L. Chertkof and E. Robert Chertkof, the sons of Jack Chertkof; Joseph Gimbel and Stephanie Prince, the children of Helen Gimbel; Martha Lee Fendler and Jeffrey Clayten, the children of Ben Clayten; Helene Miller and Phyllis Hayman, two of the three daughters of Ethel Posnick, and Sharon Silveria, Diane Kelty, and Donald Brown, the grandchildren of Ethel ¹²⁶ Posnick and the children of Ethel Posnick’s late daughter, Ms. Brown, who predeceased Ethel Posnick. 4 In August 1997, E. Robert and Howard Chertkof filed an action in the Circuit Court for Baltimore County for sale in lieu of partition, seeking to separate the interests of the eleven beneficial owners of the trust properties, including the Property at issue here.

R. Taylor McLean, Esquire was appointed as trustee to sell the properties, pursuant to a Consent Order of October 26, 1998. Appellees filed counterclaims as well as “third party” claims against appellant, alleging breaches of various obligations under the Agreement. Those claims were dismissed voluntarily, without prejudice, on November 9,1999. All of the trust properties were sold by the trustee, either to third parties or to the appellees.

In particular, the Property was sold by the Trustee to the appellees, pursuant to a Contract of Sale dated April 19, 1999 (the “Contract”). 5 Paragraph 9 of the Contract states, in part: “Buyer, who is now a beneficial owner of the Property, has agreed to purchase from Seller, who is the remaining beneficial owner of the property, all of Seller’s interest in the property for the amounts shown in Exhibit B____” As to the subject Property, appellees acquired the Seller’s interest of 64.444%. Therefore, prior to the settlement on September 22, 1999, [together, appellees were] the beneficial owner of 35.55% of the subject Property. The Contract provides that the purchase of the Seller’s interest was “intended to be the entire tenant in common interests in the Property of Seller.” ¹²⁷ The Property was the last remaining property under the Agreement. Therefore, following the settlement on the Contract on September 22, 1999, all of the properties managed by appellant under the Agreement had been disposed of.

Accordingly, pursuant to the terms of ¶ 2 of the Agreement, by letter dated August 31, 1999, appellant tendered a 60 day notice of its intent to terminate the Agreement. In accordance with ¶ 14.4 of the Agreement, appellant identified the State of Maryland as a prospective lessee of the Property. Effective December 15, 1999, and within six months of the termination of the Agreement, the State entered into a lease with appellees with respect to the Property. The lease generates annual gross income of $220,000.00 and carries a ten-year term.

It is that lease that has spawned the underlying controversy. Appellant claims that, prior to execution of the contract, and before settlement, “the broker had engaged in substantial lease negotiations, as per the exclusive listing agency provided in Management Agreement, with the State of Maryland, Department of Human Resources (‘DHR’), for commercial space in the Property, services of which appellees w[ere] aware and accepted.” In particular, appellant contends that the “appellant spent hundreds of hours obtaining the DHR as a tenant, negotiating the terms of the lease, and proposing tenant improvements and providing cost estimates for that tenancy.” Moreover, by letter of May 15, 1997, appellant maintains that appellees were fully informed of the proposal. Appellant also contends that the lease executed in December 1999 “tracks the 1997 proposal of appellant in material respects.” Alternatively, even if appellant were not the procuring cause of the lease, appellant asserts that, under the Agreement, it is entitled to a commission because it was the exclusive agent for the Property. Because no commission was paid, appellant sought to enforce its rights under the Agreement by filing the Petition.

Appellees counter that they did not execute a management agreement with appellant and are not bound by one. ¹²⁸ Asserting that appellant had ceased negotiations with the State in 1997, appellees also contend that the lease between them and the State was negotiated by appellee Joseph Gimbel and a broker other than appellant, and that Joseph Gimbel devoted considerable effort to the negotiations. Further, appellees assert that the Contract was entered by [them] in April 1999, without notice of appellant’s claim to a commission. Upon the filing of the Petition, the circuit court issued a show cause order on April 11, 2000. On May 5, 2000, appellees filed an “Answer Showing Cause Why A Broker’s Lien Should Not Issue,” along with an affidavit of Joseph Gimbel.

The show cause hearing took place on May 24, 2000. Thereafter, on July 3, 2000, the court issued an Order finding probable cause to believe that appellant was entitled to a broker’s lien; the court established an interlocutory lien on the Property, in the amount of $54,862.50. Moreover, the Order provided for a trial limited to the following four issues: (1) Whether the defendants appellees are parties or successors to the Management Agreement in which the rights to a commission are contained; (2) Whether the Management Agreement was terminated by the Circuit Court for Baltimore County by Consent Order of October 26, 1998; (3) Whether and to what extent any commission payable to Howard L. Chertkof & Co., Inc. due pursuant to paragraph 14.4 of the Management Agreement must be earned pursuant to paragraph 14.1.2 of the Management Agreement; and (4) Whether and to what extent any commission payable to Howard L. Chertkof & Co., Inc. would have to be reduced by the commission paid to Michael Glick for his efforts in procuring the lease [for the subject Property]. A bench trial was held on May 14, 2001.

At the conclusion of trial, the court asked the parties for post-trial submissions on the issue of whether appellees were “bona ¹²⁹ fide purchasers for value” of the Property, an issue that was apparently first raised by appellees at trial. Thereafter, by letter dated May 18, 2001, the court, sua sponte, raised the issue of whether ¶ 15.2 of the Management Agreement applied to the matters before the court, and asked the parties to address that issue in their post-trial memoranda. In an Opinion dated June 6, 2001, the circuit court concluded that appellant was not entitled to a broker’s lien. Consequently, the court struck the interlocutory broker’s lien and denied the Petition.

In reaching its conclusion, the court relied on ¶ 15.2 of the Agreement and determined that appellees were bona fide purchasers for value of the Property- Chertkof I, op. at 2-10. Appellant appealed the circuit court’s ruling. In Chertkof I we dismissed the appeal for lack of a final judgment. We remanded the case to the circuit court, directing that court to place a separate document in the record reflecting that a final judgment was entered for or against any of the parties.

Following entry of an order granting judgment in favor of appellees, appellant timely filed the instant appeal. We shall include additional facts in our discussion as necessary. DISCUSSION The circuit court ruled that, for two reasons, “no commissions are due and owing to” appellant. The court concluded, first, that the terms of the Agreement, in particular ¶ 15.2, prohibited appellant’s claim for a commission.

In construing that paragraph, the court determined that the sale of the Property to appellees resulted in the Property having been “withdraw[n] from the legal operation and effect of the Agreement,” and, thus, appellees did not owe appellant a commission relating to the subsequent lease of the Property. The court concluded, second, that, “[e]ven if the Management Agreement itself did not preclude the claim for a commission, the broker’s lien statute,” codified at RP § 14-301 et ¹³⁰ seq., barred appellant’s claim for a commission. The court based this conclusion on its preliminary finding that appellees were bona fide purchasers of the Property for value and, consequently, pursuant to RP § 14-302(b)(2)(i), a broker’s lien could not be established against the Property. The court, however, could not properly rely upon either basis to support its ultimate decision that appellant was not entitled to a broker’s lien.

As we shall discuss, by not adhering to the applicable statutory procedures, appellees waived the argument that, by operation of ¶ 15.2 of the Agreement, the Property was withdrawn from the purview of the Agreement and, as a result, was no longer subject to a broker’s lien. In the absence of notice to appellant that appellees would be litigating their entitlement to a lien as against the ¶ 15.2 defense, it was fundamentally unfair to appellant and thus error for the court to have ruled, on this basis, that appellant was not entitled to the requested lien. It was equally unfair to appellant that the court found appellees to have been bona fide purchasers of the Property for value, even though appellees had not raised this defense before trial. It was thus error for the court to have ruled, as a consequence of that finding, that appellant was not entitled for this reason as well to a broker’s lien on the Property.

Finally, although our disposition of the case does not require that we address the merits of the court’s ruling that appellees were bona fide purchasers, we shall comment on the issue for future guidance. I. With regard to ¶ 15.2 of the Agreement, the court found: Chertkof & Co. provided notice of its intent to terminate the Management Agreement on August 31, 1999. Pursuant to the Management Agreement, the Agreement itself terminated sixty days after service of that notice. Thus the Agreement actually terminated, at the latest, on October 30, 1999. ¹³¹ The contract for the sale of the [ ] [Property was entered on April 19,1999, and the closing occurred on September 22, 1999.

Thus a sale of one of the properties that was subject to the Management Agreement occurred during the term of the Agreement. In accordance with ¶ 15.2, that property is considered to have been withdrawn from the legal operation and effect of the Agreement from and after the date of closing, which was September 22, 1999. As specifically stated in ¶ 15.2, “agents shall be entitled to any lease commissions for such property to which agent may be entitled under ¶ 14 above for the remainder of the then-current term of the lease of such property.” Thus, i[n] accordance with the express language of ¶ 15.2, the only lease commissions that Chertkof & Co. can seek under f 14 are those for the balance of [the] then-current lease. Otherwise, the property is considered to be withdrawn from the legal operation and effect of the Management Agreement.

Accordingly, no commissions are due and owing to Chertkof & Co. on the lease with the State of Maryland that was entered after the termination of the Management Agreement. (Footnotes and record citations omitted.) Appellant contends, first, that the court erred in deciding appellant’s entitlement to a broker’s lien by resort to ¶ 15.2, because appellees had waived the defense of the arguably foreclosing effect of ¶ 15.2 upon this case. Appellant specifies that appellees did not include any reference to ¶ 15.2 in either their answer to the show cause order or the affidavit of Joseph Gimbel that accompanied the answer; nor did they make any effort to have ¶ 15.2 included among the issues to be resolved at trial. Appellant further argues that, in any event, the circuit court “erred in interpreting ¶ 15.2, without any extrinsic evidence, to provide that, upon the sale of any Property covered by the Agreement, the only lease commission that would be payable to appellant, under any circumstances, would be a commission for a lease already in place at the time of the sale.” ¹³² Appellees, in addition to maintaining that the circuit court properly interpreted ¶ 15.2, respond that they did not waive consideration of the ¶ 15.2 issue.

Appellees state that, throughout the litigation, they made clear that they were not bound by the Agreement at all, because there was no contractual privity between them and the parties to the Agreement. They insist that subsumed within this argument is the argument that appellant was foreclosed by ¶ 15.2 of the Agreement from seeking a commission on the Property. We agree with appellant’s first argument that appellees did not argue the implications of ¶ 15.2 until invited to do so by the trial court, after the trial, in the post-trial submissions. We also agree that, because appellees did not take the steps necessary to have this question specified for trial, it was waived.

The court therefore was precluded from deciding, on this ground, the merits of appellant’s petition for a broker’s hen. We come to this conclusion by resort to the broker’s lien statute itself. This statute is modeled to a large extent upon the mechanic’s lien statute and, like that statute, “is remedial and shall be so construed to give effect to its purpose.”