Major v. First Virginia Bank-Central Maryland

CATHELL, Judge. This is an appeal from an order of the Circuit Court for Baltimore City granting attorneys’ fees under Maryland Rule 1-341. Otto Major and Stuart Alison, appellants, represented the plaintiff in Veta McAnulty v. First Virginia Bank — Central ⁵²⁵ Maryland. The defendants in that case, First Virginia Bank, Shirley Tittle, Harco Oldsmobile, Inc., and William A. Beale, Esquire, are appellees here.

As we have said, appellants were not parties in the underlying case but were plaintiffs attorneys. They appear here as appellants. In Legal Aid Bureau, Inc. v. Farmer, 74 Md.App. 707 , 539 A.2d 1173 (1988), Judge Wilner, for this Court, addressed the further appealability of an award for reimbursement of attorney’s fees after an appeal to the circuit court from a District Court. He noted that unless the circuit court judgment “pursuant to Md.Rule 1-341 has some special, collateral status, it would not be reviewable by us.” Id. at 710 , 539 A.2d 1173 .

In his discussion, Judge Wilner clarified that an award of attorney’s fees “although ... emanating] from an underlying civil action, ... it is not necessarily tied to the merits....” Id. at 713 , 539 A.2d 1173 . [A] distinction needs to be drawn between a judgment entered against a party to the action and one entered against counsel.... We conclude that, for purposes of appellate jurisdiction, a judgment entered by the circuit court against the attorney is sufficiently collateral to the underlying action as to fall within our bailiwick. [1] Id. at 712 , 539 A.2d 1173 . The underlying case was first filed in the Circuit Court for Baltimore City in June 1990. Plaintiff alleged that, in repossessing her vehicle, defendants engaged in fraud, conversion, conspiracy, and violated the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.

(RICO). The defendants removed the case to Federal District Court where the RICO count was voluntarily dismissed. The federal court remanded the remaining claims back to state court. The entire complaint was dismissed twice in the circuit court, first with leave to amend and then with prejudice.

After the second dismissal the defendants filed a motion for attorneys’ ⁵²⁶ fees under Maryland Rule 1-341. The circuit court granted the motion, awarding total fees of $25,000 to be paid by appellants. This appeal followed. Appellants present five questions, which we shall address in the following order: I. Did the trial court err in finding that appellants lacked substantial justification for and acted in bad faith in prosecuting the RICO and fraud counts?

II

Did the trial court err in not applying the doctrine of res judicata to the appellants’ motion for Rule 1-341 sanctions after the federal court’s denial of Rule 11 sanctions for the same costs and attorneys fees?

III

Did the trial court have jurisdiction to impose Rule 1-341 sanctions for costs and fees charged by appellees while the case was pending in the federal court?

IV

Did the trial court err in awarding sanctions total-ling twenty-five thousand dollars ($25,000.00) under the facts of this case? V. Assuming arguendo that an award of sanctions against Otto Major in the amount of $5,000.00 was justified, did the trial court err in imposing four times that amount against Stuart Alison? We shall affirm. This case has been reviewed in varying degrees by two state circuit court judges, two Federal District Court judges, and this Court. 2 Many of the facts and issues have been analyzed ad nauseam.

As this appeal is only from the trial judge’s award of attorneys’ fees, we will avoid repeating the painstaking analysis engaged in by the other judges and will, when appropriate, defer to their findings by reference to their orders and memoranda included in appellants’ record extract. ⁵²⁷ THE FACTS Some background, however, will aid us in reviewing the circuit court’s findings that this action was maintained in bad faith and without substantial justification. Veta McAnulty, plaintiff in the underlying case, entered into a marital settlement agreement with her estranged husband. Pursuant to the agreement, he bought her a new car, financing the purchase with an $11,565 loan from Commercial Bank (now First Virginia Bank). The husband executed an installment sales agreement with the bank, while plaintiff executed the sales contract with Harco Oldsmobile, Inc. (Harco).

The husband eventually defaulted on the loan. While there was some dispute between the bank and Harco as to whether the security interest in the car was perfected, the bank ultimately assigned the installment sales contract to Harco, who proceeded to repossess and sell the car. Based on these events, plaintiff, represented by appellants, 3 filed a ten count complaint praying over one million dollars in damages. The complaint alleged violation of federal RICO and state unfair trade practices statutes, conversion, fraud, civil conspiracy, breach of contract, negligence and gross negligence.

Appellees removed the case to Federal District Court based on the RICO count and moved to dismiss the entire complaint. Plaintiff was granted a time extension to answer the motion to dismiss. In the order granting that motion Judge Garbis suggested that plaintiff consider voluntarily dismissing the RICO count, and indicated the possibility of sanctions pursuant to Federal Rule of Civil Procedure 11 (Rule 11) if she chose to proceed, as he found the count frivolous. Plaintiff did not answer the motion to dismiss the RICO count. ⁵²⁸ Three weeks later plaintiff voluntarily dismissed the RICO count.

Appellees requested that the federal court retain jurisdiction of the state law claims but the court declined, remanding the case to the Circuit Court for Baltimore City. After remand, appellees moved for Rule 11 sanctions against plaintiff and appellants. In his December 21, 1990, letter Order Judge Garbis found that adequate grounds existed to grant Rule 11 sanctions, but that because the pleading was originally filed in state court and removed to federal court by the defendants (appellees), it should not be held to a Rule 11 standard. 4 Judge Garbis concluded: “Whether the Complaint fails to meet some applicable state court standard is a matter for consideration by the Circuit Court for Baltimore City.” Appellants then filed a motion in federal court for Rule 11 sanctions against appellees, based on the “frivolous” motion for Rule 11 sanctions filed by appellees. Judge Garbis denied the motion, stating that if the Court was “inclined to prolong this totally useless proceeding, it might well, sua sponte,” impose sanctions on appellants.

After remand, Judge Byrnes in the circuit court held a hearing on appellees’ motion to dismiss. Judge Byrnes dismissed the entire complaint with leave to amend on certain conditions. Those conditions included that the amended pleading be factually detailed and explicit, and that the plaintiff verify the entire complaint under oath, subject to the penalties of perjury. The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer’s knowledge, information, and belief formed after a reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation____ If a pleading, motion, or other paper is signed in violation of this rule, the court ... shall impose ... an appropriate sanction.... ⁵²⁹ Plaintiff filed an amended complaint, 5 and appellees again moved to dismiss, on the ground, among others, that it did not comply with Judge Byrnes’ order.

A hearing was held before Judge Noel, in which he dismissed plaintiffs complaint with prejudice. An appeal was noted to this Court upon the complaint’s dismissal. During the appeal’s pendency, the motion was made for costs and attorneys’ fees under Maryland Rule 1-341. Judge Noel held a two-day hearing on the motion and thereafter imposed the sanctions that are the subject of this appeal.

THE LAW Maryland Rule 1-341 reads: In any civil action, if the court finds that the conduct of any party in maintaining or defending any proceeding was in bad faith or without substantial justification the court may require the offending party or the attorney advising the conduct or both of them to pay to the adverse party the costs of the proceeding and the reasonable expenses, including reasonable attorney’s fees, incurred by the adverse party in opposing it. The Court of Appeals has expressly adopted a standard of review for an award of attorney’s fees under this rule. ... [B]efore imposing sanctions in the form of costs and/or attorney’s fees under Rule 1-341, the judge must make two separate findings that are subject to scrutiny under two related standards of appellate review. First, the judge must find that the proceeding was maintained or defended in bad faith and/or without substantial justification. This finding will be affirmed unless it is clearly erroneous or involves an erroneous application of law.

Second, the judge must find that the bad faith and/or lack of substantial justification merits the assessment of costs ⁵³⁰ and/or attorney’s fees. This finding will be affirmed unless it was an abuse of discretion. Inlet Associates v. Harrison Inn Inlet, Inc., 324 Md. 254, 267-68 , 596 A.2d 1049 (1991). See also Deleon Enterprises, Inc. v. Zaino, 92 Md.App. 399, 415 , 608 A.2d 828 (1992); Art Form Interiors, Inc. v. Columbia Homes, 92 Md.App. 587, 593-94 , 609 A.2d 370 , cert. denied, 328 Md. 567 , 616 A.2d 378 (1992).

The trial judge must make explicit findings of fact that a proceeding was maintained or defended in bad faith and/or without substantial justification. Inlet Associates, 324 Md. at 269 , 596 A.2d 1049 (citing Zdravkovich v. Bell AtlanticTricon Leasing Corp., 323 Md. 200, 210 , 592 A.2d 498 (1991)). See also Talley v. Talley, 317 Md. 428, 436 , 564 A.2d 777 (1989); Beery v. Maryland Medical Laboratory, Inc., 89 Md.App. 81, 98 , 597 A.2d 516 (1991), cert. denied, 325 Md. 329 , 600 A.2d 850 (1992); Legal Aid Bureau, Inc. v. Bishop’s Garth, 75 Md.App. 214, 220 , 540 A.2d 1175 , cert. denied, 313 Md. 611 , 547 A.2d 188 (1988); Century I Condominium Assoc, v. Plaza Condominium Joint Venture, 64 Md.App. 107, 115 , 494 A.2d 713 (1985). Based on those specific findings, the court may order the offending party to reimburse the aggrieved party for attorneys’ fees incurred as a result of the opprobrious behavior.

This Court has emphasized that Rule 1-341 is not a sanctions rule in the same sense as Rule 11. It does not provide for a monetary award to punish a party that misbehaves. The rule’s purpose is to put the wronged party in the same position as if the offending conduct had not occurred. Furthermore, awarding attorney’s fees under this rule is an extraordinary remedy, and it should be used sparingly.

Inlet Associates, 324 Md. at 277, n. 4 , 596 A.2d 1049 (Bell, J. dissenting); Talley v. Talley, 317 Md. at 438 , 564 A.2d 777 (rule is extraordinary remedy and should reach only intentional misconduct); Art Form Interiors, Inc. v. Columbia Homes, 92 Md.App. at 598, 609 A.2d 370 (“sanctions should be reserved ‘for the deterrence of unnecessary or abusive litigation.’ ”); Black v. Fox Hills N. Community Ass’n, 90 Md.App. ⁵³¹ 75, 84, 599 A.2d 1228 , cert. denied, 326 Md. 177 , 604 A.2d 444 (1992) (rule should be invoked only for clear, serious abuses of judicial discretion). See also Kelley v. Dowell, 81 Md.App. 338 , 567 A.2d 521 , cert. denied, 319 Md. 303 , 572 A.2d 182 (1990). “Rule 1-341 sanctions are judicially guided missiles pointed at those who proceed in the courts without any colorable right to do so.” Bishop’s Garth, 75 Md.App. at 224 , 540 A.2d 1175 . I. Appellants submit that the trial court erred in finding that the RICO and fraud counts were filed without substantial justification and in bad faith. To show error, they ask us to revisit the statutory definitions and case law interpreting RICO, arguing that their pleadings were a good faith extension of existing case law, and to review both the original and amended complaint as to the fraud allegations.

Maryland law, however, mandates that we affirm the trial judge’s finding unless clearly erroneous. Inlet Associates, 324 Md. at 267-68 . “Unless the factual findings of the trial court are clearly erroneous, an appellate court may not arrive at different factual conclusions. If there is any competent material evidence to support the factual findings of the trial court, those findings cannot be held to be clearly erroneous.” Nixon v. State, 96 Md.App. 485, 491-92 , 625 A.2d 404 (1993) (citing Fantasy Valley Resort, Inc. v. Gaylord Fuel Corp., 92 Md. App. 267, 275 , 607 A.2d 584 (1992)). We shall not reanalyze the RICO and fraud counts based on the statutes and cases cited.

We shall review the trial court’s findings of fact and examine the record for evidence supporting the findings. According to the Court of Appeals, substantial justification is “a reasonable basis for believing that a case will generate a factual issue for the fact-finder at trial[,]” or a position that is “ ‘fairly debatable’ and “within the realm of legitimate advocacy.’ ” Inlet Associates, 324 Md. at 268 , 596 A.2d 1049 (citing Newman v. Reilly, 314 Md. 364, 380-81 , 550 A.2d 959 (1988), and Needle v. White, Mindel, Clarke and ⁵³² Hill, 81 Md.App. 463, 476, 568 A.2d 856 , cert. denied, 319 Md. 582 , 573 A.2d 1338 (1990)). The Court also looked to the comment in the Maryland Lawyers’ Rules of Professional Conduct, Rule 3.1, to the effect an action would be without substantial justification if “the lawyer is unable either to make a good faith argument on the merits of the action taken or to support the action taken by a good faith argument for extension, modification or reversal of existing law.” Id. at 268 , 596 A.2d 1049 . In making a finding specific to the RICO count, the trial court stated: Plaintiff’s attorneys, in their attempt to satisfy [the RICO pleading] requirement, construe all of the facts relevant to this case so as to fit the defendants’ actions neatly into a pattern of racketeering activity.

The plaintiffs view of the facts is simply unreasonable. Rather, this court agrees with the defendants who argue that plaintiffs complaint was deficient in alleging a RICO claim based on one “scheme” against one victim. Th[ere] is no evidence or logic supporting the conclusion that the defendants’ act constituted a “scheme” that could satisfy the pattern of racketeering activity necessary for a RICO violation. In fact, when the federal court considered plaintiffs arguments in support of her RICO claim, it found that the RICO claim was without merit, stating: “[It] is obvious to the Court, and presumably was obvious to the Plaintiff as well, [that] the RICO claim in Count I was frivolous.” Therefore, this court agrees with the defendants that the RICO claim was made solely to take advantage of the treble damages provision of the RICO statute in order to obtain an exorbitant settlement from the defendants, and as such, amounts to a claim brought in bad faith and without substantial legal or factual justification.

Regarding the fraud claim, the trial court stated: I believe that too was brought without substantial justification. Not only did the plaintiffs complaint fail to allege the elements of fraud, but a reasonable inquiry into the law on fraud would have revealed that the plaintiffs fraud claim ⁵³³ failed to satisfy the five elements of fraud required under Maryland law. The trial court further found that both the complaint and amended complaint contained “misstatements of fact which amount to bad faith____ Judge Byrnes I think speaks for all those involved in judging this case that the plaintiffs claims are unfounded and made with the sole intention of harassing honest businesspeople in order to line their own pockets.” For example, plaintiff alleged in her complaint that certain documents executed by the defendants were forgeries. At the motion’s hearing, the trial judge elicited a concession from appellant Alison that he and Major did not know if the allegedly forged documents existed at the time the complaint was filed.

Appellants had been warned both in federal court and in circuit court that their actions might lead to sanctions and an award of attorneys’ fees. The trial judge followed through, finding that appellants’ actions “merit the assessment of costs and attorney’s fees against the plaintiffs attorneys in favor of the defendants’ attorneys.” Upon review of the record, and in light of the specific findings of fact made in deciding this motion, we cannot say that the trial judge was clearly erroneous in finding that plaintiffs attorneys filed the complaint in circuit court in bad faith and without substantial justification, nor was the decision to award attorneys’ fees from appellants to appellees an abuse of discretion.

II

Appellants claim error in the trial court’s refusal to rule that the federal court’s denial of Rule 11 sanctions against plaintiff was res judicata as to appellees’ circuit court motion for attorneys’ fees under Rule 1-341. Under Maryland law, the requirements of res judicata or claim preclusion are: 1) that the parties in the present litigation are the same or in privity with the parties to the earlier dispute, 2) that ⁵³⁴ the claim presented in the current action is identical to the one determined in the prior adjudication, and 3) that there was a valid final judgment on the merits. Esslinger v. Baltimore City, 95 Md.App. 607, 616-17 , 622 A.2d 774 (1993) (citing Cassidy v. Bd. of Educ., 316 Md. 50, 57 , 557 A.2d 227 (1989)). See also Jenkins v. Cameron & Hornbostel, 91 Md.App. 316, 334-35 , 604 A.2d 506 , cert. denied, 327 Md. 218 , 608 A.2d 780 (1992); Lone v. Montgomery County, 85 Md.App. 477, 490-91 , 584 A.2d 142 (1991).

All three elements must be present for the final judgment in the first claim to bar the subsequent claim. Id. There is no dispute that the parties to both motions are identical. Surprisingly, appellants argue in their brief that “there is a substantive difference in [Federal Rule of Civil Procedure] 11 and Maryland Rule 1-341.

It is the incurrence of fees and costs which give rise to sanctions under the State Rule. It is the filing of an improper pleading which gives rise to sanctions under the Federal Rule.” Not surprisingly, appellees agree, albeit for a slightly different reason. Appellants make no assertion that the claims are identical and we hold that there was no final valid judgment on the merits. We explain.

Appellants argue in their brief that “the ruling on Appellees’ Motion for Sanctions was an adjudication on the merits as to sanctions. As such, the adequacy of the pleading and the propriety of sanctions was considered by and decided by the Federal Court.” The federal court’s order belies this assertion. In denying appellees’ motion for Rule 11 sanctions, Judge Garbis states: The Court has received the Defendants’ Motion for Sanctions and ... has considered it. In general, there would be a good reason presented for granting Rule 11 sanctions in a case in which a frivolous RICO claim ... was brought.

However, in the case, it is the Defendants and not the Plaintiff who filed the Complaint in the United States