Mattvidi Associates Ltd. Partnership v. Nationsbank of Virginia, N.A.

⁷⁵ MOTZ, Judge. This is an appeal from the award of a large judgment by the Circuit Court for Montgomery County (McGuckian, J.) in favor of a bank and against a borrower and the guarantors of a loan made by the bank. (i) On November 8, 1988, Sovran Bank, N.A. (predecessor in interest to appellee, NationsBank of Virginia, N.A.) agreed to lend appellant, Mattvidi Associates Limited Partnership, $4,750,000 for the purpose of constructing two buildings in Waldorf, Maryland; all outstanding principal was to be repaid by November 8, 1990.

The remaining appellants, Alan Landau, Peter Yeskel, Nathan and Pauline Wechsler, and various Wechsler trusts, guaranteed Mattvidi’s repayment of the loan. The project fell several months behind schedule and it was impossible for appellants to secure permanent financing and pay off the bank’s note when it matured on November 8, 1990. Appellants contacted the bank and indicated a desire to extend the loan. The bank and appellants negotiated as to terms of a loan extension during the fall and winter of 1990-1991.

On February 7, 1991, pursuant to a request by the bank, appellants articulated the terms of their pending loan extension application in a formal, written proposal. The bank did not accept appellants’ proposal; instead, the parties agreed on a different loan extension agreement, extending the loan until April 30, 1991. Another proposal was submitted by appellants for a further loan extension based on different terms; it was not accepted by the bank but discussions continued between the bank and appellants. On August 19, 1991, the bank and all appellants executed a Pre-Workout Agreement formally allowing negotiations to go forward.

In that document, appellants agreed, inter alia, “not to seek to admit as evidence, or as a basis for any claim against Lender, in any court of law ... any discussions undertaken ... pursuant to this letter agreement.” Negotiations did continue for a short time, but ultimately the ⁷⁶ bank gave notice of default in a letter dated September 20, 1991. Six weeks later, on November 4, 1991, the bank filed this action in the circuit court; the complaint was accompanied by a motion for summary judgment. On January 24, 1992, appellants filed an opposition to that motion, asserting: (1) that they needed discovery to verify the amount of their alleged debt; (2) that the late charge sought by the bank was an unenforceable penalty; and (3) that the bank’s claim for attorneys’ fees should be limited to those reasonably and actually incurred. Appellants simultaneously filed their answer, which asserted that the Complaint failed to state a claim upon which relief could be granted and included a Rule 2-323(d) general denial; it also restated their late charge and attorneys’ fees defenses.

Appellants moved for partial summary judgment on the late charges. On February 5,1992, the circuit court issued its trial date notice providing for: (1) the calendar call on March 24, 1993, (2) discovery to be concluded no later than 45 days prior to the calendar call or by February 7, 1993 and (3) trial to begin on April 5, 1993. In an attempt to further continuing workout discussions, the parties mutually agreed on numerous occasions between January 29, 1992 and November 18, 1992 to postpone the hearing on their motions for summary judgment and to delay responses to discovery. In early December, 1992, the bank stated its intention to decline appellants’ loan request and to prosecute this litigation; deposition notices were served by the bank, and it answered outstanding discovery requests propounded by appellants.

On December 23, 1992, new counsel (appellants’ third law firm) entered an appearance on behalf of appellants and moved for a continuance of the summary judgment hearing, which was then scheduled for January 14, 1993. New defense counsel asserted he needed time to assess additional defenses, and/or counterclaims, including those based on possible violations of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 -1691Í (“the ECOA”). The circuit court granted a continuance until February 23, 1993. ⁷⁷ On January 8, 1993, four days after securing this continuance, appellants served the bank with document requests to elicit the facts assertedly necessary to appellants’ defense and counterclaim theories. Although this document request required the bank to respond by a date after the discovery deadline, the bank did respond and produced 3500 pages of documents; the bank, however, withheld internal documents relating to the loan and appellants’ loan extension application, which appellants asserted they needed to develop their new defenses.

On February 16, 1993, appellants filed a supplemental memorandum in opposition to the bank’s motion for summary judgment; this was the first filing that set forth the basis of their additional defenses, including a defense based on the ECOA. On February 22, 1993, appellants moved for (1) another continuance of the summary judgment hearing, scheduled for the next day, February 23, (2) a continuance of the trial, scheduled for April 5, 1993, and (3) production of the bank’s internal documents. Appellants also filed a pleading entitled “Amended Answer and Counterclaim.” In fact, the answer itself was identical to that filed a year earlier on January 24, 1992; appended to the old answer was a new counterclaim, adding claims predicated on ECOA and fraud. All appellants’ motions were opposed by the bank and the bank filed a motion to strike the counterclaim.

The motion to continue the summary judgment hearing was denied and the hearing was held, as scheduled on the next day, February 23, 1993. At that hearing, the circuit court denied the bank’s motion to strike appellants’ supplemental memorandum in opposition to summary judgment. Instead, the court considered the arguments made in that supplemental memorandum along with all other summary judgment arguments and, ultimately, denied all summary judgment motions. On March 24, 1993, appellants’ motion to continue the trial was denied.

A week later, on March 30,1993, the circuit court granted in part appellants’ motion to compel, and directed the bank to produce some of its internal documents. The next ⁷⁸ day, March 31, 1993, the court granted the bank’s motion to strike appellants’ counterclaim. Appellants were granted leave to reassert those claims as affirmative defenses, if approved by the trial judge. Immediately prior to trial on April 5, 1993, appellant asked the trial judge (a different member of the circuit court) to reconsider the March 31, 1993 order to strike the appellants’ counterclaim, or, in the alternative, to grant appellants leave to file a true amended answer, which would have restated their ECOA and fraud counterclaims as affirmative defenses.

The trial court denied appellants’ motions. Trial commenced that afternoon. After a two and one-half day bench trial, Judge McGuckian found in favor of the bank and entered judgment against each of the appellants for $3,135,412.33 in principal, $519,290.26 in accrued interest through and including April 5, 1993, and late charges in the amount of $156,770.61. On May 13, 1993, the bank filed its application for attorneys’ fees, which appellants opposed.

On July 9, 1993, after a hearing on the application, the circuit court awarded the bank $97,212.90 in attorneys’ fees and $10,133.63 in related litigation expenses. Appellants noted an appeal on July 23, 1993. 1 Appellants raise seven questions before us: 1. Whether the lower court erred in striking appellants’ February 22, 1993 amended answer and counterclaim, ⁷⁹ the substance of which was communicated to the Bank more than three months before trial? 2. Whether the lower court erred in denying appellants’ April 5, 1993 request for leave to file an amended answer? 3.

Whether the lower court erred in precluding all testimony concerning the parties post-September 4, 1991 loan extension discussion pursuant to a Pre-Workout Agreement that was not supported by consideration? 4. Whether the lower court erred in admitting Nations-Bank’s computer-generated loan reconstruction, particularly without affording appellants an opportunity to review underlying source documents that were responsive to appellants’ long-standing discovery requests and present in the courtroom during trial? 5. Whether the lower court erred in failing to find that NationsBank breached its duty to mitigate the damages resulting from the Guarantor Appellants’ alleged breach of their Guaranty? 6. Whether the lower court erred in failing to find that the late charge provision contained in the Mattvidi Note was an unenforceable penalty? 7.

Whether the lower court erred in awarding Nations-Bank the full amount of requested attorneys’ fees and related litigation expenses because the Bank deliberately refused to supplement its responses to appellants’ long-standing discovery requests, and did not produce a critical witness at a July 9, 1993 hearing in order to frustrate appellants’ ability to test the merits of the Bank’s claim for attorneys’ fees? (ii) The first and second arguments urged by appellants—their principal arguments in this Court—are variations on a common theme, ie., the circuit court “abused its discretion” in not permitting them to file a counterclaim or an amended answer. Appellants maintain that the lower court erred first on March ⁸⁰ 31 in striking their counterclaim and second on April 5 in refusing to permit them to file an amended answer. Moreover, in their third argument, appellants assert that the trial court erred in refusing to admit certain evidence designed to prove the merits of the claims that formed the basis of the counterclaim and amended answer.

Because these three arguments are so interrelated, we discuss them together. As noted above, appellants concede that the circuit court’s decisions on these matters were discretionary. For example, they acknowledge that a circuit court’s decision to grant a motion to strike a counterclaim lies within this sound discretion and will be reversed on appeal only if that discretion has been abused. See Patapsco Assocs.

Ltd. Partnership v. Gurany, 80 Md.App. 200, 204 , 560 A.2d 611 (1989). Appellants, however, ignore some of the principles guiding this discretion. They ignore the fact that the rules provide that a party may raise a counterclaim as a matter of right only if it is filed within “30 days after the time for filing that party’s answer.” Md.Rule 2-331(d). They further ignore the mandate in the rules that if a counterclaim is filed more than thirty days after the filing of the answer, as it was here, and another party timely files a motion to strike it, as the bank did here, the motion to strike “shall ” be granted “unless there is a showing that the delay does not prejudice other parties to the action.” Id.

(emphasis added). Accordingly, contrary to the suggestions in appellants’ brief, it was not the bank’s burden to prove it was prejudiced by appellants’ delay in filing the counterclaim, but appellants’ burden to show that this delay did not prejudice the bank. Rather than acknowledging the relevant commands of Md.Rule 2-331, appellants focus solely on the rule generally governing amendments, Md.Rule 2-341, which is discussed within. Maryland Rule 2-341 is not applicable in determining if a late counterclaim will be permitted, because there is a specific direction in Md.Rule 2-331 governing late counterclaims.

The Minutes of the Rules Committee indicate that it carefully considered this matter and after much debate deter ⁸¹ mined that rather than putting the burden on the “person wishing to stop the counterclaim from being filed,” the “burden” should be “put on the counterclaiming party to show cause” for the late counterclaim. Court of Appeals Standing Committee on Rules of Practice and Procedure, Minutes of Meeting of January 4, 1980 at 7-8. The Committee recognized that this was different than the federal practice or the general policy on amendments. Id. at 7-8.

The Committee determined that in order to eliminate “unfairness” both to a “party brought in late” by a counterclaim and a party subjected to a “new law suit” by a late counterclaim “the burden” should be put “on the late filing party” to show why counterclaim should be permitted. Id. at 7, 9. The counterclaim here was not filed until February 22,1998, more than a year after the complaint and answer had been filed, fifteen days after the discovery deadline, and only six weeks prior to trial. The crux of the counterclaim was that in failing to notify appellants within thirty days of their loan application that the application was denied the bank violated the ECOA, committed intentional misrepresentations, and caused appellants “hundreds of thousands of dollars” in damages.

Appellants asserted (and continue to assert) that these causes of action “did not present [themselves] until the Bank finally turned down” their “loan request” in early December, 1992, and that they notified the bank in early January, 1993 that they were going to explore the possibility of raising these claims. For these reasons, appellants maintain that they did “everything in their power” to prevent prejudice to the bank and the circuit court’s decision to strike the counterclaim because of the “potential for ... prejudice” to the bank was error. Even if, as appellants argue, the counterclaim did not “present itself’ until December 1992, and appellants notified the bank of the potential counterclaim in January, 1993, we still could not conclude that the circuit court abused its discretion in granting the motion to strike the counterclaim. The counterclaim contained numerous factual allegations (38 numbered paragraphs) involving actions taken over 3 years ⁸² (1990, 1991, and 1992), three counts (two under the ECOA and one for intentional misrepresentations), asserting wrongdoing by the bank, its predecessor, Sovran Bank N.A., a related company, Armesco, and three different employees of these organizations.

The counterclaim contained a request for equitable and monetary relief, including punitive damages, and a demand for a jury trial. In moving to strike the counterclaim, the bank pointed out that its original complaint filed more than a year earlier stated a “straight-forward action ... to collect the amounts due and owing under a defaulted promissory note” and asserted that appellants’ counterclaims were “highly fact-intensive ... involving events and circumstances which have never been developed on the record of this case” and so it was “clearly prejudicial” to the bank to require it to litigate the counterclaim, which the appellants had not asserted until six weeks prior to trial when “the discovery period [had] expired.” In response, appellants did not demonstrate that the bank would not suffer this prejudice, but rather argued that: (1) the bank would suffer this prejudice in any event because appellants planned to “present the entire factual basis for their ECOA and bad faith defenses/claims” in asserting that the bank failed to mitigate its damages; 2 and (2) appellants’ prejudice, if required to forego the counterclaim, would be greater than the bank’s if the counterclaim were permitted. ⁸³ After considering memoranda and oral argument on this issue, the circuit court concluded: I think filing this counterclaim at this late date [February-22] when we have a trial set for ... April 5th ... just doesn’t put the plaintiff [the bank] in a position where the plaintiff can get out of harm’s way. I think there is a clear potential for clear prejudice here.

The circuit court did not abuse its discretion in granting the motion to strike appellants’ counterclaim. The simple fact is that appellants failed to make a “showing” that their delay in filing the counterclaims would not prejudice the bank. We then turn to the question of whether there was any error in the circuit court’s refusal to permit the amended answer. Amendments are to “be freely allowed when justice so permits,” Md.Rule 2-341 (c), and to be denied only if “prejudice to the opposing party or undue delay results.” Robertson v. Davis, 271 Md. 708, 710 , 319 A.2d 816 (1974).

Thus, a party opposing an amendment, unlike a party moving to strike a counterclaim, has the burden of demonstrating that the amendment will prejudice it or cause undue delay. The decision as to “whether to permit an amendment,” like that as to whether to permit an untimely counterclaim, “rests within the sound discretion of the trial judge, and this discretion is subject to review on appeal only for its abuse.” Id. While a party can freely amend a pleading at any time prior to 15 days before trial, “[w]ithin 15 days of a scheduled trial date” or thereafter, amendment can be “only by written consent of the adverse party or by leave of court.” Md.Rule 2-341(b) (emphasis added). Accordingly, a very late amendment—one filed within 15 days of trial—is never a matter of right.

When determining if a party opposing an amendment has met its burden of showing prejudice or undue delay, a court can, of course, consider when the amendment is requested. An amending party’s failure to act sooner is not, in and of itself, a sufficient reason for refusing to permit an amendment; however, a late amendment may well be more likely to prejudice the other party and cause undue delay. ⁸⁴ Here, appellants did not seek to file an amended answer until the day of trial. 3 The amended answer was essentially a recasting of the ECOA and fraud counterclaims into affirmative defenses. Thus, in the amended answer, appellants asserted, as they had in the counterclaim, that in failing to notify them within thirty days of their application for a loan extension that the application was denied, the bank violated the ECOA, committed intentional misrepresentations, and caused appellants “hundreds of thousands of dollars” in damages. Like the counterclaim, the amended answer contained numerous factual allegations (35 numbered paragraphs), involving actions taken over three years, asserting wrongdoing by the bank, its predecessor, a related company, and various individual employees of those entities.

The bank did not have an opportunity to file a pleading or memorandum opposing or consenting to the amended answer. In argument prior to trial, it is clear, however, that the bank vigorously opposed the amendment. The bank briefly reiterated its arguments made in opposing the counterclaim and then concluded that the affirmative defenses asserted by appellants appear in this case for the first time this morning. We think that it is a transparent effect, Your Honor, to delay this trial, to delay the day of judgment in this case, in a case which is a straightforward, not fact [intensive debt collection case, that is a suit on the note and guarantee.

We would ask that their motion be denied. Immediately thereafter, the court denied the appellants’ motion to amend. In light of the well established principle that “an amendment should never be allowed if prejudice to the opposing party or undue delay results,” Robertson, 271 Md. at 710 , 319 A.2d 816 , we cannot conclude that, under the facts of this case, the trial court abused its discretion in refusing to permit appellants to file a vastly amended answer ⁸⁵ on the day of trial. If the amendment had been permitted, it would have greatly prejudiced the bank unless the bank had been given the opportunity for additional discovery; necessary additional discovery would have delayed the trial, and, of course, resulted in much more complicated litigation.

The result reached here is entirely in accord with the relevant federal case law, for the federal appellate courts have consistently held that the refusal of a trial court to permit amendments asserting new claims, after the close of discovery or on the eve of trial, is not an abuse of discretion. See, e.g., Deasy v. Hill, 833 F.2d 38, 40-42 (4th Cir.1987) (motion seeking to assert new claim filed 9 months after action initiated and just before trial was properly denied), cert. denied, 485 U.S. 977 , 108 S.Ct. 1271 , 99 L.Ed.2d 483 (1988); Colmenares Vivas v. Sun Alliance Ins. Co., 807 F.2d 1102, 1108 (1st Cir.1986) (motion to amend seeking to assert new claim filed six days prior to trial properly denied); Ansam Assocs., Inc. v. Cola Petroleum, Ltd., 760 F.2d 442 , 446 (2d Cir.1985) (motion to amend seeking to assert new claims filed one year after action initiated and “after the time for discovery had run” properly denied); Gulf Oil Trading Co. v. M/V Caribe Mar, 757 F.2d 743, 752 (5th Cir.1985) (‘‘well within” trial court’s discretion to reject party’s attempt to amend “to interject a completely new theory of recovery into the case three weeks before trial”); Paschal v. Florida Pub. Employees Relations Comm’n, 666 F.2d 1381, 1384 (11th Cir.) (motion to amend seeking to assert new claim filed more than year after action initiated and after discovery had ended was properly denied even though there was no evidence of bad faith or dilatory motive by party seeking amendment), cert. denied, 457 U.S. 1109 , 102 S.Ct. 2911 , 73 L.Ed.2d 1319 (1982).

Finally, appellants’ claim that the trial court erred in refusing to admit certain evidence designed to prove the merits of their ECOA and fraud claims is meritless. At trial, appellants sought to ask some questions concerning the parties’ post-September 1991 loan extension discussions, to prove these ⁸⁶ claims. 4 The parties had executed a written Pre-Workout agreement on September 4, 1991, in which appellants agreed that they would “not seek to admit as evidence, or as a basis for any claim against Lender, in any court of law or equity ... any discussions undertaken ... pursuant to this letter agreement.” The bank objected to appellants’ questions on the basis that this evidence was barred by the terms of the PreWorkout Agreement. Although the circuit court did permit some testimony on post-September discussions, it refused to admit other testimony. Appellants claim that the lower court erred in refusing to permit all of the testimony, because the Pre-Workout Agreement “was not supported by any consideration” and so not “enforceable.” Appellants never made this argument below and so it is not properly before us.

See Md. Rule 8-131(a). Moreover, it seems to us that the bank’s agreement to continue to engage in workout discussions for many months after the loan was in default was sufficient consideration for appellants’ promise not to use those discussions in future litigation with the bank. In any event, in view of appellants’ assertion that “[n]ot withstanding” the trial court’s ruling on this evidence, they “still conclusively demonstrated at trial that the Bank violated the ECOA,” it is difficult to see what prejudice this ruling caused appellants, even if it had been erroneous. (iii) Appellants maintain that