Meyer v. Gyro Transport Systems, Inc.

Barnes, J., delivered the opinion of the Court. In this appeal, the appellant, Daniel H. Meyer, contends that the Circuit Court for Montgomery County (Shook — now DuFour, C. J.) erred in declining to vacate a judgment, by confession, entered against him and others on October 13, 1970, in the amount of $747,612.19, with interest from October 8, 1970, plus the sum of $101,-831.25 as attorney’s fees and $24.00 court costs. The original note, dated July 1, 1968, was for $750,-000.00, with interest at 6% per annum. Gyro Dynamics Corporation, Gordon I. Hyde, Albert Crane, Daniel H. Meyer and Charles Murano were makers, liable jointly and severally.

The appellee, Gyro Transport Systems, Inc. (Gyro Transport) was payee. There were provisions in the note for installment payments and for acceleration upon default. It was also provided that there be no penalty for prepayment prior to maturity. The final provision in the original note was: “In the event an action is brought by the holder of the note to collect any sums due under the said note the makers agree that in addition to the sums adjudged to be due, the makers agree to pay the reasonable costs of said action, including a reasonable attorney’s fee based upon the actual time required to be spent in reducing the said note to judgment at the average hourly rate charged for legal services as recommended by the Bar Association in the jurisdiction in which the said judgment is granted.” The original note was amended on February 19, 1970.

The written amendment indicates that the second installment of $200,000.00 on January 1, 1970, had not been paid as a consequence of which the payee of the original note had accelerated the payment of principal and in ⁵²¹ terest, and that in consideration of forbearance by the payee of commencing litigation to collect the note, the makers (except Albert Crane) and the endorser [Summers Gyro Corporation] would (1) pledge all of the stock of F.A.E. Instrument Corporation as additional security for the note, (2) pay the entire balance on October 1, 1970, whether or not the proposed underwriting and sale of stock of the F.A.E. Instrument Corporation was successful, and (3) would amend the original note “to a Confession of Judgment note in accordance and compliance with the laws of the State of Maryland.” The provision for Confession of Judgment is as follows: “The undersigned authorize and empower any attorney to appear in any Court of Record in the United States for the undersigned obligors, after the obligation becomes due, whether by due date or acceleration, and waive the issuing and service of process and confess a judgment against the undersigned as joint and several obligors in the amount then appearing due, together with costs of suit and reasonable attorneys’ fees. The undersigned hereby waive and release all errors and rights of exemption, appeal and stay of execution.” The amendment further provided that the note, as amended, should be “construed and enforced in accordance with the laws of the State of Maryland” and that “[e]xcept as specifically modified by this Amendment, the obligations and provisions of the original terms of the Note of July 1, 1968, remain unchanged.” The original note, as amended, not having been paid on October 1, 1970, Gyro Transport, the payee, filed its declaration and promissory note and amendment in the Circuit Court for Montgomery County as “Confessed Judgment No. 10605” with the following instruction to the Clerk: “Mr. Clerk, Please docket suit as above indicated, file narr ⁵²² and promissory note and amendment to note herewith, enter the appearance of Robert A. Klein attorney for Plaintiff and Mitchell S. Cutler, attorney for defendants, then enter judgment by confession against the defendants, jointly and severally, and in favor of plaintiff in the amount of $747,612.19 with $68,797.19 representing interest to October 8, 1970, and legal interest thereafter, plus the costs of this action and an attorney’s fee of $101,831.25, being 15% of the principal sum. /s/ Mitchell S. Cutler MITCHELL S. CUTLER Attorney-in-fact for Defendants 1120 Connecticut Ave., N. W. Washington, D. C. 20036 (202) 333-8700 /s/ Robert A. Klein ROBERT A. KLEIN Attorney for Plaintiff 1120 Connecticut Ave., N. W. Washington, D. C. 20036 (202) 333-8700” Mr. Cutler is a member of the same law firm as Mr. Klein. Mr. Klein made the affidavit in regard to the amount due on the note and interest “plus reasonable attorneys fees and costs” and stated that the defendants were not in the military service. Upon entry of the confessed judgment in the amounts set forth in the instruction to the Clerk, summons to the November return day was mailed, on October 13, 1970, by registered mail to Mr. Meyer, the appellant, in Salt Lake City, Utah.

This summons was delivered to Mr. Meyer on October 19, 1970, the return receipt being signed by his wife, Mrs. Meyer. Mr. Meyer on November 30, 1970—some 41 days after the receipt of the summons — sent a telegram to the Clerk, stating that an “Answer” had been mailed. The ⁵²³ “Answer” was received by the Clerk on December 2, 1970. Counsel for the plaintiff, Gyro Transport, treated the “Answer” as a motion to vacate the judgment, rather than as a plea, and on January 21, 1971, filed an Answer to that “Motion.” Later, Mr. Meyer engaged Maryland counsel and on March 10 filed a formal motion to vacate the judgment of October 13, 1970, for lack of jurisdiction over Mr. Meyer, or, in the alternative, to permit Mr. Meyer to file pleas and try the case on the merits.

Prior to filing the formal motion to vacate, Mr. Meyer on February 23 had filed his affidavit, with an exhibit, apparently in support of his “Answer” filed on December 2. After reciting that he is a resident of Salt Lake City, Utah, and giving his address, Mr. Meyer stated in his affidavit that, after receiving the summons on October 19, he consulted with Gordon I. Hyde, one of the defendants, president of Gyro Dynamics Corporation and a member of the Bar of Utah practicing in Salt Lake City, and pointed out to him that the summons specified that if the defendant, Meyer, had any valid objection or defense to the judgment, such objection or defense must be filed with the Clerk of the Circuit Court for Montgomery County within 30 days after service of the summons on him. After a series of conferences with Mr. Hyde during the latter part of October and the first part of November, Mr. Hyde told Mr. Meyer that Mr. Hyde had arranged with Raymond Dickey, a member of the law firm with whom Mr. Klein, the attorney of record for the plaintiff, is associated, that the time for the defendant “to answer or otherwise plead” had been extended to and including December 1, 1970. Mr. Meyer had been busily occupied with business affairs during November, had been out of the State of Utah for much of the time, and had relied entirely on the extension of time in preparing his Answer, which was forwarded to the Clerk by Registered mail on November 30, when Mr. Meyer also sent the Clerk a telegram that the Answer had been sent.

The affidavit then sets out his defense to the action on ⁵²⁴ the note which basically was a total failure of consideration, which was the subject matter of an action pending in the Superior Court of California, County of Los Angeles, the pleadings in the California case being attached and made a part of the affidavit. This defense, as well as a failure of the plaintiff to exhaust the collateral and an alleged agreement of Gyro Dynamics Corporation, with the plaintiff’s knowledge and consent, to indemnify Mr. Meyer and save him harmless, were alleged in the “Answer” filed on December 2 by Mr. Meyer. In the answer of Gyro Transport to the document of December 2, it was alleged that Gyro Transport was not required to exhaust the pledged security prior to proceeding against the makers; that there was sufficient consideration by the transfer of patents and forbearance to sue; that the California proceedings did not affect the validity of the note; and that any agreement which Mr. Meyer might have with any third person had no bearing on the claim against Mr. Meyer on the note, so that there being no meritorious defense to the action on the note, the judgment should be allowed to stand and Mr. Meyer should not be permitted to file his plea. At the hearing before the lower court on March 12, 1971, that court indicated that it had reviewed the papers in the case prior to the hearing and then heard argument by counsel for the respective parties.

Counsel for Mr. Meyer made the point that Mr. Cutler had signed the instructions to the Clerk as “Attorney-in-fact” for Mr. Meyer. This practice, Mr. Klein stated, was required by the Clerk of the Circuit Court for Montgomery County on the theory that the authorization in the note only appoints the person appearing as an attorney-in-fact and apparently not as an attorney-at-law. When the lower court was advised that Mr. Cutler, in any event, was a member of the Maryland Bar, this possible defense was rejected. It was also argued that it was within the lower court’s discretion to permit Mr. Meyer to plead.

Mr. Klein suggested that in view of the 30-day time limitation in Maryland Rule 645 b, the lower court might not ⁵²⁵ have jurisdiction to hear the case and the lower court indicated that it did not think it did but would take the matter under advisement, “look into it and see what it is.” On March 17, 1971, the lower court filed an order denying the motion of Mr. Meyer to vacate the judgment. A timely appeal was taken to this Court from that order. The trial court did not dictate to the court reporter the grounds of the decision as required by Rule 18 c. Three questions will be considered by us: (1) Did the lower court err in not finding that fraud, mistake or irregularity under Rule 625 existed in the obtention of the judgment?

(2) If there was no such error, was the entry of judgment for $101,831.25 as an attorney’s fee clearly in error ? (3) Is the Maryland confessed judgment law so restrictive and arbitrary as to amount to a taking of property without due process of law as prohibited by the Fourteenth Amendment to the Federal Constitution ? We will discuss these issues in the order indicated. (1) Rule 645 b provides, in part, that: “Immediately upon entering any such judgment [a judgment by confession in accordance with section a] the clerk shall issue a summons for the defendant notifying him of the entry of the judgment and requiring him to appear in the cause wherein it is entered within thirty days after the service upon him of the summons and show cause, if any he has, why the judgment should be vacated, opened or modified. * * * If no cause is shown in pursuance of the summons, the judgment shall be deemed to be final, to the same extent as a judgment entered after trial, but may be set aside or modified pursuant to ⁵²⁶ Rule 625 (Revisory Power of Court over Final Judgment).” Section c of Rule 645 in regard to a Nonresident Defendant provides: “If the affidavit filed in the proceedings shows that the defendant is not a resident of Maryland, the clerk shall send by registered mail to such defendant at his address indicated in the affidavit a summons similar to that prescribed in section b and it shall be the duty of the defendant to respond to such summons within thirty days after the receipt thereof; or the plaintiff may, if he so elects, provide for the personal service of the summons upon the defendant, wherever he may be found, and file in the proceedings an affidavit showing the time and place of such service.

Such personal service shall have the same effect as if the defendant had been summoned in the manner prescribed in section b.” Section f in regard to Extension of Time provides: “The court may, for good cause shown, extend the time for responding to any summons or notice issued pursuant to this Rule.” Rule 625 a provides: “For a period of thirty days after the entry of a judgment, or thereafter pursuant to motion filed within such period, the court shall have revisory power and control over such judgment. After the expiration of such period the court shall have revisory power and control over such judgment, only in case of fraud, mistake or irregularity.” There is no dispute that Mr. Meyer received the summons on October 19, 1970, and that he knew and under ⁵²⁷ stood from it that he must show cause why the confessed judgment should be vacated, opened or modified within 30 days from October 19. It is also undisputed, and the docket entries clearly show, that Mr. Meyer’s “Answer,” which in effect was a motion to vacate the judgment of October 13 and to have a hearing on the defenses raised in the “Answer,” was not filed until December 2, 1970, or 43 days after the receipt of the summons on October 19. The 30-day period during which the lower court had revisory power and control having expired, the revisory power and control of the lower court over the judgment shall, by Rule 625, only exist in case of “fraud, mistake or irregularity.” After a judgment has become enrolled 30 days from its entry, Rule 625 a embraces all of the power the court has to revise and control that judgment.

As we said in Eliason v. Commissioner of Personnel, 230 Md. 56, 59 , 185 A. 2d 390, 392 (1962): “Regardless of the distinction — generally based on equitable considerations — the courts in other jurisdictions draw between the judicial act of opening, striking out or setting aside a judgment, we think it is clear that the language of the Rule, which merely restates in substance the rule at common law, embraces all the power the courts of this State have to revise and control enrolled judgments and decrees.” (Emphasis in the original opinion.) See Tasea Investment Corp. v. Dale, 222 Md. 474 , 160 A. 2d 920 (1960) and Williams v. Snyder, 221 Md. 262 , 155 A. 2d 904 , 157 A. 2d 265 (1959). We now turn to the question, whether the lower court erred in not finding fraud, mistake or irregularity to exist. We find no error in this regard. Judge Singley, for the Court, in Grantham v. Board of County