Mi Bong Hong v. Chong Chin Cha

KEHOE, J. Mi Bong Hong (“Ms. Hong”) appeals a judgment entered against her in favor of Chong Chin Cha (“Ms. Cha”) by the Circuit Court for Anne Arundel County in the amount of $104,795.26. Background The instant appeal is the second time the parties’ case has been before this Court. The parties’ first appellate journey resulted in an unreported opinion by a panel of this Court authored by Judge Kenney. Mi Bong Hong v. Chong Chin Cha, et al., No. 2115, September Term, 2005 (filed June 18, 2007) (“Cha I ”).

We set forth the Cha I panel’s statement of facts, supplementing it as necessary. This case involves what the parties and witnesses refer to as a “Korean money club.” [1] According to the evidence at ⁵⁸⁷ trial, individuals purchase “shares” in such clubs for a predetermined amount payable in monthly installments. The members of the club meet once a month. At the ⁵⁸⁸ meeting, the organizer of the club, referred to in this case as the “president,” collects the members’ monthly installments and conducts a lottery.

The lottery “winner” is entitled to the monthly payments collected at the next month’s meeting. The meetings continue until each share owner has received a monthly payout. In some clubs, after a member has received a payout, they pay an additional monthly fee or, as referred to in this case, an “interest” payment, in addition to their regular monthly share payment. This additional payment is some incentive for members to receive a later payout.

Ms. Hong has organized numerous money clubs during the last thirty years. She testified that such clubs are a common means for Korean immigrants to borrow capital for business or personal investment. Ms. Cha has participated in several of Ms. Hong’s other money clubs. She also has borrowed money from Ms. Hongoutside of the money clubs.

Ms. Hong organized the money club giving rise to this case in 2000. When the club began in June 2000, Ms. Cha owed Ms. Hong $65,000 in personal loans. Ms. Cha joined the money club with the intent of using her payout to repay the debt to Ms. Hong. In this club, the monthly payment on a share was $2,000.

Payments ordinarily were made at the monthly meetings, but sometimes Ms. Hong would collect the payments from the members prior to the meeting. The parties disagree on whether interest payments were required. Ms. Hong, as the president, was entitled to the first payout. She, however, agreed that Ms. Cha would receive the first monthly payout to satisfy Ms. Cha’s debt to her.

Ms. Hong, in turn, would take Ms. Cha’s payout when Ms. Cha later won the monthly lottery. An October 20, 2000 memorandum written by Ms. Hong memorializes that, on June 26, 2000, Ms. Cha received a club payout of $86,000. From the $86,000, Ms. Cha paid Ms. Hong $65,000 in repayment of Ms. Cha’s debt. ⁵⁸⁹ This case centers around whether Ms. Cha purchased not one but two, shares in the club. She claims that not only did she pay for the share that yielded the initial payout that enabled her to repay her debt to Ms. Hong, but that she also paid for a second share.

The last monthly meeting of the club was in February 2004. Ms. Cha filed suit in March 2004, and an amended complaint in July 2004.u She alleged that she had paid $2,000 per month for the second share from June 2000 to February 2004, and that she expected to receive the February 2004 monthly payout. She averred that Ms. Hong refused to pay her the second payout because Ms. Cha’s sister owed Ms. Hong money. Ms. Cha pleaded four counts: (1) breach of express contract; (2) breach of implied contract; (3) breach of fiduciary duty; and (4) accounting.

She sought $104,000 in compensatory damages, and $500,000 in punitive damages. Id., slip op. at 3-5. After a four day bench trial, the circuit court issued a memorandum opinion and judgment. Preliminarily, the circuit court found that Ms. Hong entered into a separate contract with each club member for each share that the member purchased; that the terms of each contract were established by the club rules announced by Ms. Hong at the club’s initial meeting; and that Ms. Cha purchased two shares.

With regard to Ms. Cha’s contract for the second share, the circuit court found: The terms of the parties’ second contract provided that, if Ms. Cha made the monthly payments on her second share, she would receive the payout on that share in an amount equal to $2,000 times the number of club members. The contract also required Ms. Cha to pay $500 interest per month after she received the payout.... The evidence established that Ms. Cha breached the terms of that contract by failing to perform her duty to pay the monthly fee on her second share. Unfortunately, the parties’ contract (that is, Ms. Hong’s rules as modified) ⁵⁹⁰ did not specify the parties’ rights, duties, remedies or penalties in the event of Ms. Cha’s failure to make full and timely payments.

There was no evidence, however, that the contract allowed Ms. Hong to unilaterally refuse to make some kind of payout to Ms. Cha. The plaintiff made significant, if untimely and incomplete, payments to Ms. Hong toward the second share. Ms. Hong did not pay that money to another member and presumably kept it. Defendant will realize an unconscionable windfall and Ms. Cha will incur an unconscionable penalty if Defendant retains that money.

Because we cannot divine from the parties’ agreement, what remedy, if any, they provided for the circumstance, we cannot enter a judgment in favor of Ms. Cha under this breach of contract claim. Accordingly, Ms. Cha has no adequate remedy of law and, therefore, we consider her equity claim (accounting) below. (Emphasis added.) As to Count II (breach of implied contract), the circuit court found: Count II fails for the same reasons as ... Count I.....

Assuming there was an implied contract with Ms. Hong, there was no clear understanding of what would happen if Ms. Cha made some but not all payments under her second share. The circuit court-entered judgment on Ms. Hong’s behalf on the breach of fiduciary duty count. Finally, with regard to Count IV (accounting), the circuit court first found that the evidence established a confidential relationship between Ms. Hong and Ms. Cha. It concluded that it had the equitable power to decree the payment of the amount found to be due from the plaintiff to the defendant.

The circuit court continued: The evidence established that from June, 2000 to December, 2003, Ms. Cha paid $191,000.00 into the club. Of that amount, $107,000.00 was paid towards the first share; that is, $2,000.00 for the June 2000 meeting plus $2,500.00 for each of the 42 subsequent meetings. The remaining $84,000.00 represents payments for the second share. We ⁵⁹¹ will enter judgment in that amount as a fair and equitable remedy to plaintiffs claim for an accounting.

Although plaintiff claims that she is entitled also to the interest other club members paid before the December, 2000 meeting, she failed to carry her burden of proof on this claim. The evidence was simply too conflicting and did not demonstrate by a preponderance that club members received interest payments as part of the payout. We will, however, award pre-judgment interest calculated at the legal rate calculated from January 1, 2004, which comes to $8,400.00. (Emphasis added.) The circuit court entered judgment accordingly.

Ms. Hong appealed the court’s judgment, and Ms. Cha filed a cross-appeal. Ms. Hong raised two issues that are pertinent to the instant case: 1. Did the circuit court clearly err in finding that Ms. Cha had paid for a second “share” in the money club? 2. Did the circuit court err in ruling for Ms. Cha in her action for an accounting?

On cross-appeal, Ms. Cha presented two pertinent issues: 1. Did the circuit court err in failing to include the amount of $20,000.00 in interest payments made by club members in the judgment for [Ms. Cha]? 2. Did the circuit court err in entering judgment for [Ms. Hong] on [the contract counts] because the agreement between the parties did not specify a remedy for breach of contract? 2 The Cha I panel affirmed the circuit court’s disposition of the breach of fiduciary duty counts. Id., slip op. at 41. ⁵⁹² With regard to the accounting claim, the panel held that a confidential relationship is not dependent upon the existence of a valid contract, id. at 34, and that “the evidence supported] the circuit court’s finding that Ms. Cha placed special confidence in Ms. Hong, and that a confidential relationship existed.” Id. at 35.

Judge Kenney explained: [A]n accounting “is a restitutionary remedy based upon avoiding unjust enrichment. In this sense, it reaches monies owed by a fiduciary or other wrongdoer, including profits produced by property which in equity and good conscience belonged to the plaintiff.” Slip Opinion 27, quoting J. Eichengrun, Remedying the Remedy of Accounting, 60 Ind. L.J. 463 (1985). However, the panel was unable to reconcile the circuit court’s finding, made in conjunction with Ms. Cha’s accounting claim, that she had made $84,000 in monthly payments on the second share with its finding, made in conjunction with the breach of contract claims, that the evidence established that Ms. Cha failed to perform her duty to make the monthly payments.

Similarly, the panel was unable to reconcile the circuit court’s conclusion, made in conjunction with its ruling on the accounting claim, that “[t]he evidence was simply too conflicting and did not demonstrate by a preponderance that club members received interest payments” with the circuit court’s finding, made in conjunction with its ruling on the contract claims, that the contracts obligated members to pay interest after they had received their payouts. The Cha I panel vacated the circuit court’s judgment as to the express and implied contract counts and the accounting count and remanded the case to the circuit court so that it could resolve these inconsistencies. Id., slip op. at 41. On October 26, 2007, the circuit court conducted a hearing on remand.

The circuit court issued a memorandum opinion on April 16, 2008, to “modiffy], clarifiy] and supplement ]” its previous opinion. The circuit court stated that Ms. Cha purchased two shares in a money club operated by Ms. Hong. The circuit court addressed the inconsistency in its previous ⁵⁹³ findings with regard to the obligation of club members to pay interest: A preponderance of the evidence demonstrated that Club members were required to make monthly $500.00 “interest” payments after receiving a payout. Those payments were in addition to the regular payments of $2,000.00.

With regard to the second share, the court found: Ms. Cha made undesignated payments totaling $84,000.00 to Ms. Hong. There was no understanding between the parties as to which of Ms. Cha’s various payments was intended to constitute the $2,000.00 payments and what, if any, constituted $500.00 interest payments. However, it is sufficient for purposes of the judgment we enter herewith to find, as we do, that Ms. Cha’s undesignated payments totaled $84,000.00. The circuit court stated that “it is apparent that there was simply no binding contract between the parties.” Further, the circuit court stated: Assuming arguendo that the parties entered into a contract, express or implied, Ms. Cha’s failure to make timely and complete payments constituted a material breach of that contract.

The club members were entitled to receive their payout when the monthly lottery drawing occurred. The success of the Club depended upon each participant to pay his/her installment at or before the drawing. Ms. Cha’s failure to make timely payments placed the success of the club at risk and exposed its members to financial loss. The circuit court reiterated its finding that Ms. Cha did not have a remedy arising out of express or implied contract.

Accordingly, the circuit court once again entered judgments in favor of Ms. Hong on Counts I and II of the amended complaint. With regard to the accounting claim, the circuit court found that Ms. Hong had served as “ ‘[president’ of several money clubs over three decades, determining their rules, collecting member’s payments, conducting the lotteries and distributing ⁵⁹⁴ the payouts. Indeed, she operates as a private bank in the Korean community.” It said: The parties had a confidential relationship in which Ms. Cha placed special confidence in Ms. Hong, who was significantly more sophisticated than Ms. Cha. Ms. Hong had previously loaned significant amounts of money to Ms. Cha, allowed her to participate in the money clubs, not only for Ms. Cha’s benefit but also as a means to reimburse these loans to Hong.

Ms. Cha, in turn, placed her confidence in Ms. Hong and reasonably presumed that Ms. Hong would not act inconsistently with her interest. With regard to the money club before us, Ms. Hong kept no reliable or readily available record of the $84,000.00 she collected from Ms. Cha (or similar payments collected from the other members) during the many months that the club was active. Ms. Hong withheld monies from Ms. Cha’s payouts to satisfy unrelated debts owed to Ms. Hong by Ms. Cha and her sister. Ms. Hong kept no discernable record of: the date or amount of each payment made by Ms. Cha; the allocation of those payments to the first or second share; and the designation of those payments as regular or interest payments.

Ms. Hong also provided no receipts for payments made by Ms. Cha. We note that Ms. Hong determined the club rules (which she did not reduce to writing) and administered its assets (of which she distributed no periodic statement). The evidence demonstrated differences in members’ interpretations of their rights and duties. Perhaps more than other members, Ms. Cha relied upon the experience of Ms. Hong to treat her fairly.

Under those circumstances, grounds for an accounting claim were proven. 3 ⁵⁹⁵ The circuit court ruled that Ms. Cha was entitled to reimbursement of the $84,000.00 that she paid to Ms. Hong for the second share, together with pre-judgment interest totaling $20,795.26. The circuit court entered judgment accordingly and this appeal followed. Question Presented Appellant presents a single issue: Did the circuit court err in awarding judgment for Ms. Cha on the accounting claim in the full amount she claimed she paid for the second share where the court rejected the contract claims on the basis of its specific findings that Ms. Cha’s payments were “incomplete”, and that she “fail[ed] to perform her duty to pay the monthly fee on her second share”, and that assuming arguendo a contract existed, her “failure to make timely and complete payments constituted a material breach of that contract precluding her right to enforce its terms”? For the reasons discussed below, we find that the circuit court did not err. ⁵⁹⁶ Standard of Review We review the circuit court’s factual findings using a clearly erroneous standard.

Maryland Rule 8-131(c). As the Court of Appeals explained in Murphy v. 24th Street Cadillac Corp., 353 Md. 480, 497 , 727 A.2d 915 (1999): We have consistently interpreted the clearly erroneous