Michael E. Marr, P.C. v. Langhoff

RODOWSKY, Judge. This case is a sequel to Moniodis v. Cook, 64 Md.App. 1 , 494 A.2d 212 , cert. denied, 304 Md. 631 , 500 A.2d 649 (1985) (Cook), an appeal from verdicts and judgments in boxcar figures for four plaintiffs. When the litigation was finally resolved very substantial fees were received by plaintiffs’ counsel. One of these counsel was Stephen D. Langhoff (Langhoff), formerly a shareholder in the professional services corporation now named Michael E. Marr, P.C.

(Marr P.C.), which initially had represented the plaintiffs in Cook. In this action Marr P.C. claims Langhoff’s share of the Cook fee, together with prejudgment interest, for a total claim in excess of $800,000. We shall state the facts only to the extent necessary to explain our ground of decision — that Langhoff did not owe a fiduciary duty to Marr P.C. at the time the Cook clients retained Langhoff directly. ⁶⁶⁰ In mid-1981 Langhoff’s former law partner withdrew from active practice. Michael E. Marr (Marr) and Richard D. Bennett (Bennett) were then practicing together as Marr & Bennett, P.A. As the result of an initial approach by Langhoff to Bennett, the three attorneys agreed to consolidate their practices.

The name of Marr & Bennett, P.A. was changed to Marr, Langhoff & Bennett, P.A. (ML & B), and the stock was reissued so that Marr and Langhoff each held 37.5%, and Bennett held 25%. Langhoff physically moved into quarters in downtown Baltimore City occupied by Marr and Bennett. The three attorneys agreed that fees collected after October 19, 1981, would be assets of ML & B, even if those fees represented work previously done (with two exceptions which are not presently material).

The written agreement for the consolidation of the law practices, the articles of incorporation, and the corporate by-laws did not contain any special provision dealing with the voluntary or involuntary termination of employment with the corporation of any of the three shareholders. An associate attorney, theretofore employed by Marr & Bennett, P.A., Joseph L. Evans (Evans), continued as an employee of ML & B. Evans was married to Nedda I. Pray (Pray), also an attorney, who at that time had several years of experience litigating as a prosecutor in Harford County. Prior to the formation of ML & B, one Marguerite Cook had been referred to Evans to represent her on an unemployment compensation claim against her former employer, Rite-Aid of Maryland, Inc. (Rite-Aid). As a result of that successful representation, Evans, as an employee of Marr & Bennett, P.A., was representing Marguerite Cook and three other former employees of Rite-Aid in any tort claims which they might have arising out of their dismissals by Rite-Aid, allegedly for their refusals to submit to polygraph tests.

On July 16, 1981, this Court had decided Adler v. American Standard Corp., 291 Md. 31 , 432 A.2d 464 (1981), which recognized for the first time in this State a tort of abusive discharge. After the formation of ML & B, the plan was for Langhoff and Evans to try Cook. ⁶⁶¹ In late November 1981 Evans was selected to become an Assistant Attorney General of Maryland. A condition of the appointment was that Evans would not engage in the private practice of law. Prior to Evans’s departure to public law practice all concerned agreed that Pray would work with Langhoff on the Cook cases, essentially as an independent contractor attorney or co-counsel.

She was expected to do half of the work and to contribute half of the advanced expenses. She would receive one-half of any fee realized on the contingent fee arrangement with the Cook clients. Evans left ML & B on December 10, 1981. Also during the late fall of 1981 serious differences arose between Marr and Langhoff over the finances of ML & B. These differences climaxed on December 29 when Marr, by letter to Langhoff, confirmed the position Marr had taken in a meeting the previous afternoon, namely, that Marr considered “the firm of [ML & B] to be dissolved,” and that Langhoff could “restructure the firm” by paying $50,000 no later than January 4, 1982.

Langhoff would not agree. It is undisputed that the effective date when Langhoff “would no longer be a member of the firm of [ML & B]” was January 1, 1982. 1 On or about December 31, 1981, Langhoff’s last day with ML & B, Bennett and Langhoff discussed ML & B’s work in progress for clients and physical assets. Apparently without difficulty, they reached a very simple agreement. Bennett testified, “I broached the topic, whatever is yours is yours, and whatever is ours is ours, except for the matter of Dr. Kidwell.

Steve [Langhoff] indicated that he was agreeing with that, basically.” Langhoff’s recollection of the conversation was similar. He said, “[W]e had a specific discussion regarding Dr. Kidwell but other than that ... we were ... going to go our separate ways and continue on or ⁶⁶² basically as we were before [the merger of the practices].” The Kidwell exception to the operative principle of the Langhoff-Bennett contract refers to a client produced by Langhoff for whom Bennett had successfully handled the matter. Langhoff did not physically vacate the law office premises but remained in the suite as a subtenant for slightly more than two months after January 1. Marr & Bennett renamed the professional services corporation “Marr & Bennett, P.A.” During this period the Cook file remained in Langhoff s portion of the premises, and neither Marr, nor Bennett, nor Langhoff did any work on Cook.

In late February Marr and Bennett took a joint vacation trip to the Bahamas. On that trip Bennett agreed with Marr to take primary responsibility for Cook, as between the two of them, and to work with Pray on the case. When Langhoff moved out of the Marr & Bennett, P.A. offices on March 6, 1982, he took the Cook file with him. His explanation of this conduct is that he intended to carry out whatever the clients’ wishes were concerning their representation.

Shortly thereafter Bennett sought to review the Cook file, searched for it, and realized that it was missing. Bennett telephoned Langhoff who acknowledged that he had the file. Marr then went to Langhoff’s office. Langhoff testified that he told Marr that Marr would have to talk to Evans.

Marr testified that he then went to see Evans who said that he had decided that the Cook clients would not be represented by Marr and Bennett, but by Langhoff. On Sunday, March 14, Evans arranged for the Cook clients to meet at Langhoff’s office. At that meeting Evans recommended that the clients be represented in the Rite-Aid litigation by Langhoff and Pray. The clients agreed.

There were some settlement discussions between Bennett and Langhoff in the summer of 1982 concerning the Marr and Bennett claim to any fee realized on Cook and concern ⁶⁶³ ing Langhoff s claim against Marr and Bennett for loans to the professional service corporation. Cook was tried in January 1984. While the appeal from the judgments was pending, the parties to the action before us entered into an agreement of February 28, 1985, tolling the running of the statute of limitations on the claim for the Cook fee. In January 1986, Rite-Aid paid the portion of the judgment against it which had been affirmed by the Court of Special Appeals in Cook, 64 Md.App. 1 , 494 A.2d 212 , and on which this Court had denied certiorari in December 1985, so that part of the contingent fee was paid to Langhoff and Pray at that time.

The instant action was filed January 30, 1986. The balance of the contingent fee on Cook was paid to Langhoff and Pray in the summer of 1986 when the claims of the other three plaintiffs in Cook which had been remanded for a new trial, were settled. Marr P.C.’s original complaint was filed against Langhoff, Pray and Evans. 2 It presented four legal theories of liability in separate counts: (I) tortious interference with the contracts of representation between Marr P.C. and the Cook plaintiffs; (II) conspiracy among the defendants to induce the breach of those contracts; (III) breach of fiduciary duty owed to Marr P.C.; and (IV) a count, labeled “assumpsit,” which alleged that the defendants “have received money which is rightfully that of [Marr P.C.] and should not be allowed to retain it.” Evans filed a counterclaim alleging defamation and seeking a promised bonus. An amended complaint dropped the claim against Pray.

While certain motions were being argued on the day trial on the merits was to begin, Marr P.C. reached a settlement with Evans, and the trial was postponed. Under the settlement Marr P.C. voluntarily dismissed with prejudice counts I, II and IV of the amended complaint as to both Evans and Langhoff. ⁶⁶⁴ In the original and amended complaints Marr P.C. had alleged that, factually, the breach of fiduciary duty consisted of soliciting clients of Marr P.C. and in removing the Cook file. After the settlement with Evans, in a second amended complaint, Marr P.C. alleged that, factually, the breach of fiduciary duty also included Langhoff s failure to pay to Marr P.C. in January and July 1986 “all of the attorneys’ fee collected” on Cook. Thus, the action was tried only as to Langhoff and only on the alleged tort of breach of fiduciary duty.

Marr P.C.’s legal argument in support of its breach of fiduciary duty claim involved three steps. First, although ML & B was a professional services corporation, the plaintiff urged that the legal relationship between Marr, Langhoff and Bennett should be the same as between partners on dissolution of their partnership. Under Md.Code (1975, 1985 Repl.Vol.), § 9-101(e) of the Corporations and Associations Article (CA), “ ‘[dissolution’ means the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.” Secondly, during the winding up of the partnership business following dissolution partners continue to owe one another fiduciary duties with respect to the business of the dissolved partnership. In this respect Marr P.C. relied on Resnick v. Kaplan, 49 Md.App. 499 , 434 A.2d 582 (1981).

Thirdly, Marr P.C. viewed the violation of fiduciary duty as a tort, relying on Restatement (Second) of Torts § 874 (1977) (“One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation.”). The action was tried before a jury. At the conclusion of all of the evidence the trial court agreed with the plaintiff’s legal analysis and concluded that, subject only to certain special defenses, Langhoff was liable as a matter of law. The court viewed the decision of the Cook clients to be represented by Langhoff and Pray as immaterial to the relationship between Marr P.C. and Langhoff.

Thus, the ⁶⁶⁵ only factual questions submitted for determination by the jury related to Langhoff s special defenses of limitations, accord and satisfaction, and estoppel. The jury found against Langhoff on special issues relating to accord and satisfaction and estoppel, but the jury answered, “Yes,” to the following issue: “Did the plaintiff know, or by the exercise of reasonable care should plaintiff have known by February 28, 1982, that the defendant had the intent to take the Cook/Rite Aid cases away from the plaintiff?” Based upon the verdict, the circuit court directed entry of judgment in favor of Langhoff. Marr P.C. moved for judgment notwithstanding the verdict. The circuit court concluded that it had mistakenly submitted limitations to the jury.

Analogizing to James v. Weisheit, 279 Md. 41 , 367 A.2d 482 (1977), a deceit case, the court concluded as a matter of law that the cause of action for breach of fiduciary duty in the instant matter did not accrue until there was actual harm or compensable injury which the court placed as occurring well after February 28, 1982. Counsel for Langhoff then asked the court to credit against judgment for the plaintiff the 37.5% participation of Langhoff in the profits and losses of ML & B. The court would not do so for two reasons. First, the “partnership” share in profits and losses applied only to net figures, but the parties had not presented any evidence directed to establishing net figures. Secondly, under the LanghoffBennett contract, the Cook fee “belonged” to Marr & Bennett, P.A., so that Langhoff “voluntarily” worked on the case, and he must “accept the consequences of his conduct in so doing.” Judgment was entered in favor of Marr P.C. for $812,027.22.

Langhoff appealed to the Court of Special Appeals. Of the many issues presented, the intermediate appellate court found it necessary to decide two. Langhoff v. Michael E. Marr, P.C., 81 Md.App. 438 , 568 A.2d 844 (1990). Langhoff ⁶⁶⁶ argued that the circuit court had avoided the effect of the jury verdict on limitations by focusing on Langhoff s failure to remit the legal fee upon his receipt of it.

What Marr P.C. had alleged was a tortious breach of fiduciary duty was, Langhoff contended, simply the claim for money had and received, previously asserted in count IV, which the plaintiff had dismissed with prejudice as part of the settlement with Evans. The Court of Special Appeals held that the assumpsit count and the claim of tortious breach of fiduciary duty were separate causes of action. Langhoff also argued that the circuit court had erred by applying the law applicable to partnerships in dissolution to the relationship between the corporation, Langhoff and the other stockholders. Langhoff urged that principles governing corporations should apply.

Citing Maryland Metals, Inc. v. Metzner, 282 Md. 31 , 382 A.2d 564 (1978), Langhoff contended that he was free to compete fairly with the corporation after his employment by it was terminated, and that he had competed fairly because the clients’ choice controlled. He submitted that the clients had chosen to be represented by him and by Pray, as recommended by Evans in whom the clients had great confidence. The Court of Special Appeals concluded that the corporate model applied to the relationships and reversed. But that court then remanded for a determination of whether Langhoff owed post-termination of employment fiduciary duties to Marr P.C., considered as a corporation.

We granted cross-petitions for certiorari. We shall assume, without deciding, that the Court of Special Appeals correctly concluded that the dismissal with prejudice of the assumpsit count of the complaint did not preclude Marr P.C. from proceeding on a tort theory of the case. We shall also assume, without deciding, that the dismissal with prejudice of the assumpsit count did not bar that claim, asserted under the tort count,