Old Frederick RD., LLC v. Wiseman

ZARNOCH, J. What started out as an everyday contract dispute turned into a bewildering contest involving two rival contracts, one representing the parties’ actual agreement and the other a fake created to benefit its maker. This tale of deception began when appellant Old Frederick Rd., LLC (the “LLC”), through its sole and managing member, appellant Vincent S. Serio, engaged appellee John H. Wiseman to manage the construction of a house on Old Frederick Road in Ellicott City. After finishing the project, Wiseman filed a claim in the Circuit Court for Howard County for money he contended was still owed under contract. Serio defended the suit with a second competing contract and argued that Wiseman already had been paid under that agreement.

The trial court was faced with deciding which contract represented the actual terms of the parties’ agreement. The court concluded that Serio’s document was the phony contract, which he created to try to avoid the terms of the real agreement. ⁵¹⁶ Wiseman prevailed on a request for a mechanic’s lien against the constructed property and on his contract claim against the LLC and Serio. Additionally, the court required the LLC and Serio to jointly and severally pay $13,393.30 in attorney’s fees because of Serio’s frivolous defense against Wiseman’s claims. The LLC and Serio filed a limited appeal, asking this Court to find that the circuit court erred in its judgment for attorney’s fees against Serio in his individual capacity. 1 2 For the reasons set forth below, we affirm the court’s decision to hold Serio personally liable for the judgment awarding attorney’s fees.

FACTS AND LEGAL PROCEEDINGS Serio is the sole and managing member of Old Frederick Rd., LLC, which he apparently created to build and sell a single family home. The LLC planned for construction of the house located at 8906 Old Frederick Road in Ellicott City to begin sometime in July of 2009. At that time, Serio, as managing member of the LLC, entered into a contract with Wiseman for his services to manage the construction of the house. After the construction was completed, in August 2010, Wise-man filed a complaint in the circuit court.

He alleged that he ⁵¹⁷ was still owed $7,609.56. Wiseman first sued to establish and enforce a mechanic’s lien, for unjust enrichment, and for breach of contract. The mechanic’s lien was sought only against the LLC and the other two counts named the LLC and Serio. Serio answered the Complaint contending that Wiseman submitted a sham contract, and he attached to his Answer what he claimed was the true agreement.

Before the trial on the merits, Wiseman amended his Complaint twice. The final iteration contained four counts. He amended the mechanic’s lien action to add Serio as a party because he had become the property’s owner. 2 Wiseman also retained his breach of contract claim against Serio and the LLC. He further added a count against both parties for attorney’s fees under Md.Code (1974, 2010 RepLVol.), Real Property Article (“RP”), § 9-303 3 and a count for attorney’s fees against Serio under Md. Rule 1-341. 4 A bench trial was held in December 2011.

Wiseman introduced a copy of a contract and Serio introduced what he said were the two originals of a rival contract. Although Wiseman did not object to the admission of Serio’s contracts, Wiseman’s ⁵¹⁸ copy was entered into evidence over Serio’s objection that the contract was not an original. Each party contended his respective contract represented the agreement between the LLC and Wiseman. Suspiciously, the differences dealt almost exclusively with payment terms.

Both contracts were three-pages long. The first pages were identical except for the dates. Wiseman’s agreement was dated July 7 and Serio’s was July 16. The second page contained the payment terms.

The second page of Wiseman’s agreement read: ESTIMATE 4. The estimated total cost for the Builder/Consultant to perform the above delineated work will be $12,000.00. Upon the execution of this Agreement, a fee of $4,000.00 is required. Upon the issuance of a Howard County Framing inspection, another payment of $4,000.00 will become payable and due.

Upon the issuance of the Final Inspection and Use and Occupancy Permit from Howard County, a balance of $4,000.00 will become due and payable. 5. The Builder/Consultant had estimated the above fee based on an estimated building time of 90 work days from the time of the excavation of the foundation. 6. All permits and associated fees are the responsibility of the Owner. 7. All costs to purchase any materials and payment for the work performed for the Owner by any contractor, distributor, or engineer, but not limited to the aforementioned, are to be paid by the Owner.

The second page of the agreement that Serio presented to the court contained several differences. The following is a reproduction of the second page with the differences emphasized. ESTIMATE PAYMENT 4. The estimated total cost for the Builder/Consultant to perform the above delineated work will be $12J?00.00 ⁵¹⁹ $8,000.00.

Upon the execution of this Agreement, a fee of $4,000.00 is required. Upon the issuance of a Howard County Framing inspection, another final payment of $4,000.00 will become payable and due. Upon the issuance of the Final Inspection and Use and Occupancy Permit from Howard County, a balance of $4,000.00 will become due and payable. 5. The Builder/Consultant had estimated the above fee based on an estimated building time of 90 240 work days from the time of the excavation of the foundation. 6.

All permits and associated fees are the responsibility of the Owner. 7. All costs to purchase any materials and payment for the work performed for the Owner by any contractor, distributor, or engineer, but not limited to the aforementioned, are to be paid by the Owner. 8. The Builder/Consultant will NOT perform any labor nor provide any materials for this house, without a separate signed written Agreement with Owner, to do so. The third pages were simply signatures.

Wiseman testified that his signature on Serio’s contracts could have been his, however, Serio testified that he did not believe his signature on Wiseman’s contract was his. A handwriting expert testified that Serio’s signature, on Wiseman’s contract, was likely a simulation. As the fact-finder, the judge determined that the agreement between the parties was embodied in the contract that Wise-man introduced and that Serio had simply created his version of the contract to avoid the original agreement. Several pieces of evidence support the court’s decision.

Wiseman testified that normally he would charge around $30,000 for the type of job Serio asked him to perform. He also stated that the project requested typically would take around 90 days. Wiseman introduced contracts from some of his other jobs, which corroborated his testimony regarding his rate and time estimate. However, Wiseman also testified that he offered to perform the job for $15,000 because it was not a ⁵²⁰ difficult project, he could finish it quickly because it was close to his own house, and it was a good business investment for him because Serio owned many other properties.

Wiseman stated that eventually Serio negotiated the price to $12,000. Other witnesses testified that Serio routinely engaged in extensive negotiations over projects like this one. Wiseman introduced a preliminary version of the parties’ agreement, without objection. He explained that Serio would not accept the document because his company’s name was spelled incorrectly (Old Frederick Road, LLC instead of Old Frederick Rd., LLC).

Wiseman then produced a copy of the final agreement, which was exactly the same as the preliminary one, except that the company name was spelled correctly. The court admitted the copy into evidence over Serio’s objection. The contract’s terms for payment were consistent with the contracts for other jobs that Wiseman introduced into evidence. For example, he is paid a fee upfront, again upon framing and inspection, and a final payment when the job is complete.

Furthermore, all the contracts Wiseman introduced contained a clause that he would be reimbursed if he paid subcontractors. Wiseman testified that he kept Serio updated on what he had paid and how much so that he could be reimbursed. The contract date, July 7, also corresponds with evidence that Wiseman introduced showing that he had taken steps to begin the project at least by July 13. Although Wiseman’s contract estimated that the project would be completed within 90 days, testimony from Wiseman and other subcontractors revealed that Serio delayed the project because he was constantly trying to renegotiate contracts with the subcontractors.

Serio introduced his competing contract into evidence. The court found Serio’s contract was a fake for several reasons. For one, it was dated July 16, which is after Wiseman started doing work under the contract on July 13. The time-frame was also curious.

It provided that the project would take 240 ⁵²¹ days, which was inconsistent with Wiseman’s typical estimate for similar projects. The heading of the payment terms section was also unusual. Serio’s contract titled the section “payment” instead of “estimate,” which was inconsistent with all of Wiseman’s other form contracts introduced into evidence. The word “payment” supported Serio’s theory that Wise-man had been paid in full under the contract.

As for price, Serio testified that he and Wiseman immediately agreed on $8,000, but this was out of sync with Serio’s proclivity to negotiate. That price was also lower than both the industry standard and Wiseman’s ordinary price for a project that would take 240 days to complete. The reimbursement clause of Serio’s agreement was inconsistent with other evidence. It read that Wiseman would not perform any labor nor provide any materials for the house without a separate signed agreement with the owner.

The court determined that this provision was contrary to Wiseman’s typical practice, as explained by his testimony and his contracts for other similar projects, to provide the materials and be reimbursed. Serio’s testimony that he had possession of the two originals also was problematic. Serio testified that he came into possession of both originals when Wiseman gave the second one to him accidentally with the mechanic’s lien notice. The court found this an unlikely scenario because Wiseman had filed his differing version of the contract with the court at the same time he served Serio with the notice.

It was unlikely that he would have given Serio one version of a contract and the court another. Serio also testified that he was having some financial problems toward the end of construction. Even at the time of the trial, at least one other subcontractor still had not been paid. He testified that he really needed to sell the house.

Given the totality of the evidence, the court determined that Serio created the contract after the fact to avoid paying Wiseman the agreed upon price and to avoid having a mechanic’s lien placed on the property. ⁵²² Accepting Wiseman’s contract as the parties’ true agreement, the court granted the mechanic’s lien on the property in the amount of $7,609.56 and found that amount to constitute the damages for the breach of contract action. The court arrived at this number by finding that Wiseman had been paid $8,000 of the base contract price and was still owed $4,000. Additionally, the contract provided that Wiseman would be reimbursed for certain supplies and $1,990 was still owed. Finally, labor was to be paid at a rate of $35 an hour and $1,619.45 was outstanding.

For a number of reasons not relevant to this appeal, the court pierced the corporate veil to also hold Serio, in addition to the LLC, jointly and severally liable for the breach of contract claim. The court also held Serio and the LLC jointly and severally liable for an award of attorney’s fees in the amount of $13,393.30. The court entertained two theories for holding Serio individually liable for this award. First, the court determined that attorney’s fees were proper under RP § 9-303, which permits a court to award attorney’s fees if it determines that an owner, contractor, or subcontractor had acted in bad faith in failing to pay undisputed amounts in certain construction contracts.

The court determined that Serio had acted in bad faith in creating a fake contract to try to avoid paying the undisputed contract price. Further, the court held that its piercing of the corporate veil to hold Serio liable for the construction contract also supported finding him personally liable for the attorney’s fees under RP § 9-303. Second, the court determined that the attorney’s fees award was also warranted under Md. Rule 1-341, which allows the court to order a party to pay attorney’s fees if the court finds that the conduct of the party in maintaining or defending any proceeding was in bad faith or without substantial justification. The court determined that Serio acted in bad faith and without substantial justification in defending the mechanic’s lien and contract action by disputing Wiseman’s contract price and creating a fake contract.

However, the court did not make clear whether its finding against Serio under Md. Rule 1-341 was premised on piercing the corporate veil. The LLC ⁵²³ and Serio timely appealed to this Court. Additional facts will be discussed below. DISCUSSION I. Introduction Because it is not apparent from the briefs, we think it is important to note that Serio and Old Frederick Rd., LLC stated clearly at oral argument what portions of the court’s ruling they were and were not appealing.

They are not appealing the award of contract damages or the mechanic’s lien, which amounted to a total of $7,609.56. They explained that the property was sold to an unrelated purchaser. The mechanic’s lien was not discovered until after the purchase of the property. Thus, the purchaser’s title insurance company paid Wiseman to satisfy the lien.

However, Serio is still appealing the court’s award of attorney’s fees against him individually in the amount of $13,393.30. The court used two bases for this award: Md. Rule 1-341 and RP § 9-303(b). Although he disputes the propriety of his liability for the award under either theory, Serio acknowledged at oral argument that the circuit court needed to be correct on only one of the theories for the entire award to stand. For these reasons, we focus exclusively on Serio’s contention that the award was not sanctioned by Md. Rule 1-341.

II

Md. Rule 1-341 Serio argues that his case does not fall under Md. Rule 1-341 because he was not a proper party to any of the claims, and the court relied on inadmissible evidence in determining that he acted in bad faith or without substantial justification. A. Proper Party As Serio explains in his brief, he was a named party for the mechanic’s lien count as the owner of the property. He asserts that Md. Rule 1-341 requires the court to have in personam jurisdiction over a party, and the mechanic’s lien ⁵²⁴ was an in rem action. 5 Although a mechanic’s lien action is an in rem proceeding, Brendsel v. Winchester Const. Co., Inc., 162 Md.App. 558, 580-81 , 875 A.2d 789 (2005), we believe Md. Rule 1-341 applies to Serio’s actions.

The terms used in Md. Rule 1-341 are broad. The Rule encompasses any party and his or her attorney in a civil action. “Civil action” includes a mechanic’s lien claim. “Party” includes the owner of the subject property in a mechanic’s lien proceeding. The owner of the property is considered to be a necessary party, the defendant, in such an action. See Md. Rule 12-302(c). 6 In fact, due process requires that the owner of the property be given notice and an opportunity to be heard before a mechanic’s lien can come into effect.

Redland Genstar, Inc. v. Mahase, 155 Md.App. 72, 79 , 841 A.2d 413 (2004). Md. Rule 1-341 also permits the court to require the offending party’s attorney, over which the court would not have had in person-am jurisdiction, to pay reasonable attorney’s fees. Further, this mechanic’s lien action is a contested proceeding—a trial—not the mere filing of a lien. In addition, attorney’s fees were not sought as part of the mechanic’s lien case, but collaterally, as a result of Serio’s misconduct during the course of that proceeding.

Finally, to adopt Serio’s position would transform mechanic’s lien proceedings into a “wild west,” with no effective legal restraint on bad faith or unjustified litigative behavior. We find no such exemption in Rule 1- ⁵²⁵ 341 for mechanic’s lien cases. For these reasons, Serio was a proper party to the civil action in this case, making Md. Rule 1-341 applicable to him. See Winkler Const.

Co., Inc. v. Jerome, 355 Md. 231, 253 , 734 A.2d 212 (1999) (noting the application of Md. Rule 1-341 to the parties to a mechanic’s lien action). In his reply brief, Serio introduced another argument for why he was not a proper party to the mechanic’s lien action. He contends that only the owner of the subject property is a party. Wiseman filed his initial complaint in 2010, but Serio did not become the owner of the property until June 15, 2011, when the circuit court ruled that his deed purporting to transfer the property was a fraudulent conveyance that had no legal effect.

This creates another review problem because appellate courts “ordinarily will not consider an issue raised for the first time in a reply brief.”