Pearlstein v. Maryland Deposit Insurance Fund

¹⁰ BISHOP, Judge. The appellants, Allan and Rosemary Pearlstein, appeal from a judgment of the Circuit Court for Baltimore City (Judge Edward J. Angeletti presiding), denying their Motion to Enforce Settlement against the appellee, Maryland Deposit Insurance Fund Corporation (“MDIF”). FACTS On July 31, 1985, MDIF, as conservator of Old Court Savings and Loan, Inc., (“Old Court”), filed a complaint in the Circuit Court for Baltimore City against all officers and directors of Old Court, including Allan Pearlstein as de facto director, and both Mr. and Mrs. Pearlstein as partners in various Old Court affiliates. The complaint charged all defendants with, inter alia, fraudulent misappropriation of Old Court funds, and breach of fiduciary duty to the corporation.

Appellee requested compensatory and punitive damages, and also moved for an interlocutory order enjoining all defendants from transferring or otherwise encumbering any assets of Old Court or Old Court affiliates. In 1986, in meetings and through written correspondence, the parties began serious settlement negotiations. On December 22, 1986, MDIF sent a letter to appellants which summarized the basic terms of the proposed agreement as the parties understood it at that time. Some of the provisions of that letter follow: This letter sets forth the terms of the settlement agreement negotiated between MDIF and Mr. and Mrs. Pearl-stein.

It is understood, however, that formal settlement papers will be prepared and executed and submitted to Judge Kaplan 1 for the Court’s approval. This letter merely sets forth the basic terms of the agreement____ No money will be set aside to be used to pay present or contemplated attorneys fees. As Shale [Stiller, attorney ¹¹ for MDIF] stated in his letter of November 17, we believe that it would not be unfair to require Mr. Pearlstein to take any money which he requires for working capital or to pay expenses, including attorneys fees, out of Sylvania Shoe, or out of his salary____ As we discussed, the formal settlement papers will contain a number of additional terms typical of those which have been included in our settlement agreements with other defendants. Thus, for example, Mr. and Mrs. Pearlstein will provide detailed, updated financial information, including a complete schedule of all their assets, and will cooperate fully in assigning assets to MDIF.

Further, all parties will do all that is necessary to effectuate a final settlement as promptly as possible. Would you please transmit this letter to Mr. and Mrs. Pearlstein for their execution, and return the signed original to me as promptly as possible, (footnote added). Appellants never signed this letter. Moreover, notwithstanding the January 2, 1987 settlement conference before Judge Kaplan, the parties continued to draft conflicting versions of the proposed agreement, and to dispute several provisions within these drafts, as well as other matters.

A synopsis of the primary areas of disagreement over the settlement is as follows. First, MDIF insisted on including its version of paragraph 9 in the agreement. Its draft provided as follows: Continuing Access to Financial Records; Cash Payments Allan, Rosemary, and The Partnership agree to permit MDIF to inspect all of their financial records (and the financial records of any entity under their direct or indirect control) of any kind or nature for a period of three years after the date of this Agreement in order to verify that the warranties and representatives contained in this Agreement are true. [In addition, Allan agrees that if he is ever incarcerated, for a period of three years after he is ultimately released from the correctional system, he will permit MDIF to inspect all of his financial records (and ¹² the financial records of any entity under his direct or indirect control) of any kind or nature in order to verify that the warranties and representations contained in this Agreement are true. Allan and Rosemary also agree that for a minimum of three years after this Agreement is executed and extending until three years have elapsed after Allan is ultimately released from any correctional system, neither of them will receive or disburse any payment of cash in any transaction of more than Five Hundred Dollars ($500).] (emphasis added).

Appellants’ version of this paragraph stated in contrast: Continuing Access to Financial Records; Cash Payments. Upon reasonable notice to the Pearlstein Defendants and their attorneys, Allan, Rosemary and the Partnership agree to permit MDIF to inspect all of their personal financial records of any kind or nature for a period of one year after the date of this Agreement in order to verify that the warranties and representations contained in this Agreement are true, (emphasis added). Second, appellants wanted to pay legal fees for Mr. Pearlstein’s criminal trial from the attorney’s escrow account. 2 MDIF insisted that these fees come from either Mr. Pearlstein’s remaining interest in Sylvania Shoe Company or from his salary. Appellants nonetheless paid the fees from the escrow account.

MDIF contended that this payment violated what had been a “fundamental tenet of [the] settlement proposal for several months.” Third, MDIF initially agreed to allow Mr. Pearlstein to keep his interest in the Adams County Partnership, and requested an appraisal of all partnership properties. Upon receipt of the appraisal, MDIF noticed that certain partnership property had been excluded from it; MDIF requested ¹³ that appellants furnish the omitted information. Upon appellants’ failure to do so, and in response to several other of appellants’ actions which it found objectionable, MDIF retracted its agreement as regards Pearlstein’s partnership interest. Fourth, on August 25, 1987, appellants proposed new settlement terms to MDIF.

Pearlstein offered to assign his stock in Sylvania Shoe Company and his interest in Adams County Partnership, subject to MDIF’s signing an option to purchase which would give appellants a right to repurchase. MDIF promptly communicated its rejection of appellants’ offer, stating that the two properties in question should have been assigned to it as restitution, as it had proposed earlier in court. MDIF rejected the provision for repurchase and proposed different repurchase terms. On October 16, 1987, (nine months and 14 days after the alleged settlement date) appellants filed a Motion to Enforce Settlement Agreement, arguing essentially that an executory accord had been reached between the parties at the January 2, 1987 settlement conference, that the key terms of the agreement were stated in MDIF’s letter of December 22, 1986, and that MDIF had breached the agreement by refusing to allow Pearlstein to keep his Adams County realty as it originally agreed.

MDIF opposed the motion to enforce settlement. It asserted that the disagreements evidenced in the written correspondence between the parties following the conference established indisputably that there had been no settlement. MDIF also contended that the December 22 letter upon which appellants relied made clear that it was subject to the addition of other terms and to the execution of formal papers, and that they had themselves breached the terms of the letter by depleting the escrow account. At appellants’ request, on May 31, 1988, Judge Kaplan recused himself from deciding the motion to enforce settlement, and referred the matter to Judge Edward J. Angeletti for determination.

On June 8, 1988, appellants moved to ¹⁴ disqualify all judges of the Eighth Judicial Circuit (Baltimore City) from hearing the motion to enforce settlement. They argued that since Judge Kaplan, the Administrative Judge of the Eighth Circuit would be a witness concerning the January 2 settlement conference, any other judge in the circuit would be biased in favor of his testimony. Judge Angeletti denied the motion, stating: Judge Kaplan is not now, nor has he ever been, in the position of being a fact witness for either side in this proceeding____ Judge Kaplan will not be permitted to be called as a witness by either party in this matter. Judge Kaplan’s sole contribution to this particular motion is his statement that a settlement had “almost” been reached but that it had not been completed.

That statement very clearly is a statement of his legal opinion based on his knowledge of the entire subject matter. Under those circumstances, his opinion is absolutely and totally irrelevant as to whether or not there is in fact a settlement between the parties that is susceptible of enforcement. A hearing on appellants’ motion was held on June 21, 1988, before Judge Angeletti. The court allowed counsel to argue the motion.

Appellants’ counsel was also allowed to proffer the testimony of various potential witnesses who were present at the January 2 conference in order to prove that an agreement had been reached. The court also admitted into evidence all of the affidavits and documents previously filed by the parties. The court, however, refused to allow any witnesses to testify, or to allow counsel to reiterate arguments previously made: [COURT] On the issue of taking parol evidence, the court has some sixty documents which the court has reviewed very thoroughly, I might add. It is the court’s view that no parol evidence could conceivably begin to approach what counsel are alleging before the court.

Under those circumstances, the court will not permit the calling of witnesses in this motion. ¹⁵ I will be glad to hear any further arguments from either side in this case. I would ask counsel not to repeat the previous arguments they have already made to the court. The court concluded the hearing by denying the motion, as well as all other motions that appellants had filed. The court specifically found that no contract had been formed between the parties and that appellants could have indicated their intent to settle by signing MDIF’s letter of December 2, 1986, which they did not sign.

This appeal followed. ISSUES I. Whether the trial court committed reversible error by denying appellants a plenary hearing on their motion to enforce settlement.

II

Whether the trial court erred in denying appellants’ motion to recuse all judges of the Eighth Judicial Circuit from the hearing on the motion to enforce settlement. I. THE HEARING ISSUE In Litzenberg v. Litzenberg, 57 Md.App. 303 , 469 A.2d 1279 , cert. denied, 300 Md. 89 , 475 A.2d 1201 (1984), appeal after remand, 307 Md. 408 , 514 A.2d 476 (1986), a case also involving a motion to enforce a settlement agreement, we said: It is now well established that the trial court has power to summarily enforce on motion a settlement agreement entered into by the litigants while the litigation is pending before it. Quite obviously, so simple and speedy a remedy serves well the policy favoring compromise, which in turn has made a major contribution to its popularity. Yet it is apparent that the summary procedure for enforcement of unperformed settlement contracts is not a panacea for the myriad types of problems that may arise.

The summary procedure is admirably suited to situations where, for example, a binding settlement bargain is con ¹⁶ ceded or shown, and the excuse for nonperformance is comparatively unsubstantial. On the other hand, it is ill-suited to situations presenting complex factual issues related either to the formation or the consummation of the contract, which only testimonial exploration in a more plenary proceeding is apt to satisfactorily resolve. We commend the summary practice for use in connection with problems capable of precise resolution without attendant hazard to the interests of the parties. At the same time, it is evident that beyond that point the convenience of the summary procedure must yield to the exigences of safeguarding all legally protected rights that are involved. [S]ummary enforcement of settlement agreements is most appropriate ‘where there is no factual dispute and no legal defense to enforcement.’ (citations omitted). 57 Md.App. at 311-12 , 469 A.2d 1279 (quoting Autera v. Robinson, 419 F.2d 1197 , 1200 & n. 11 (D.C.Cir.1969).

In Litzenberg , as in this case, the appellant alleged that an executory contract had been orally formed with the appellee as the result of a court hearing.