Roebuck v. Steuart

POLLITT, Judge. This convoluted conglomeration of claims compels a certain circumlocution in its consideration. Our chore is complicated by counsel’s non-compliance with Rules 8-501(h) and (i) (formerly Rule 1028 a) concerning the Table of Contents and Format of the Record Extract. 1 Appellant and cross appellee, Janice L. Roebuck, and others, were sued in the Circuit Court for Prince George’s County as guarantors of the debts of Express Liquors, Inc., a bankrupt corporation, by six liquor suppliers of that corporation. Alleging that any liability on her part to those creditors was caused by the conduct of her attorney, R. ³⁰³ Calvert Steuart, appellee and cross appellant, Ms. Roebuck filed a third party claim against Steuart, demanding indemnification from Steuart for any judgment entered against her in favor of those creditors.

Rule 2-332(a). She added two other counts to her “Third Party Complaint,” alleging “legal malpractice” and “breach of fiduciary duty” against Steuart. In those counts, she sought compensatory and exemplary damages from Steuart based on (1) a judgment for $60,238.85 entered against her in the Bankruptcy Court for the District of Maryland in favor of Suburban Bank, another creditor of Express Liquors, Inc., and (2) the loss of $22,379.36, the proceeds from the sale of her home, which she had paid toward the debts of Express Liquors. Both of these losses she attributed to improper action or inaction by Steuart as her attorney.

Prior to trial, judgment was entered against Roebuck in favor of the liquor suppliers. Those claims are no longer a part of the case. At the conclusion of Roebuck’s case, the circuit court granted Steuart’s motion for judgment as to Roebuck’s indemnity claim on those judgments. The trial court also ruled that there was insufficient evidence to permit jury consideration of the issues of punitive damages, attorney’s fees or mental anguish.

The jury found, on special issues submitted, that Steuart’s malpractice caused Roebuck to lose the proceeds from the sale of her home and to suffer a judgment in favor of Suburban Bank in the amount of $60,000. The court entered judgment in favor of Roebuck against Steuart for $22,379.36, and further ordered that “Janice L. Roebuck may hereafter have judgment against R. Calvert Steuart for the amount (not to exceed Sixty Thousand Dollars ($60,000.00)) which she proves she has paid to Suburban Bank on its judgment against her, including interest on said judgment.” Both sides appealed. On her appeal, Roebuck raises the following issues: I. Did the trial court err in deciding that the verdict of $60,000 in favor of Roebuck as damages for the ³⁰⁴ adverse Suburban Bank judgment should be contingent upon her payment of that judgment?

II

Did the trial court err in deciding that Roebuck did not prove that she would have terminated her revocable liquor supplier guarantees if so advised, or what her liability would have been had she terminated the guarantees, and in therefore precluding the jury from considering the adverse liquor suppliers’ judgments as an element of Roebuck’s compensatory damage?

III

Did the trial court err in deciding that the facts showing attorney Steuart’s reckless disregard for his client’s legal rights were insufficient as a matter of law to support punitive damages, attorney’s fees or recovery for mental anguish? On his cross appeal, Steuart questions: A. Whether Roebuck’s claim for indemnity on the Suburban Bank judgment was barred by the doctrine of res judicata? B. Whether Roebuck’s claims as to the Suburban Bank judgment and the loss of the proceeds from the sale of her home were proper “Third Party” claims? C. Whether the trial court should have granted Steuart’s motion for judgment because: 1.

There was no evidence that Roebuck’s investment of the $22,379.36 was in reliance on Steuart’s statements or omissions? 2. There was no evidence that Steuart’s conduct was the proximate cause of the Suburban Bank judgment against Roebuck? We shall reverse the trial court’s order making the $60,-000 judgment contingent upon Roebuck’s payment of Suburban’s judgment against her, and affirm the judgment as to the remaining issues. Facts From April of 1973 until May of 1983 appellant, Janice L. Roebuck, was married to John Oliverio.

In May of 1976, ³⁰⁵ Oliverio and Mr. and Mrs. Howard Harrison purchased Express Liquors, Inc., becoming its sole stockholders. Appellee, R. Calvert Steuart, attorney, represented Oliverio in the purchase of the business, and thereafter represented Express Liquors, Inc., Oliverio and Roebuck in various corporate and personal legal matters. Roebuck testified that Steuart prepared her will, advised her in a child custody matter, represented her when she was personally sued, and generally fulfilled the role of her “personal attorney.” Although she was neither an officer nor a stockholder of Express, Roebuck joined with Oliverio and the Harrisons in the execution of guarantees to wholesale liquor suppliers to induce those suppliers to extend credit for inventory delivered to Express. Steuart was aware of the guarantees, which were revocable upon written notice.

While the specific chronology is not altogether clear, it appears that sometime in 1977 or 1978 the Harrisons’ stock was redeemed by Express. Shortly thereafter, Steuart purchased 45% of the stock and later acquired the remaining 5%. Thus, by early 1979, Oliverio and Steuart each was the owner of 50% of Express. Sometime during this period, Suburban Bank made loans to Express totaling $60,000.

These loans were personally guaranteed by Oliverio, Roebuck, and Mr. and Mrs. Steuart. Sometime in late 1980, Oliverio began to “float” or “kite” checks between two Express Liquors bank accounts at First American Bank and Equitable Bank. There was evidence from which the jury could find that this scheme was with the knowledge and consent of Steuart, who at that time was an owner of Express and was performing bookkeeping functions for the company. Oliverio testified that checks were written by him based on Steuart’s promises to “get the money” in time to cover them, which Steuart did not “get.” Roebuck had no knowledge of the financial situation at that time.

On 30 July 1981, First American Bank notified Oliverio that it was aware of his check kiting scheme and that Express was overdrawn by $87,000. Oliverio discussed the ³⁰⁶ matter with Steuart, who “explained” that the “kite” was actually only one-half that amount because it was between two banks. Oliverio then informed Roebuck of the situation. Oliverio and Roebuck were to settle for the sale of their jointly owned home on the next day, and expected to receive $44,000 from that settlement.

Oliverio asked Roebuck to agree to the application of the proceeds from that sale to save the business and to save him from going to prison. Roebuck tentatively agreed, with certain conditions, one of which was that her contribution of the proceeds of that sale would accomplish the intended result. Her subsequent discussions with Steuart, and his advice to her on that subject, are more fully set forth in the discussion of part C(l) of Steuart’s cross appeal, infra. Suffice it to say at this point that Steuart told Roebuck he was aware of the check kiting, that he had suggested it, and that $35,000 would “take care of the problem.” On 7 August 1981, Equitable Bank, which had discovered overdrafts in the Express Liquors account in the amount of $167,958.60, filed suit and attached the assets of Express Liquors, causing the business to be closed.

Under the local liquor laws, a closing for more than ten days would result in a forfeiture of the liquor license. The parties agreed to an extension and began negotiations toward settlement of the debt. Equitable agreed to consider releasing the attachment to permit a sale of Express and to consider financing part of the purchase by an acceptable owner. Steuart located a purchaser, Jin-Mar, Inc. et al., at a price of $256,537.12.

A contract was signed on or about 3 September 1981 between the buyers and Steuart and Oliverio as sellers. Available proceeds of the sale were to be applied to selected debts. One of the creditors to be satisfied was Suburban Bank, which held outstanding notes of Express, guaranteed by Steuart, Oliverio and Roebuck, approximating $60,000. Suburban agreed to accept $20,000 cash and a note from the buyers for $40,238.85.

This new note was guaranteed by Steuart but not by Roebuck. ³⁰⁷ In December of 1981, Express Liquors, Inc., was placed in involuntary bankruptcy. The trustee in the bankruptcy case instituted proceedings in the bankruptcy court to avoid the sale and to recover the proceeds paid to Equitable and Suburban. The bankruptcy court, among other things, held that the trustee could recover from Suburban the $20,000 cash and the note for $40,238.85 as avoidable preferences. That court held the note from Jin-Mar, Inc., guaranteed by Steuart, was void and, therefore, the original notes, guaranteed by Steuart, Oliverio and Roebuck, were reinstated.

The court further found that Steuart’s guarantee of the new note was a novation, releasing him from the original guaranty, but entered judgment in favor of Suburban against Roebuck in the amount of $60,238.85, based on her guaranty of the original notes. No part of this judgment has been paid. Further facts will be supplied as necessary in the discussion of the various issues. I The trial court erred in making Roebuck’s $60,000 judgment against Steuart contingent upon her payment of the Suburban Bank judgment. 2 The resolution of this question depends upon whether the “judgment rule” or the “prepayment rule” applies to this case.

That question usually arises in actions on indemnity contracts. As explained by Judge Smith for the Court of Appeals in Levin v. Friedman, 271 Md. 438 , 317 A.2d 831 (1974), if the contract is an “indemnity against liability,” recovery from the indemnitor is allowed when judgment is entered against the indemnitee, even though it ³⁰⁸ has not been paid, (the judgment rule), but if the contract is an “indemnity against loss or damage” (strict indemnity), the indemnitee cannot recover from the indemnitor until payment is made or he has otherwise suffered actual loss or damage (the prepayment rule). Obviously, this case is not a suit on an indemnity contract and such cases are inapposite. Equally inapplicable is Baltimore County v. Stitzel, 26 Md.App. 175, 184-85 , 337 A.2d 721, 727 , cert. denied, 275 Md. 745 (1975), cited by appellee, where this Court, citing provisions of The Uniform Contribution Among Tort-Feasors Act (Maryland Code (1957, 1986 Repl.Vol., 1987 Cum.

Supp.), Art. 50, §§ 16-22), held that “[a] joint tort-feasor is not entitled to a money judgment for contribution until he has by payment discharged the common liability or has paid more than his pro rata share thereof.” See also Cotham and Maldonado v. Board, 260 Md. 556 , 273 A.2d 115 (1971); Southern Maryland Oil Company v. Texas Company, 203 F.Supp. 449 (D.Md.1962) and cases there cited. This is not a suit for contribution or indemnification among joint tort-feasors, who are identified as “two or more persons jointly or severally liable in tort for the same injury.” Maryland Code, Art. 50, § 16(a). This is a tort action for alleged professional malpractice. In Hernandez v. Great American Ins.

Co. of N.Y., 464 S.W.2d 91, 94 (Tex.1971), the Supreme Court of Texas said: This strict indemnity limitation is inconsistent with the law of tort liability where the injured party is entitled to recover, as nearly as possible, compensation for the damages he suffers. This includes his expenses, past and future, paid or unpaid, to which he has been or will be put as a consequence of the tort. He need not prove payment of his medical bills, for example, to include them within his damages for which the tortfeasor is liable. That case was a suit by the insured seeking reimbursement from his insurer for negligent failure to settle a claim within policy limits resulting in a judgment against the insured.

Observing that “[i]f the insured is too poor to pay the first judgment, it is the insurer responsible for the ³⁰⁹ judgment who escapes with what he should pay,” the Court held the judgment rule should prevail over the prepayment rule. Texas has also applied the judgment rule to cases of alleged malpractice by attorneys. In Montfort v. Jeter, 567 S.W.2d 498 (Tex.1978), a $40,000 judgment had been entered against the client due to the attorney’s malpractice. No part of the judgment had been paid and no execution thereof had been attempted.

The jury awarded $40,000 in compensatory damages and the Court of Civil Appeals reversed. Reversing the Court of Civil Appeals, the Supreme Court said that under the “judgment rule,” the existing judgment was evidence of actual damage and, therefore, the Court of Civil Appeals erred in holding there was no evidence to support the jury verdict. Similarly, the Supreme Court of Iowa, in Pickens, Barnes & Abernathy v. Heasley, 328 N.W.2d 524 (Iowa 1983), applied the “judgment rule” when the alleged malpractice is in negligently defending a case, which we find is analogous to the facts in the present case. The Iowa court said: The loss "actually sustained” from the adverse judgment in the prior case is the amount of that judgment including costs. 7 Am.Jur.2d Attorneys-at-Law, Sec. 226, at 270 (1980) (“Where an attorney is engaged to defend an action that is lost by his negligence, the amount of the judgment suffered by the client is a proper element of recovery in a malpractice proceeding against the attorney.”); Annot., 45 A.L.R. 2d 62 , 67 (1956).

Id. at 526. Virginia has taken a contrary position. In Allied Productions, Inc. v. Duesterdick, 217 Va. 763 , 232 S.E.2d 774 (1977), the Court held that when a client has suffered a judgment for money damages as the proximate result of his lawyer’s negligence, such judgment constitutes actual damages recoverable in a suit for legal malpractice only to the extent such judgment has been paid. The majority of the Court found such cases analogous to cases involving contribution among joint tort-feasors, citing to cases holding that ³¹⁰ a right of contribution arises only when one tort-feasor has paid or settled a claim for which other wrongdoers are also liable.

In a well-reasoned dissent, however, Justice Poff observed: If the client has no cause of action until he has paid the judgment against him, then the larger the judgment, the greater the client’s burden and the lawyer’s impunity; the greater the injury wrongfully inflicted, the less the liability of the wrongdoer. The rule would seem to penalize a lawyer for his negligence when it costs his client a modest judgment but grant him immunity when his negligence results in a judgment too large for the client to pay. Furthermore, when the judgment forces the client into a state of insolvency, the rule may prejudice not only the client but his general creditors as well. Finally, the rule the majority adopt will force the client to choose whether to postpone suit against his negligent lawyer until he has paid his judgment-creditor in full or to institute a separate suit against his lawyer for each partial payment he makes.

How the latter course might be affected by the doctrine of res judicata one can only wonder. Id. 232 S.E.2d at 777 . Not mentioned by Justice Poff, but an equally vexatious problem if the “prepayment rule” were adopted, is the question of when the statute of limitations would begin to run. In this respect, at least, we have some guidance from our own Court of Appeals.

In Leonhart v. Atkinson, 265 Md. 219 , 289 A.2d 1 (1972), and in Feldman v. Granger, 255 Md. 288 , 257 A.2d 421 (1969), professional malpractice actions against accountants for damages arising out of tax matters, the Court said the cause of action accrues when a deficiency assessment is received as that is when the wrong is discovered. Of particular significance is that, in both of those cases, the Court relied heavily on Atkins v. Crosland, 417 S.W.2d 150 (Tex.1967), the same case relied upon by the Texas Court in Hernandez v. Great American Insurance Co. of N.Y., supra, in choosing the “judgment rule” over ³¹¹ the “prepayment rule” in tort cases. While the time when the cause of action accrues is not necessarily the same as when the damages are fixed, in applying the “prepayment rule,” the Virginia Court held the complaint did not state a cause of action because the judgment had not been paid, that is, that no cause of action accrued. We think this is at variance with the Maryland cases above cited.

We have been referred to no Maryland case, and our own research has disclosed none, specifically addressing the “judgment rule” versus the “prepayment rule” in the context of legal malpractice cases. 3 The Court of Appeals has addressed it, however, in the context of alleged negligent and bad faith refusal to settle a claim against an insured. In Sweeten, Adm’r. v. Nat’l. Mutual, 233 Md. 52, 56 , 194 A.2d 817, 818 (1963), the issue before the Court was “whether the existence of an unpaid judgment will suffice to show injury and damage in the legal sense.” In adopting the view that payment is not a requisite to recovery, the Court rejected the appellee’s contention that the “essence of the legal injury is pecuniary loss to the plaintiff,” stating: Before payment the mere existence of an unsatisfied judgment may cause legal injury by loss or impairment of credit, and inability to obtain or retain an automobile operator’s license____ We are constrained to follow what we think is the great weight of authority at this time, in a question not previously decided in this State. Sweeten, supra, 233 Md. at 57 , 194 A.2d at 819 .

The Court went on to hold that the trial court should have overruled defendant’s demurrer which was based on the contention that “the declaration did not allege that the administrator ever paid, was able to pay, or was ever requested to pay, any part of the prior judgment, and that in the absence of any allegation of pecuniary damage, the ³¹² declaration did not state a cause of action.” Id. at 54 , 194 A.2d at 818 . The reasoning of the Court in Sweeten is equally applicable to professional malpractice cases. Suits for negligent and bad faith refusal to settle have many similarities to suits against negligent attorneys. Both deal with breaches of fiduciary duty and both concern tort liability arising out of a contractual relationship.

As to the cases from other jurisdictions, we find more persuasive those supporting the “judgment rule.” We hold, therefore, that the trial court erred in applying the “prepayment rule” to the judgment in this case. II There was no evidence upon which the jury could assess damages on Roebuck’s third party claim for the liquor suppliers’ judgments. Roebuck’s second assertion is that the trial court erred in removing from the jury’s consideration the liquor suppliers’ judgments as an element of her compensatory damage. As stated previously, Roebuck had executed guarantees to the liquor suppliers prior to the time Steuart became a partner in Express Liquors.

At trial, Roebuck presented evidence that in 1980, approximately one year after Steuart became a partner, Steuart suggested check-kiting as a means to obtain inventory for the business. On appeal, Roebuck contends that “[a]t the initiation of the check-kiting scheme, Steuart had an obligation as attorney for Roebuck to advise her that she had a right to terminate her guarantees with the liquor suppliers,” and that “[n]ot only did Steuart fail to advise her that she had the right to terminate these guarantees but, in addition, he caused her to incur liability by advising Express to buy liquor with money it did not have.” ³¹³ Roebuck contends 1) that the court erred “when it stated that Roebuck did not prove what she would have done in the event that Steuart had advised her of her right to terminate the revocable guarantees,” and 2) that the court erred in ruling that Roebuck failed to establish “what her liability would have been had she terminated the guarantees.” With regard to the first issue, Roebuck advances a reasonableness test, stating: “the issue is not what she would have done, but what a reasonable person would have done under the circumstances.” Steuart contends, however, that a subjective test is applicable in legal malpractice cases, with the “burden on the plaintiff/ client to produce evidence that he either ‘acted or chose not to act in reliance upon’ the attorney’s omissions.” Because we find that Roebuck failed to establish any damages, we need not address the applicable standard as to this issue. (That question will be discussed in connection with part C(2) of the cross appeal.) The liquor suppliers’ judgments against Roebuck were in the amount of $40,921.94. Roebuck contends that had Steuart properly informed her of the status of the business she would have terminated her guarantees and would have been liable only for the difference between the amount of Express Liquors’ debts to the suppliers at the time of the hypothetical termination and the $40,921.94 in judgments entered against her.

Assuming the validity of that position, this claim must fail because, as the trial judge found in granting Steuart’s motion, there was no evidence from which the jury could determine the difference in those figures. The debt at the time of the hypothetical termination very well could have been equal to the amount of the judgments against her. Roebuck’s evidence on that issue was pure speculation. She relied solely upon the testimony of Oliverio for determining the amount of debt outstanding at the time the check-kiting scheme began.

That testimony was: Q. How much money are we talking about or were you talking about at that time? ³¹⁴ A'. I can’t remember, sir. Q. Okay. Was it thousands of dollars, tens of thousands, hundreds?

A. Well, I’m sure it was several thousand. Yeah. The “several thousand” dollars mentioned by Oliverio was not the full amount of the indebtedness. It was an amount necessary to bring the accounts within two weeks of being current, so as to avoid being placed on a “cash on delivery” status by the suppliers.

Oliverio testified that the total indebtedness at any given time may have been as much as $40,000 to $45,000. We find the evidence to be totally devoid of any reasonable certainty. One may recover only those damages that are affirmatively proved with reasonable certainty, and said damages may not be based on speculation or conjecture. Empire Realty Co. v. Fleisher, 269 Md. 278 , 305 A.2d 144 (1973); Asibem Assoc., LTD. v. Rill, 264 Md. 272 , 286 A.2d 160 (1972).

Ill There was no evidence to support an award of punitive damages, attorney’s fees, or for mental anguish. Punitive Damages An action for professional malpractice against an attorney alleges the negligent breach of a contractual duty. Mumford v. Staton, Whaley & Price, 254 Md. 697 , 255 A.2d 359 (1969). In a tort action arising out of a contractual relationship, actual malice is a prerequisite to the recovery of punitive damages.

H & R Block, Inc. v. Testerman, 275 Md. 36 , 338 A.2d 48 (1975); New Summit Associates v. Nistle, 73 Md.App. 351 , 533 A.2d 1350 (1987). Actual malice is the “performance of an unlawful act, intentionally or wantonly, without legal justification or excuse but with an evil or rancorous motive influenced by hate; the purpose being to deliberately and wilfully injure the plaintiff.” Drug Fair v. Smith, 263 Md. 341, 352 , 283 A.2d 392 , 398 ³¹⁵ (1971); see also, H & R Block, supra. We agree with the trial court that there was no evidence of actual malice. The cases relied upon by appellant are inapposite.

General Motors Corp. v. Piskor, 277 Md. 165 , 352 A.2d 810 (1976), was a defamation case. Such cases have their own peculiar standards governing the presence or absence of malice which need not be discussed here. Finch v. Hughes Aircraft Co., 57 Md.App. 190 , 469 A.2d 867 , cert. denied, 300 Md. 88 , 475 A.2d 1200 (1984), cert. denied, 469 U.S. 1215 , 105 S.Ct. 1190 , 84 L.Ed.2d 336 (1985), and Thomassen Lincoln-Merc. v. Goldbaum, 45 Md.App. 297 , 413 A.2d 218 , cert. denied, 288 Md. 744 (1980), were actions based on fraud and deceit, which were neither alleged nor proven in this case. Attorney’s Fees Appellant acknowledges in her brief that, in the context of this case, “the facts necessary to support a claim for attorney’s fees are essentially the same as those necessary to recover punitive damages.” As we have found no evidence to support an award of punitive damages, the claim for attorney’s fees necessarily fails.

Mental Anguish The evidence of Roebuck’s “mental anguish”